Doughnuts and a lawsuit: The battle for temporary leadership of the CFPB

One came bearing doughnuts. The other brandishing a lawsuit.

Two officials with starkly different views of the job staked claims Monday to be the acting director of the Consumer Financial Protection Bureau in a dramatic showdown over the leadership of the independent watchdog that spilled into a federal courtroom.

“It’s a mess,” said Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group. “It creates uncertainty about the future of the agency.”

President Trump’s designee, Mick Mulvaney, director of the White House Office of Management and Budget, arrived carrying a large bag from Dunkin’ Donuts in hopes of soothing over potential hard feelings given his stated opposition to the bureau’s aggressive regulatory approach.

But he first had to walk past consumer advocates stationed outside the bureau’s headquarters to protest his appointment.

Before the day was over, he had settled into his new office and ordered a 30-day halt to any regulations from the federal agency.

“Rumors that I’m going to set the place on fire or blow it up or lock the doors are completely false,” Mulvaney said at an afternoon news conference, adding that Trump wants him to fix the bureau so it “can protect people without trampling on capitalism.”

The other person claiming to be the lawful acting chief, bureau Deputy Director Leandra English, greeted her colleagues with an email saying she hoped everyone had a great Thanksgiving break. She signed it with “acting director” after her name.

English, a bureau veteran and supporter of tough consumer protection enforcement, spent the holiday weekend being promoted on Friday by outgoing Director Richard Cordray, and then filing a lawsuit seeking to stop Mulvaney from taking over.

As Mulvaney was briefing reporters as acting director at the agency’s headquarters, English was meeting with senators on Capitol Hill in her capacity as acting director.

“Just met with Leandra English, fellow Marylander and the rightful Acting Director of the @CFPB,” tweeted Sen. Chris Van Hollen (D-Md.).

At about the same time, a federal judge in Washington listened to arguments about who lawfully should be at the bureau’s helm. He made no decision Monday.

“It’s creating chaos at the agency,” Alan S. Kaplinsky, head of the consumer financial services group at the Ballard Spahr law firm, said of the dispute. “Who are the employees supposed to listen to?”

Mulvaney said he will remain as OMB director while also overseeing the consumer bureau until a permanent director is confirmed and sworn in. He said during his news conference that he would be working six-day weeks, three days at each agency.

The dueling afternoon developments followed a morning of high drama that Mulvaney acknowledged caused consternation among CFPB staffers Monday.

“Folks asked questions, very candidly,” he said at the news conference. “I told them, ‘Look, I’m not here to shut the place down because the law doesn’t allow me to do that. That being said, we’re going to run it differently than the previous administration.’”

Cordray, a Democrat who submitted his formal resignation Friday, wanted to keep the agency running like it had during the Obama administration for as long as possible.

In promoting English, his chief of staff and a longtime ally, Cordray told the bureau he was trying to “minimize operational disruption and provide for a smooth transition.” He said English would serve as acting director until Trump nominated a permanent replacement and the Senate confirmed that choice.

Trump tapped Mulvaney for the acting leadership post shortly thereafter.

English filed suit in U.S. District Court for the District of Columbia on Sunday, challenging Trump’s appointment of Mulvaney as unlawful. She requested a temporary restraining order to block him from taking the position and declaring her the lawful acting director.

The case was randomly assigned to Judge Timothy J. Kelly, who was nominated by Trump this year and took his seat on the bench in September.

At the hearing, Kelly said he hoped to have a decision soon. But he expressed some skepticism about granting a restraining order that would “enjoin the president” from filling an executive branch position.

“That’s an extraordinary remedy,” Kelly told Deepak Gupta, English’s attorney.

Brett Shumate, deputy assistant attorney general for federal programs, declined to give Kelly any assurance that English would not be fired as the request for a restraining order is considered. Gupta said that worried him.

Mulvaney said he had no plans to fire English, but said she did not show up at bureau headquarters on Monday. Gupta said she did before traveling to Capitol Hill.

Mulvaney reportedly also sent an email to the bureau’s staff, telling them to “please disregard any instructions you receive from Ms. English in her presumed capacity as acting director” and encouraging them to stop by the director’s office on the fourth floor “to say hello and grab a donut.”

Trump named Mulvaney as acting director under the Federal Vacancies Reform Act of 1998.

That law allows the president to designate someone who already has been confirmed by the Senate — in Mulvaney’s case as OMB director — to perform acting duties until a permanent choice is nominated and confirmed by the Senate.

White House Press Secretary Sarah Huckabee Sanders noted the Justice Department’s Office of Legal Counsel agreed with the administration’s interpretation of the law, as did the bureau’s general counsel, Mary McLeod.

McLeod sent a memo to the bureau’s senior leadership team on Saturday that it was her opinion that Trump has the authority to appoint an acting director, and she advised agency personnel “to act consistently with the understanding that Director Mulvaney is the acting director of the CFPB.”

Senior Trump administration officials said the 1998 law superseded a provision in the Dodd-Frank Act, which created the agency in 2010, that states that the deputy director shall “serve as acting director in the absence or unavailability of the director.”

But that position is disputed by English and other supporters of the bureau.

Former Rep. Barney Frank (D-Mass.), the co-author of the law that bears his name, said Monday that the intention was for the deputy director to become the bureau’s acting chief.

“We knew this is a very tough job this agency has politically. To do its job, we wanted to give it as much insulation as possible” from the political process, Frank said. If the intention had been for the Vacancies Act to dictate the process, lawmakers wouldn’t have included the provision in Dodd-Frank, he said.

Rep. Jamie Raskin (D-Md.), a constitutional law professor at American University’s Washington College of Law, joined protesters outside the CFPB on Monday. He said that English is the rightful acting director under Dodd-Frank and that Trump is trying to “destroy the independence of the bureau.”

Mulvaney has been an outspoken opponent of the bureau, having said in a 2014 interview that it was a “joke … in a sad, sick kind of way” and that he “would like to get rid of it.” He and many Republicans, including Trump, have said the bureau has restricted consumer access to credit by being overly aggressive in pursuing financial institutions and establishing new regulations.

The bureau has provided consumers about $12 billion in refunds, mortgage principal reductions and other relief from financial institutions since opening in 2011. The bureau also played a key role in penalizing Wells Fargo & Co. for its creation of unauthorized accounts.

Kaplinksy said that whoever ends up as acting director should be hesitant to take any regulatory steps that could be legally challenged.

“Until things get clarified by the courts, I don’t think they should do anything other than to give out donuts to their employees and make sure they don’t leave” for other jobs, he said.

Staff reporter Noah Bierman contributed to this report.

jim.puzzanghera@latimes.com

Twitter: @JimPuzzanghera