Yesterday, U.S. District Court Judge Timothy J. Kelly denied Leandra English’s motion for a preliminary injunction in a 46-page opinion. English had sought to block President Trump’s appointment of Mick Mulvaney to serve as the CFPB’s Acting Director. The Court denied that request and held that English failed to satisfy  any of the four elements of her preliminary injunction claim.

The Court found that English was unlikely to ultimately succeed on the merits of her claim. It held that the Vacancies Reform Act (“VRA”) gave President Trump the right to appoint a CFPB Acting Director and that the Dodd-Frank Act did not displace the President’s VRA authority. In reaching that conclusion, the Court relied on language in Dodd-Frank providing that all federal laws relating to federal employees or officers – such as the VRA – apply to the CFPB “except as otherwise provided expressly by law.” It found that Dodd-Frank’s reference to the Deputy Director’s service as the Acting Director in the Director’s “absence or unavailability” did not constitute an “express” provision of law overriding the VRA.

English had argued, under the canon of statutory construction that specific statutes trump general ones, that the Dodd-Frank provision was more specific than the VRA, and thus controlled. The Court soundly rejected this argument, finding that the VRA’s reference to “vacancies” was more specific to this situation than Dodd-Frank’s reference to the Director’s “absence or unavailability.”

The Court also rejected English’s argument that a different result was required because Dodd-Frank used the word “shall” in reference to the Deputy Director’s service as Acting Director. It relied on the commonsense notion that, while the word “shall” is generally mandatory, it is not necessarily unqualified. The court recognized that this very notion is embedded in Dodd-Frank itself. Dodd-Frank says that the Director “shall serve as the head of the [CFPB].” If “shall” were unqualified in that context, then the provision stating that the President “may” remove the Director for cause would be meaningless (and the statute nonsensical).

Further, relying on the doctrine of constitutional avoidance, the Court rejected English’s position because it would create serious constitutional problems. “Under English’s reading, the CFPB Director has unchecked authority to decide who will inherit the potent regulatory and enforcement powers of that office, as well as the privilege of insulation from direct presidential control, in the event he resigns. Such authority appears to lack any precedent, even among other independent agencies.”

If the CFPB Director had that much control over his successor, it would severely diminish the President’s control over Executive officers and thus his constitutional duty to “take care that the laws be faithfully executed,” the Court held. It also acknowledged that a panel of the D.C. Circuit has already found that the CFPB’s structure is unconstitutional. It held that English’s reading of the statutes would only exacerbate those problems.

English had equal difficulty convincing the Court that she would suffer irreparable harm if an injunction were not issued. The only harm she proffered was the intangible harm she would suffer from being unable to perform the duties of the Acting Director. The Court declined to adopt the reasoning of the only authority supporting the proposition that such harm was irreparable harm — an unpublished district court decision from 1983 involving the termination of officers of an agency that would automatically cease to exist under its implementing statute thus precluding their later reinstatement. The Court found that English “utterly failed to describe any [irreparable] harm.”

On the third and final elements of English’s claim – balance of the equities and public interest – the Court found her claim equally wanting. English said that the need for clarity meant that an injunction should issue. The Court held that, “There is little question that there is a public interest in clarity here, but it is hard to see how granting English an injunction would bring any more of it. . . . The President has designated Mulvaney the CFPB’s acting Director, the CFPB has recognized him as the acting Director, and it is operating with him as the acting Director. Granting English an injunction . . . would only serve to muddy the waters.”

Finding that English failed to meet her burden on even one element of her preliminary injunction claim, the Court denied her motion. The Court’s decision does not ultimately resolve the merits of the case and English will doubtless file an appeal with the D.C. Circuit. Because of the cloud that the ongoing litigation casts on the legality of any of Mulvaney’s actions, President Trump should appoint a permanent Director without delay.

In a press release issued by the House Financial Services Committee, Committee Chairman Jeb Hensarling announced that Kirsten Mork, the Committee’s Staff Director, has been named CFPB Chief of Staff.  Mr. Hensarling was a very vocal CFPB critic throughout former Director Cordray’s tenure.

