Despite dueling director appointments and a lawsuit suggesting otherwise, Mick Mulvaney is the rightful temporary acting director of the Consumer Financial Protection Bureau, those in the banking industry say.
President Donald Trump appointed Mulvaney, director of the Office of Management and Budget, as acting director, following former CFPB Director Richard Cordray's Nov. 24 resignation.
Meanwhile, Cordray appointed Leandra English, most recently the CFPB's chief of staff, as acting director, igniting questions about who has the authority to grant temporary power. Industry lawyers expect the White House to prevail.
"The only fair reading is that the acting director is Mick Mulvaney," said Richard Gottlieb, a financial services partner at Manatt. "That may disappoint a number of folks who are consumer advocates, but it is the reality that there's really nothing in the Dodd-Frank Act that would overcome, what I think is very plain language, in the Federal Vacancies Reform Act.
Gottlieb said Cordray's appointment of English is "unfortunate" and "disruptive." He added it was a "clever maneuver," but that Cordray should have finished his term if he wanted the CFPB to maintain his vision.
According to social media posts, Mulvaney showed up for work Nov. 27. It is unclear if English was in the office Nov. 27, but according to reports, she sent staff an email signed "acting director."
Mulvaney issued a memo asking employees to "please disregard any instructions" from English in her "presumed capacity as acting director."
English sued Trump and Mulvaney in a lawsuit filed Nov. 26 at the U.S. District Court for the District of Columbia, stating she "has a clear legal entitlement to the position" until the Senate approves Cordray's replacement. She claimed Mulvaney's appointment violates the independence of the agency set up under the Dodd-Frank Act.
On Nov. 25, the Department of Justice issued a memo arguing the Vacancies Reform Act gives Trump the power to temporarily authorize an acting official to "perform the functions and duties" of the CFPB's director.
"I think ultimately Trump should win if he makes the correct argument," said Alan Kaplinsky, a partner for Ballard Spahr who watches the CFPB. "Based on the law, he should prevail."
"The right argument is a very simple argument, and that is the language of Dodd-Frank that says that in the absence or unavailabilty of the director, the deputy director shall be the acting director," he added. "But that means a temporary stasis, not a permanent stasis like a vacancy created by retirement or by death."
Gottlieb also said there "isn't anything" in Dodd Frank dealing with a resignation or vacancy scenario. "If they wanted to use that kind of language they would have," he said.
Isaac Boltansky, a policy analyst at Compass Point Research & Trading, emphasized in a report that while the shift in leadership at the CFPB and near-term questions around it create a level of "drama" that "multiplies the commentary and conjecture surrounding the situation," those in the banking industry should not "miss the forest for the trees."
The immediate "sensationalism" aside, Boltansky said, Republican President Donald Trump is positioned to nominate the bureau's next director, and Trump is pushing a pro-business agenda, including deregulation. "Under new leadership," the analyst said, "the CFPB's rulemaking efforts will grind to a halt and its enforcement agenda will dramatically diminish."
Charles Wendel, a former banker and president of advisory Financial Institutions Consulting Inc., agreed that is the likely outcome. And, he said that development would prove positive for a banking industry that has been hampered by heavy regulatory burdens in the aftermath of the financial crisis.
Wendel added that Cordray, while establishing the CFPB as what many view as a needed additional layer of bank oversight, quickly developed an "antagonistic" relationship with bank executives, one that fed a perception that most bankers are unscrupulous.
"That was unfortunate," Wendel said, "because the antagonism got so bad that the relationship with banks was simply unproductive."
"It is important to have a third party looking over the banks from consumers' point of view because the banks are not perfect. They do make mistakes," Wendel said, noting, for example, the retail sales scandal that has enshrouded Wells Fargo & Co. over the past year.
Rick Fischer, a senior partner with law firm Morrison and Foerster, said Mulvaney will definitely shake up the agency, and although it will "take a period of time," to sort out English's lawsuit, it will "become quite clear" that he is in charge.
Obrea Poindexter, a partner at the same firm, said Cordray's attempt to appoint English is similar to his approach in the CFPB's action against PHH Corp. She said both instances show he had "really broad authority," and that he used that authority "in a way that some would say is unconstitutional."
