Federal judge rules that Trump pick can remain at head of consumer watchdog agency

A federal judge on Tuesday refused to block President Trump’s move to appoint budget director Mick Mulvaney to serve as 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. Former CFPB litigation counsel Deepak Gupta, representing English, suggested she would continue to press the issue, leaving the six-year old agency and its 1,600 employees still 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

But with Mulvaney, for now at least, the tentative leader of the banking regulator, the White House cheered the decision.

“The Administration applauds the Court’s decision, which provides further support for the President’s rightful authority to designate Director Mulvaney as Acting Director of the CFPB,” said White House Principal deputy press secretary Raj Shah. “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.”

Leadership of the agency was thrown into doubt 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 side claimed the law was on their side and they were in charge.

In court, English’s attorney argued that the 2010 Dodd-Frank Act that 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 could not hold 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 Presidential 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.

Even before the decision, Mulvaney has been 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 says.

“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 made it harder for consumers to get loans. House Republicans approved legislation earlier 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 the White House could leave Mulvaney as acting director for months, or longer, they say, before nominating a permanent replacement.

Instead, they say, the Trump administration should be forced to nominate someone who would then 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 and 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 independent structure of the agency, which Democrats fought to keep under Cordray, also raises the stakes of who secures the acting director position. 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 be likely to keep the status quo, they say, Mulvaney could 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 dozen of financial institutions that are still 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 CFPB.

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.

The Washington Post’s Spencer S. Hsu contributed to this report.