Reducing Enforcement at The CFPB

Mick Mulvaney’s Consumer Financial Protection Bureau has released a Request for Information Regarding Bureau Enforcement Activities (available on the upper right corner of this page), its third in a series of RFIs that seek to dramatically restrict the Bureau’s activities. The Bureau seeks

feedback on all aspects of its enforcement processes, including but not limited to:

1. Communication between the Bureau and the subjects of investigations, including the timing and frequency of those communications, and information provided by the Bureau on the status of its investigation;

2. The length of Bureau investigations;

3. The Bureau’s Notice and Opportunity to Respond and Advise process, including:

a. CFPB Bulletin 2011–04, Notice and Opportunity to Respond and Advise (NORA), issued November 7, 2011 (updated January 18, 2012) and available at http://files.consumerfinance.gov/f/2012/01/
Bulletin10.pdf, including whether invocation of the NORA process should be mandatory rather than discretionary;and

b. The information contained in the letters that the Bureau may send to subjects of potential enforcement actions pursuant to the NORA process, as exemplified by the sample letter available at http://www.consumerfinance.gov/wp-content/uploads/2012/01/NORA-Letter1.pdf;

4. Whether the Bureau should afford subjects of potential enforcement actions the right to make an in-person presentation to Bureau personnel prior to the Bureau determining whether it should initiate legal proceedings;

5. The calculation of civil money penalties, consistent with the penalty amounts and mitigating factors set out in 12 U.S.C. 5565(c), including whether the Bureau should adopt a civil money penalty matrix, and, if it does adopt such a matrix, what that matrix should include;

6. The standard provisions in Bureau consent orders, including conduct, compliance, monetary relief, and administrative provisions; and

7. The manner and extent to which the Bureau can and should coordinate its enforcement activity with other Federal and/or State agencies that may  have overlapping jurisdiction. (83 F.R. 6000) (Feb. 12, 2018)

The not-so-subtext of this RFI is that Mulvaney is seeking to hamstring the Bureau’s enforcement authority which Republicans have found to be too zealous since the Bureau was first started up.

Comments are due April 13, 2018, so get crackin’.

The “Humbled” Consumer Financial Protection Bureau

photo by Lilla Frerichs

The Consumer Financial Protection Bureau is changing directions in a big way under the leadership of Mick Mulvaney as seen in its Strategic Plan for FY 2018-2022. In his opening message to the Plan, Mulvaney writes that the Plan

presents an opportunity to explain to the public how the Bureau intends to fulfill its statutory duties consistent with the strategic vision of its new leadership. In reviewing the draft Strategic Plan released by the Bureau in October 2017, it became clear to me that the Bureau needed a more coherent strategic direction. If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further. Indeed, this should be an ironclad promise for any federal agency; pushing the envelope in pursuit of other objectives ignores the will of the American people, as established in law by their representatives in Congress and the White House. Pushing the envelope also risks trampling upon the liberties of our citizens, or interfering with the sovereignty or autonomy of the states or Indian tribes. I have resolved that this will not happen at the Bureau.

So how do we refocus the Bureau’s efforts to better protect consumers? How do we succinctly define the Bureau’s unique mission, goals, and objectives? Fortunately, the necessary tools are already set forth in statute. We have drawn the strategic plan’s mission statement directly from Sections 1011 and 1013 of the Dodd-Frank Act: “to regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws” and “to educate and empower consumers to make better informed financial decisions.” We have similarly drawn the strategic plan’s first two strategic goals and its five strategic objectives from Section 1021 of the Dodd-Frank Act. By hewing to the statute, this Strategic Plan provides the Bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers. Just as important, it provides clarity and certainty to market participants. (2)

The subtext of this change in direction is not that “sub” at all. The Trump Administration wants to rein in the Bureau after it aggressively pursued financial services companies for violating a broad range of consumer protection statutes.

The Plan says that the Bureau will now act “with humility and moderation.” What that means is that the it will now be cutting financial services firms a lot of slack. Let’s see how a humbled Bureau works out for consumers.