Ms. Mork will join Brian Johnson, another former House Financial Services Committee staff member who is also reported to now be working for the CFPB.

The CFPB’s former Chief of Staff was Leandra English, who was appointed Deputy Director by former Director Cordray only hours before his resignation became effective at midnight on November 24.  Ms. English is currently awaiting a ruling from the D.C. federal district court on her motion for a preliminary injunction in her action challenging President Trump’s appointment of Mick Mulvaney as CFPB Acting Director.

 

On December 22, 2017, the U.S. District Court for the District of Columbia held oral arguments on Leandra English’s preliminary injunction motion through which she seeks to block Mick Mulvaney from continuing to serve as the Acting Director of the CFPB. Judge Timothy Kelly presided over the hearing. Deepak Gupta argued for English. Acting Assistant Attorney General for the Justice Department’s Civil Division, Chad Readler argued for the Department of Justice.

At the beginning of the hearing, Judge Kelly announced that he had a list of questions for each side. He then used his questions to guide the hearing, giving each side an opportunity to answer before moving to his next question.

His questions generally cut straight to the heart of English’s and Mulvaney’s arguments, which we have discussed at length. The questions likely reflect his view on the decisive issues in the case. Judge Kelly bookended the hearing with questions about whether a preliminary injunction would throw the already embattled agency into chaos.

For example, his second question was whether and how a preliminary injunction would upset the status quo at the CFPB. He observed that injunctions exist to preserve the status quo while a case is litigated. Then he asked whether unseating Mulvaney would preserve the status quo given that Mulvaney is already leading the agency.

Gupta argued that, for reasons of equity, the status quo must be measured from the last “uncontested” state of affairs. Otherwise, Gupta argued, the court would reward usurpers. The last uncontested state of affairs as Gupta saw it was at midnight when English automatically became the Acting Director after Cordray’s resignation took effect.

The DOJ countered that English’s argument ignores some key facts, however. While English’s appointment took effect at midnight (according to her), Mulvaney’s appointment took effect a minute later at 12:01 am. That one-minute difference cannot reasonably be the deciding factor as to what counts as the status quo. This is especially so when the CFPB’s own general counsel stated that a Trump-appointed Acting Director would have a more legitimate claim to the office than English. Readler punctuated this argument by pointing-out that CFPB attorneys were seated with him at counsel table, not with English’s attorneys.

Towards the end of the hearing, when discussing the “balance of the equities” prong of the preliminary injunction analysis, Judge Kelly asked how a preliminary injunction would contribute to “clarity” about who was rightfully in charge of the CFPB. In response, Gupta generally repeated the status quo arguments he started-off with. Readler reminded the court that a preliminary injunction could result in the temporary appointment of a third leader of the agency in less than one month.

In the middle of the hearing, Judge Kelly’s questions touched on other significant weaknesses in English’s case. For example, English argues that language in Dodd-Frank allowing the CFPB Director to name a Deputy Director who “shall serve” as Acting Director is more specific than the Vacancies Reform Act (“VRA”) which allows the President to appoint acting officials. Thus, relying on the maxim of statutory construction that specific statutes trump general ones (i.e., the “general-specific” maxim), she argues that Dodd-Frank governs the appointment of the Acting CFPB Director. Through his questions, Judge Kelly highlighted that the “general-specific” maxim cannot be applied unless the VRA and Dodd-Frank are irreconcilable. The DOJ was quick to seize on the judge’s questions and point out that Dodd-Frank and the VRA are easily harmonized.

During the course of the argument, Gupta also confirmed that English takes the position that the Acting CFPB Director is removable only for cause just as the CFPB Director would be. Several amici have pointed-out the absurd results this creates, including the Credit Union National Association, which submitted an amicus brief drafted by Ballard Spahr. Judge Kelly followed-up by asking whether English’s removal-only-for-cause argument means that an unelected official can serve without Senate confirmation in the executive branch in opposition to the President. Gupta pointed to the Federal Housing Finance Agency (“FHFA”), which he said has analogous succession provisions. The DOJ responded: even if that were so, FHFA does not have nearly the power that the CFPB has wielded since its inception.

