The head of the CFBP, a federal judge once said, “enjoys more unilateral authority than any other officer in any of the three branches of the U.S. Government, other than the President.”
Mulvaney’s ability to wear both hats — director of the Office of Management and Budget and acting head of the CFPB — is one of the thorniest legal issues remaining in the battle for control of the consumer watchdog. As OMB director, he’s currently in the middle of efforts to broker a budget deal with Capitol Hill to avoid a partial government shutdown.
“You can’t do both, have a political job at the White House and be an independent regulator,” said Ed Mierzwinski, a senior fellow at U.S. PIRG, a public interest group, and director of its consumer program. “He would have to have a firewall in his head.”
The White House dismissed such concerns.
“He is serving as the law says. He can wear both hats because the law says he can,” said John Czwartacki, a spokesman for Mulvaney. “You can do both roles.”
Trump appointed Mulvaney to the temporary post last week after the agency’s former director, Richard Cordray, announced he was stepping down. But by then, Cordray had already named his former chief of staff, Leandra English, as acting director, setting up a legal battle that both sides acknowledge could linger for weeks or months.
The fight has revived questions about the power and structure of the CFPB. The agency was established in 2011 in the wake of the global financial crisis to serve as a watchdog for consumers against banks, mortgage and credit card companies, and other financial institutions. To stand up to those powerful interests, lawmakers gave the agency several measures of independence, including that it is run by a single director rather than a board or commission. The director serves a five-year term and can be fired only by the president and only for cause, not simply because the president wants to make a change. Any new permanent director must be confirmed by the Senate. The agency is also funded through the Federal Reserve rather than congressional appropriations.
“I’m learning about the powers I have as acting director. They would frighten most of you how little oversight Congress has over me,” Mulvaney told reporters Monday, his first day in the office.
The agency’s independence has been a matter of contention in the courts.
In 2015, the CFPB fined PHH Mortgage $109 million for allegedly giving kickbacks to mortgage insurers in exchange for customer referrals. The New Jersey company sued, saying the penalty showed the agency had too much unchecked authority. Last year, a federal appeals court sided with PHH and called the structure of the agency “unconstitutional.” That ruling was later vacated, and the matter is now before the U.S. Court of Appeals for the District of Columbia Circuit.
Meanwhile, Democrats and consumer advocates say Mulvaney’s unique status as a political appointee and an independent regulator is raising its own legal questions.
As head of the OMB, Mulvaney can be fired at will by the president, Georgetown Law professor Adam Levitin. But the president would need a good reason to fire the CFPB director. “Because Mulvaney is wearing both hats, that creates a conflict,” Levitin said.
“He doesn’t have job security at the OMB. Whereas the CFPB director is supposed to be insulated from that kind of political pressure,” he said.
Mulvaney said he is used to working long hours, having spent his earlier professional life running his family’s small businesses. He has said he would spend three days a week at the CFPB and three days at OMB. A federal judge this week said he did not see a problem with the arrangement but acknowledged that the case raises constitutional questions that must be settled.
“I think the judge felt that these are two different jobs and there is no evidence yet that somehow the two positions are getting merged together or that he [Mulvaney] is not treating them as separate jobs,” said Alan Kaplinsky, head of the consumer financial services group for the law firm Ballard Spahr, which represents financial companies before the CFPB.
Even when he is not in the CFPB office, Mulvaney will be running the office, Czwartacki said. “He is the embodiment of that director. He occupies both posts fully. That is the way it is,” he said. “No matter where he is, whether he is working six days a week or three days a week.”
One early sign of how Mulvaney plans to wield his power could be how he decides to handle the dozens of pending cases CFPB has against financial firms, some industry experts say. According to an internal email reviewed by The Washington Post, new enforcement cases have been put on hold so that Mulvaney can weigh in on them.
Mulvaney already announced a 30-day freeze on hiring and issuing rules. On enforcement issues, Czwartacki said, “things that are not already in the pipeline, there is a 30-day pause.”
“Things that have to enforced by statute will be enforced,” he said.
How Mulvaney decides to move forward on those cases “is going to be a very public indication of what new leadership wants to do,” said Ben Olson, an attorney at Buckley Sandler.
The current squabble should not overshadow the importance of the agency, said Olson, a former CFPB attorney.
“There are different, legitimate perspectives on the right way to protect consumers. We have these debates all the time,” Olson said. “As long as someone is in charge who believes in its [CFPB’s] fundamental mission, I think the agency will be fine. The mission is too important.
“There will be another scandal and another crisis, and the CFPB will be expected to react. Regardless of who is in charge, they will have to step up and act,” he said.