Tag Archives: legislative history

People’s Credit Union v. Trump

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photo by Janine and Jim Eden

Twenty-one consumer finance regulation scholars (including yours truly) filed an amicus brief in Lower East Side People’s Federal Credit Union v. Trump, No. 1:17-cv-09536 (SDNY Dec. 14, 2017). The Summary of the Argument reads as follows:

The orderly succession of the leadership of regulatory agencies is a hallmark of American democracy. Regulated entities, such as Plaintiff Lower East Side People’s Federal Credit Union (LESPFCU) rely on there being absolute clarity regarding who is duly authorized to exercise regulatory authority over them. Without such clarity, regulated entities cannot be certain if agency actions, including the promulgation or repeal of rules and informal regulatory guidance, are actual agency policy or mere ultra vires actions.

This case involves a controversy over who lawfully serves as the Acting Director of the Consumer Financial Protection Bureau (CFPB or the Bureau) following the resignation of the Bureau’s first Senate-confirmed Director. The statute that created the CFPB, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), is clear: the Deputy Director of the CFPB “shall . . . serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491(b)(5)(B). Thus, upon the resignation of the Director, the CFPB’s Deputy Director, Leandra English, became Acting Director and may serve in that role until a new Director has either been confirmed by the Senate or been recess appointed.

Despite the Dodd-Frank Act’s clear statutory directive, Defendant Donald J. Trump declined to follow either of the routes constitutionally permitted to him for appointing a Director for the Bureau. Instead, Defendant Trump opted to illegally seize power at the CFPB by naming the current Director of Office of Management and Budget (OMB), Defendant John Michael Mulvaney, as Acting CFPB Director. Defendants claim this appointment is authorized by the Federal Vacancies Reform Act of 1998 (FVRA), 5 U.S.C. § 3345(a).

As scholars of financial regulation, we believe that Deputy Director English’s is the rightful Acting Director of the CPFB for a simple reason: the only applicable statute to the succession question is the Dodd-Frank Act. In the Dodd-Frank Act, Congress expressly provided for a mandatory line of succession for the position of CFPB Director, stating that the Deputy Director “shall” serve as the Acting Director in the event of a vacancy. Congress selected this provision after considering and rejecting the FVRA during the drafting of the Dodd-Frank Act, and Congress’s selection of this succession provision is an integral part of its design of the CFPB as an agency with unique independence and protection from policy control by the White House. The appointment of any White House official, but especially of the OMB Director as Acting CFPB Director is repugnant to the statutory design of the CFPB as an independent agency.

The FVRA has no application to the position of CFPB Director. By its own terms, the FVRA is inapplicable as it yields to subsequently enacted statutes with express mandatory provisions for filling vacancies at federal agencies. This is apparent from the text of the FVRA, from the FVRA’s legislative history, and from the need to comport with the basic constitutional principle that a law passed by an earlier Congress cannot bind a subsequent Congress. Moreover, the FVRA does not apply to “any member who is appointed by the President, by and with the advice and consent of the Senate to any” independent agencies with a multi-member board. 5 U.S.C. § 3349c(1). The CFPB Director is such a “member,” because the CFPB Director also serves as a member of a separate multi-member independent agency: the Board of Directors of the Federal Deposit Insurance Corporation (FDIC).

Plaintiff LESPFCU is seeking a preliminary injunction against acts by Defendants Mulvaney and Trump to illegally seize control of the CFPB, and it should be granted. As will be shown, LESPFCU has a high likelihood of success on the merits given the strength of its statutory arguments that the Dodd-Frank Act controls the CFPB Directorship succession. Unless the Court grants LESPFCU’s request for a preliminary injunction, LESPFCU will suffer irreparable harm because it will be subjected to regulation by a CFPB that would be under the direct political control by the White House that Congress took pains to forbid. Moreover, without a preliminary injunction, Defendant Mulvaney will continue to take actions that may place LESPFCU at a competitive disadvantage by creating an uneven regulatory playing field that favors certain types of institutions. See, e.g., Jessica Silver-Greenberg & Stacy Cowley, Consumer Bureau’s New Leader Steers a Sudden Reversal, N.Y.TIMES, Dec. 5, 2017. Nor will the President’s rights be in any way limited by such a preliminary injunction: the President remains able to seek Senate confirmation of a nominee for CFPB Director. All the President is being asked to do is fish or cut bait and proceed through normal constitutional order. The granting of a preliminary injunction is also very much in the public interest as it enables the controversy over the rightful claim to the CFPB Directorship to be resolved through an impartial court and not through a naked grab of power by the President.

GSE Conservatorship History Lesson

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Mark Calabria, the Director of Financial Regulation Studies at the Cato Institute, has posted a very interesting paper, The Resolution of Systemically Important Financial Institutions: Lessons from Fannie and Freddie. This is a more formal version of what he presented at the AALS meeting early this month. I do not agree with all of Mark’s analysis, but this paper certainly opened my eyes about what can happen in committee when important statutes are being drafted. It opens,

There was perhaps no issue of greater importance to the financial regulatory reforms of 2010 than the resolution, without taxpayer assistance, of large financial institutions. The rescue of firms such as AIG shocked the public conscience and provided the political force behind the passage of the Dodd-Frank Act. Such is reflected in the fact that Titles I and II of Dodd-Frank relate to the identification and resolution of large financial entities. How the tools established in Titles I and II are implemented are paramount to the success of Dodd-Frank. This paper attempts to gauge the likely success of these tools via the lens of similar tools created for the resolution of the housing government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
An additional purpose of this paper is to provide some additional “legislative history” to the resolution mechanisms contained in the Housing and Economic Recovery Act of 2008 (HERA), which established a resolution framework for the GSEs similar to that ultimately created in Title II of Dodd-Frank. The intent is to inform current debates over the resolution of systemically important financial institutions by revisiting how such issues were debated and agreed upon in HERA. (1-2)
As an outside-the-Beltway type, I found the “legislative history” very interesting, even if it wouldn’t qualify as any type of legislative history that a judge would consider in interpreting a statute. It does, however, offer policy wonks, bureaucrats and politicians an inside view of how a Congressional staffer helps to make the sausage that is legislation. It also shows that in the realm of legislation, as in the realm of fiction, author’s intent can play out in tricky ways.

Calabria concludes,

The neglect of HERA’s tools and the likely similar neglect of Dodd-Frank’s suggest a much deeper reform of our financial regulatory system is in order. The regulatory culture of “whatever it takes” must be abandoned. A respect for the rule of law and obedience to the letter of the law must be instilled in our regulatory culture. More important, the incentives facing regulators must be dramatically changed. If we hope to end “too-big-to-fail” and to curtail moral hazard more generally, significant penalties must be created for rescues as well as deviations from statute. A very difficult question is that lack of standing for any party to litigate to enforce statutory prohibitions against rescues. (19)

I take a couple of lessons from this paper. First, tight drafting of legislation that is supposed to kick in during a crisis is key. If a statute has wiggle room, decision makers are going to stretch it out as they see fit. And second, I agree with Mark that even tight drafting won’t necessarily keep government actors from acting as they see fit in a crisis.

If Congress really want to constrain the choices of future decision makers, it will need to grant a third party standing to enforce that decision as it is unlikely that crisis managers will have the self-restraint to forgo options that they would otherwise prefer. Congress should be very careful about constraining the choices of these future decision makers. But if it chooses to do so, that would be the way to go.