Also worth noting is the difficulty that English’s side had substantiating the irreparable harm element of her preliminary injunction claim. The DOJ argued that this was a run-of-the-mill employment case, in which irreparable harm is almost never found. Apparently rejecting that label, Judge Kelly nevertheless asked whether English could show any irreparable harm to herself that would flow from Mulvaney’ serving as Acting CFPB Director.

Gupta argued that English would be harmed by being deprived of the ability to exercise the powers of office. In doing so, he relied on a single district court case indicating that such harm could, indeed, be irreparable. Readler reminded the court that the case has never before been cited or relied upon by any court. He also distinguished the case and encouraged Judge Kelly to ignore it, saying that practically every case involving government employment involves some deprivation of the ability to exercise the powers of an office. If English were right, courts would have found irreparable harm in all of the run-of-the-mill employment cases, which they haven’t.

Judge Kelly wrapped-up the two-hour hearing by giving both sides an opportunity to raise any points not covered. He did not issue a decision or indicate when one could be expected. Based on the Judge’s denial of English’s request for a temporary restraining order and his questions and observations at the hearing, it seems likely that he will deny her preliminary injunction motion as well. English will likely appeal any such denial to the D.C. Circuit. 

On December 12, the Credit Union National Association (“CUNA”) filed an amicus brief in D.C. Federal District Court opposing Leandra English’s motion for a preliminary injunction to block President Trump’s appointee for Acting CFPB Director, Mick Mulvaney, from exercising the powers of that office. The Court has already denied English’s motion for a temporary restraining order.

CUNA is the largest organization representing the nation’s 6,000 credit unions, which are heavily regulated by the CFPB. As such, it has a significant interest in the outcome of preliminary injunction hearing.

In its brief, CUNA argues that Mulvaney’s appointment was entirely proper under the Vacancies Reform Act of 1998 (“VRA”). CUNA further argues that the language in Dodd-Frank stating that the Deputy Director shall become the Acting Director in the “absence or on availability” of the Director covers temporary situations, like an accident requiring long term hospitalization of the Director. It does not cover a vacancy in the office of the Director, including one resulting from a resignation.

Under the VRA, when an office is vacant, the President has the power to appoint an acting officer to fill the post, subject to certain limitations. Indeed, when the VRA was passed, the Senate committee that considered the VRA explicitly stated that, “statutes enacted in the future purporting to or argued to be construed to govern the temporary filling of offices covered by this statute are not to be effective unless they expressly provide that they are superseding the Vacancies Reform Act.” So, because Dodd-Frank did not explicitly override the VRA, the VRA governs.

In addition, CUNA points out the serious constitutional problems that would result if the court adopted English’s position. If she is right, then a departing CFPB Director would have the power to appoint anyone as his or her successor, including non-citizens, through the simple expedient of naming him or her as the Deputy Director, while the President would have more limited powers of appointment under the VRA. That would give the CFPB Director more power than the President over an agency in the executive branch of government.

What’s more, English’s argument also implies that the President would be as unable to remove an Acting CFPB Director as he is the CFPB Director. That only exacerbates the constitutional defects that are at the heart of the PHH case, which we have blogged about extensively.

CUNA’s brief, which Ballard Spahr authored, highlights the industry perspective on why Leandra English is wrong and why the court should not try to unwind the President’s appointment of an Acting CFPB Director. We will continue to follow this unfolding saga closely.

As one of his final actions before resigning last Friday from the Consumer Financial Protection Bureau, Director Richard Cordray sent letters to the chief executives of 29 banks, credit unions, and other financial companies urging them to help their customers attain greater control over their financial lives.

“There is enormous value in new technology that makes it feasible, right now, to enable consumers to exert much greater control over their credit cards, debit cards, and other payment methods,” Director Cordray wrote. He asserted that consumers should have the ability to easily and conveniently control how, when, and to what extent their accounts may be accessed.