The Fate of CFPB’s Civil Investigative Demands

 

Mick Mulvaney’s Consumer Financial Protection Bureau issued a Request for Information Regarding Bureau Civil Investigative Demands and Associated Processes:

The Bureau is using this request for information to seek public input regarding the exercise of its authority to issue CIDs, including from entities who have received one or more CIDs from the Bureau, or members of the bar who represent these entities.

The issuance of CIDs is an essential tool for fulfilling the Bureau’s statutory mission of enforcing Federal consumer financial law. The Bureau issues CIDs in accordance with the law and in furtherance of its investigatory objectives. The Bureau understands, however, that responding to a CID can impose burdens on the recipients. Entities who have received one or more CIDs, members of the bar who represent these entities, and members of the public are likely to have useful information and perspectives on the benefits and burdens of the Bureau’s existing processes related to CIDs. The Bureau is especially interested in better understanding how its processes related to CIDs may be updated, streamlined, or revised to better achieve the Bureau’s statutory and regulatory objectives, while minimizing burdens, consistent with applicable law, and how to align the Bureau’s CID processes with those of other agencies with similar authorities. Interested parties may also be well-positioned to identify those parts of the Bureau’s processes related to CIDs that are most in need of improvement, and, thus, assist the Bureau in prioritizing and properly tailoring its review process. In short, engaging CID recipients, potential CID recipients, and the public in an open, transparent process will help inform the Bureau’s review of its processes related to CIDs. (83 F.R. 3686 (Jan. 26, 2018))

There is a lot of subtext in this request, of course, because Mulvaney is set on hamstringing the Bureau which he has described as a “sick, sad” joke. A review of CIDs is likely to lead to a decrease in enforcement activity for the financial services companies regulated by the CFPB.

Be that as it may, the Bureau is seeking comments on “Specific suggestions regarding any potential updates or modifications to the Bureau’s practices regarding the formulation, issuance, or modification of CIDs consistent with the Bureau’s regulatory and statutory objectives, including, in as much detail as possible, the potential update or modification, supporting data or other information such as cost information or information concerning alignment with the processes of other agencies with similar authorities . . .” (Id.)

Comments are due by March 27, 2018.

Trump Wins Round Two At CFPB

image by Slr722x

Bloomberg Law quoted me in Court Says Mulvaney Can Lead CFPB, but Legal Fight Continues. It opens,

The court battle over the Consumer Financial Protection Bureau’s top leadership has shifted in the Trump administration’s favor, but continued litigation could test its ability to revamp the agency.

Judge Timothy J. Kelly yesterday denied deputy director Laura English’s bid for an order that would have barred Office of Management and Budget Director Mick Mulvaney from serving as acting CFPB director, setting up what many expect to be an appeal to the U.S. Court of Appeals for the District of Columbia Circuit.

Although plenty of questions lie ahead, perhaps the biggest is whether and to what extent ongoing uncertainty raised by the case impacts the administration’s effort to revamp consumer protection regulation at the CFPB.

“This is clearly a win for the administration, but there’s still so much uncertainty,” David Reiss, professor of law at Brooklyn Law School in Brooklyn, N.Y, told Bloomberg Law in a phone interview. “What we’ll see for the next few months is whether that uncertainty makes it harder for Mulvaney to turn the ship.”

Kelly’s 46-page decision, which several attorneys privately described as careful and thorough, is the second such setback for English, who previously lost a bid for a temporary restraining order. Even so, hazards lie ahead for the administration.

University of Michigan Law School Professor Nina Mendelson said an eventual ruling on the merits against Mulvaney could call into question any actions based on authority he now claims, such as final regulations, settlements, or other matters.

“A court could invalidate all of those actions,” Mendelson said on a call hosted by consumer advocates. Mendelson, an expert on administrative law, said she’s taken an independent stance on the case.

New York Challenge

Kelly’s Jan. 10 ruling isn’t the last word, according to Brianne Gorod, an attorney with the Constitutional Accountability Center who also joined the call. “The legal fight here is far from over,” she said.

The decision also may boost the stakes for a separate challenge to Mulvaney in federal court in New York. There, the Lower East Side People’s Federal Credit Union also seeks a court order declaring that English, not Mulvaney, is the CFPB’s rightful acting director. The credit union says the appointment of Mulvaney has thrown the credit union into “regulatory chaos,” because it can’t identify the lawful director of the CFPB.

