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Even before court victory, Trump’s pick to lead consumer watchdog began reshaping agency

White House budget director Mick Mulvaney on Nov. 27 announced a 30-day freeze on hiring and regulations at the Consumer Financial Protection Bureau. (Video: Reuters)
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A federal judge on Tuesday refused to block President Trump’s pick to be the temporary leader of the Consumer Financial Protection Bureau, denying a request by a high-ranking agency employee that she be put in charge instead.

In turning down Leandra English’s request for a temporary restraining order, U.S. District Judge Timothy J. Kelly acknowledged that the case raised constitutional questions, but he ruled that White House budget director Mick Mulvaney can remain acting CFPB director. Former CFPB litigation counsel Deepak Gupta, representing English, said they would weigh their options to resolve an issue they say has left the six-year old agency and its 1,600 employees in legal limbo.

“There needs to be an answer, and there needs to be a final answer. There needs to be a resolution of this cloud of impropriety hanging over the bureau,” Gupta told reporters after the hearing.

The Trump administration applauded the decision and said the ruling supports its contention that Mulvaney is the rightful acting director.

“It’s time for the Democrats to stop enabling this brazen political stunt by a rogue employee and allow Acting Director Mulvaney to continue the Bureau’s smooth transition into an agency that truly serves to help consumers,” White House spokesman Raj Shah said in a statement.

Trump, who has previously called the agency a “total disaster,” said on Twitter Tuesday evening: “Just won the lawsuit on leadership of Consumer Financial Protection Bureau, CFPB. A big win for the Consumer!”

Even before the decision, Mulvaney was moving aggressively to reshape an agency he has criticized in the past. On his first day in the office, he announced a 30-day freeze on the issuance of new rules and hiring. On Tuesday, he started a new Twitter account — @CFPBdirector — and posted a picture of himself at a desk with an American flag in the background. “Busy day at the @CFPB. Digging into the details,” the tweet said. On the agency’s website, Mulvaney is now listed as director with a note that says “Bio coming soon.”

“Anyone who thinks that a Trump administration CFPB would be the same as an Obama administration CFPB is simply being naive,” he told reporters Monday. “Elections have consequences at every agency, including the CFPB.”

That is probably just the beginning of the changes the CFPB could see under the Trump administration. Republicans and the banking industry have complained that the agency, created in reaction to the global financial crisis, lacks accountability and that its rulemaking has made it harder for consumers to get loans. House Republicans approved legislation this year that would strip the CFPB of many of its powers.

“I would expect a sea change,” said Alan Kaplinsky, head of the consumer financial services group for the law firm Ballard Spahr. It could be “a very significant shift in direction, but it won’t happen overnight.”

While Democrats and consumer groups acknowledge it is inevitable that a Trump nominee will lead the agency, they worry that the White House could leave Mulvaney as acting director for months, or longer, before nominating a permanent replacement.

Instead, they say, the Trump administration should be forced to nominate someone who would have to go through an extensive vetting and Senate confirmation process. Then there would be a better chance of securing a director who is less hostile toward the CFPB, they say.

“I do think there is a difference between Mulvaney, and the actions he would try to take as acting director, and a permanent, Senate-confirmed nominee,” said Lisa Donner, executive director of Americans for Financial Reform. “Some of the Trump nominees have been rejected.”

The tug-of-war over the leadership began last week after former CFPB director Richard Cordray resigned and promoted his chief of staff, English, who he said would run the department on an interim basis. Trump quickly appointed Mulvaney, a longtime critic of the bureau, to the job instead. Each camp claimed that the law was on their side and that they were in charge.

In court, English’s attorney argued that the 2010 Dodd-Frank Act, which established the agency after the financial crisis, laid out a specific plan of succession authorizing the deputy director to take over until a White House nominee is confirmed by the Senate. Also, they said, Mulvaney cannot wear two hats by simultaneously leading the independent financial regulator while serving as director the Office of Management and Budget.

Deputy Assistant Attorney General Brett Shumate argued that Trump had authority under an earlier law, the 1998 Federal Vacancies Reform Act, and cited supporting opinions by the Justice Department’s office of legal counsel and the CFPB’s general counsel.

Kelly, a Trump appointee who joined the federal court in Washington in September, sided with the Trump administration, allowing Mulvaney to stay in place for now. “On its face, the VRA does appear to apply to this situation,” Kelly ruled.

The independent structure of the agency, which Democrats fought to keep under Cordray, now gives Mulvaney a freer hand to operate. Instead of having to consult a multi-member board, the acting director can make many changes alone, industry experts and consumer advocates note. While English would have been likely to keep the status quo, they say, Mulvaney can now make significant changes without much oversight — such as abandoning investigations or shrinking the agency’s budget.

The CFPB, for example, has been working on rules for the past few years to address bank overdraft fees and the tactics used by debt collectors. It has also finalized regulations targeting the billions of dollars in fees collected by payday lenders offering high-cost, short-term loans. Those regulations don’t go into effect until 2019, giving Mulvaney time to alter the rules or get rid of them, consumer advocates say. “The payday rule is certainly at risk,” Donner said.

The agency has also announced cases against dozens of financial institutions that are pending in court or under investigation. Mulvaney or another Trump appointee could decide to abandon or rethink those efforts.

“I think he [Mulvaney] will take a fresh look at all of the CFPB pending investigations and decide whether or not CFPB should continue them,” said Kaplinsky, who has represented firms against the agency.

The industry is also looking toward more fundamental changes to the way the agency operates. The banking industry, for example, has been critical of a CFPB database of consumer complaints against financial institutions. They say the database sometimes includes incorrect information or unproven grievances. Community banks have rumbled that the agency unfairly hobbles them with the same regulatory burdens as their much larger competitors.

Before the Tuesday court hearing, protesters assembled outside the CFPB’s Washington offices, holding signs and chanting “Hey, hey, ho, ho, Mick Mulvaney has to go” as employees entered and exited the building. Sen. Elizabeth Warren (D-Mass.), who came up with the idea for the CFPB, told the crowd that the fight was not about politics. “This is about what is fair. This agency has forced the biggest banks in the country to return more than $12 billion directly to people they’ve cheated,” she said. “Some of those people were Democrats and some of those people were Republicans. It didn’t matter.”

Staff writer Spencer S. Hsu contributed to this report.