Director Cordray’s letter suggested digital media platforms as the most convenient method of enabling consumers to exercise this detailed control over their accounts. He provided several examples of enhanced capabilities digital media servicing may be able to offer, such as the ability to set spending limits on each payment card for particular merchants, categories of spending, or channels of transactions (for example, online, phone, in-person, and recurring transactions). Digital media servicing could also provide consumers the ability to receive alerts or warnings if a transaction is attempted that falls outside the consumer’s personal preset parameters (or parameters for a separate authorized user). These money management tools could be offered through financial institutions’ online and mobile platforms.

Director Cordray pointed out that, as in past advisory letters, his suggestions are not regulatory requirements, but rather issues that financial institutions “would do well to consider as [they] seek to better serve [their] customers.” He posited that allowing consumers to control their own spending would lessen consumer worries about data breaches and help financial institutions minimize the incidence of fraudulent payment card usage. By helping consumers to help themselves, financial institutions will materially improve the lives of their customers, while reducing their own costs at the same time.

According to media reports, President Trump is expected to name Mick Mulvaney, the current Director of the Office of Management and Budget, to serve as CFPB Acting Director upon Director Cordray’s resignation.  The President’s announcement may come as soon as today.

Assuming the media reports are accurate, they indicate that the White House has decided that David Silberman, the current CFPB Acting Deputy Director, does not automatically become Acting Director upon Director Corday’s resignation pursuant to the Dodd-Frank Act provision that provides that the Deputy Director shall “serve as acting Director in the absence or unavailability of the Director.”  In our view, because that provision does not cover the present situation (i.e., a vacancy created by the existing Director’s resignation and permanent departure from the agency), the Federal Vacancies Reform Act of 1998 permits President Trump to appoint as Acting Director either a senior employee of the CFPB or an officer of an agency who has already been approved by the Senate such as Mr. Mulvaney.

According to widespread media reports, Director Cordray informed CFPB staff members today that he expects to resign as CFPB Director by the end of this month.  His replacement with a successor appointed by President Trump will undoubtedly have a significant impact on the agency’s priorities and initiatives.  On December 5, 2017, from 12 p.m. to 1 p.m. ET, Ballard attorneys will hold a webinar: “Richard Cordray Resigns: What’s Next for the CFPB?”  Click here to register.

Director Cordray is reported to have told CFPB staff that “it has been a joy of my life to have the opportunity to serve our country as the first director of the Consumer Bureau by working alongside all of you here.  Together we have made a real and lasting difference that has improved people’s lives.”

The immediate question raised by Director Corday’s announcement is who will serve as Acting Director pending the appointment and confirmation of a successor.  David Silberman currently serves as Acting Deputy Director.  The Dodd-Frank Act provides that the Deputy Director shall “serve as acting Director in the absence or unavailability of the Director.”

This provision raises two questions.  First, since Mr. Silberman is Acting Deputy Director, it is unclear whether he is eligible to serve as Acting Director under this provision.  (Director Cordray could seek to remove this issue by appointing Mr. Silberman the Deputy Director before he leaves the CFPB.)

Second, there is uncertainty as to whether the phrase “absence or unavailability of the Director” covers the present situation (i.e., a vacancy created by the existing Director’s resignation and permanent departure from the agency).  As a result, the White House could take the position that because Dodd-Frank does not specify who should serve as Acting Director upon the Director’s resignation, the Federal Vacancies Reform Act of 1998 permits President Trump to appoint as Acting Director either a senior employee of the CFPB or an officer of an agency who has already been approved by the Senate.  In that circumstance, Treasury Secretary Mnuchin would seem to be the likely choice to serve as Acting Director until Director Cordray’s successor is appointed and confirmed.

According to Politico, the White House has released a written statement indicating that President Trump plans to appoint an Acting Director.  However, the statement did not indicate the basis for the White House’s position.  Should President Trump appoint an Acting Director, that appointment might face a challenge from supporters of Mr. Silberman.

 

While an official announcement has not yet appeared on the CFPB’s website, it has been widely reported that Kristen Donoghue will be appointed the CFPB’s new Assistant Director of Enforcement, effective November 17, 2017.  She will replace Anthony Alexis.