BTW, I am a signatory on an amicus brief filed in the Lower East Side People’s Federal Credit Union case.

People’s Credit Union v. Trump

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.

Mooting The CFPB Constitutional Challenge

Law360 quoted me in DC Circ. May Skip CFPB Fight After Cordray’s Exit. It opens,

The legal battle over who will temporarily lead the Consumer Financial Protection Bureau comes as the D.C. Circuit is considering whether the bureau’s structure is constitutional, and experts say the fight over its leadership could lead the appeals court to punt on the constitutional question.

The full D.C. Circuit has been considering an appeal filed by mortgage servicer PHH Corp. to overturn a $109 million judgment entered by former CFPB Director Richard Cordray over alleged violations of anti-kickback provisions of the Real Estate Settlement Procedures Act. PHH’s argument is that the agency’s structure, which includes a single director rather than a commission along with independent funding not appropriated by Congress, is unconstitutional.

But now that a political and legal fight has broken out over who should temporarily lead the CFPB since Cordray has left the bureau, the D.C. Circuit may be even more inclined to find a way to decide the underlying arguments about the CFPB’s enforcement of a decades-old mortgage law without touching the constitutional questions.

“If the D.C. Circuit wants to avoid this question, they certainly have plausible means to do it,” said Brian Knight, a senior research fellow at George Mason University’s Mercatus Center.

The battle over the CFPB’s constitutionality waged by PHH in some ways opened the door for the current conflict over who should serve as the bureau’s acting director.

PHH’s fight with the CFPB stems from Cordray’s decision to jack up a RESPA penalty against the New Jersey-based mortgage company in June 2015.

A CFPB administrative law judge had originally issued a $6.4 million judgement against PHH over alleged mortgage kickbacks, but on appeal Cordray slapped the company with a $109 million penalty.

PHH then took its case to the D.C. Circuit, arguing that the single-director structure at the CFPB, which allowed Cordray to unilaterally hike the penalty, was a violation of the Constitution’s separation of powers clause.

Ultimately, a three-judge panel led by U.S. Circuit Judge Brett Kavanaugh found that the CFPB’s structure was unconstitutional but declined to eliminate the bureau and invalidate its actions. Instead, the panel elected to eliminate a provision that only allowed the president to fire the CFPB director for cause, rather than allowing the director to be fired at will by the president.

The original, now vacated, D.C. Circuit decision also overturned the CFPB’s penalty against PHH. That portion of the decision was unanimous.

The CFPB then sought an en banc review of the decision, with oral arguments held in May. Since then, the CFPB and the industry have waited for a decision.

In fact, the wait for that decision may have allowed Cordray to hang on as long as he did at the CFPB. Trump was expected to fire Cordray soon after taking office, but that never happened, and instead Cordray waited until November to depart the bureau for what many believe will be a run for governor in his home state of Ohio.

Many predicted the D.C. Circuit would go the route of U.S. Circuit Judge Karen L. Henderson, a member of the original panel that ruled in the PHH litigation. Judge Henderson dissented on the constitutional question but supported the decision on RESPA enforcement.

“You arguably don’t have to reach the constitutional question,” said Christopher Walker, a professor at Ohio State University’s Moritz School of Law.

But the D.C. Circuit’s decision comes as two individuals argue over which one of them is the CFPB’s rightful acting director.

Cordray last Friday promoted his chief of staff, Leandra English, to be the CFPB’s deputy director just moments before he formally announced his departure. Cordray and English argue that the 2010 Dodd-Frank Act, which created the CFPB, made the deputy director the acting director in his absence.

Hours later, Trump appointed Office of Management and Budget Director Mick Mulvaney, a fierce CFPB opponent, to be the federal consumer finance watchdog’s acting director under a different federal law.

English sued to block Mulvaney’s appointment, and although the case will continue, a judge on Tuesday rejected her request for a temporary restraining order.

Against that backdrop, the D.C. Circuit may have more of an incentive to lie low on the constitutional questions, said Brooklyn Law School professor David Reiss.

“My reading would be that if they reversed the agency on the RESPA issues, then they may be able to moot the constitutional issues,” he said.