Ms. Donoghue has served as a CFPB enforcement attorney since the CFPB’s establishment in 2011, and most recently served as the CFPB’s Principal Deputy Enforcement Director.  Her appointment is not expected to result in any significant changes to the CFPB’s enforcement approach since she is reported to have been a significant contributor to the CFPB’s current enforcement policies and priorities.

In addition, she will report to the Associate Director for Supervision, Enforcement & Lending, a position that is currently held by Christopher D’Angelo.  Mr. D’Angelo has also been at the CFPB since 2011 and served as Director Cordray’s Chief of Staff before becoming Associate Director.

Ms. Donoghue spoke last year in Chicago at the Practicing Law Institute (PLI) Annual Consumer Financial Services Institute (which I co-chaired).  She was a member of  “The CFPB Speaks” panel (which I moderated).  We expect her to speak on the same panel at the 2018 Annual Institute at one or more locations.

 

On September 12, 2017, Director Cordray appeared as the keynote speaker at the Seventh Annual Ohio Land Bank Conference.  Director Cordray’s appearance came on the heels of his speech at the Cincinnati AFL-CIO Labor Day Picnic where many speculated he would announce his campaign for Ohio governor.  The Ohio Land Conference brings together governmental and corporate partners striving to re-purpose vacant and abandoned properties and revitalize struggling neighborhoods—a perfect landscape for the launch of a gubernatorial run.  The Conference coincidentally fell on the same day as the first gubernatorial debate for Ohio Democrats.  Despite this perfect setting and date, Director Cordray remained silent on the rumors of his political aspirations.

At the Ohio Land Bank Conference, Director Cordray’s remarks were retrospective.  He reflected on the creation of the CFPB and touted certain milestones of the agency.  Out of all of the industries touched by the CFPB, Cordray’s remarks focused on the mortgage industry and the foreclosure crisis.  He did not break any news during his speech.  Many have commented that Director Cordray’s remarks could have easily been used in a campaign speech.  Indeed, he ended his speech with a quote from Theodore Roosevelt: “This country will not be a good place for any of us to live in unless we make it a good place for all of us to live in.”

Director Cordray’s term expires in July 2018.  He is expected to announce his bid for governor of Ohio after the CFPB issues a final payday loan rule.  In the interim, we will continue to monitor Director Cordray’s public appearances and remarks.

Ever since it was announced that Richard Cordray would be delivering a speech at the annual Cincinnati AFL-CIO Labor Day picnic, there was wide speculation that he would use that occasion to launch his campaign to run for governor of Ohio. Indeed, I thought that his plan would be to issue the final small-dollar lending rule last week, resign as CFPB Director this past Friday and launch his political campaign at the AFL-CIO picnic yesterday. I was wrong!

The small-dollar lending rule has not yet been issued, Richard Cordray has not yet resigned and last week he responded to Rep. Jeb Hensarling’s letter asking him when he plans to resign by saying he has “no insight” about that.  Yesterday, he gave his highly anticipated AFL-CIO Labor Day speech as Director of the CFPB. Although his speech chronicled what he perceived to be his major accomplishments as Director of the CFPB and as Ohio State Treasurer and Attorney General, he said nothing about his future plans.  He didn’t make any news by announcing any new CFPB initiatives or even refer to the imminent issuance of the small-dollar lending rule. If he had used the occasion to launch his campaign, he could have used essentially the same speech.  Isaac Boltansky observes “[T]he speech venue, the political cadence of the remarks and even the reference to Dr. Martin Luther King, Jr. at the end of the speech reinforce our belief that Director Cordray will depart the Bureau in the coming weeks.”

Labor Day has come and gone and Richard Cordray remains Director of the CFPB. Will he issue the small-dollar lending rule and resign this week so that he can participate in the Ohio Democratic Gubernatorial Debate on September 12?  During that same day he is scheduled to be in Cleveland to deliver a keynote address to the 7th Annual Ohio Land Bank Conference.