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Politico has reported that Senate Majority Leader Mitch McConnell filed cloture this afternoon on President Trump’s nomination of Kathy Kraninger to serve as CFPB Director.  The filing means that the full Senate will vote on the nomination once it returns after Thanksgiving, although the date of a vote remains uncertain.

 

 

 

A number of housing and financial industry trade groups, including the Mortgage Bankers Association and Real Estate Services Providers Council, Inc. (RESPRO®), recently sent a letter to Senators Mitch McConnell (R-KY) and Charles E. Schumer (D-NY) supporting the confirmation of Kathleen Kraninger as CFPB Director.

The trade groups state that Ms. Kraninger “has the ability to lead and manage a large government agency, like the Bureau, which is tasked to ensure consumers’ financial interests are protected,” and “also fulfill the equally important role of ensuring businesses have the necessary compliance support to further those interests.”

Addressing concerns regarding the CFPB, the trade groups state “Our members believe the Bureau must improve its examination, enforcement, rulemaking and guidance processes to assist with regulatory compliance and bring certainty in the marketplace. As evidenced during the Senate Banking Committee confirmation hearing, Ms. Kraninger’s testimony conveyed a commitment to such actions along with a thoughtful review of the law for corresponding administrative actions.”

As we reported previously, the Senate Banking Committee voted to approve Ms. Kraninger’s nomination as CFPB Director, but the full Senate has not acted on the nomination. If the Senate does not act on Ms. Kraninger’s nomination during the lame-duck session, the nomination will be returned to President Trump. Once the new Congress convenes next year, the President could re-nominate Ms. Kraninger or nominate another individual for CFPB Director. As we reported previously, under the Federal Vacancies Reform Act Mick Mulvaney can continue to serve as Acting CFPB Director for a 210-day period if Ms. Kraninger’s nomination is returned or rejected, and once another nomination is made he could serve as Acting Director during the Senate’s consideration of the second nomination.

Addressing the Mortgage Bankers Association (MBA) 2018 Annual Convention in Washington, DC on October 15, 2018, BCFP Acting Director Mick Mulvaney advised that regulation by enforcement is dead, and that he does not care much for regulation by guidance either. He noted to the members that they have a right to know what the law is.

Acting Director Mulvaney advised that if a party is doing something that is against the law, the BCFP will take action against them. However, he advised the difference between the BCFP now from its approach under the prior Director is that if someone is doing something that complies with the law and the BCFP doesn’t like it, the BCFP will not take action.

With regard to UDAAP, Acting Director Mulvaney stated that he believes the concepts of “unfair” and “deceptive” are well established in the law, but that is not so with regard to the concept of “abusive”. He noted he asked his staff to provide examples of what is abusive that is not also either unfair or deceptive. And he signaled that the BCFP will look to engage in rulemaking on abusive.

As we have reported the MBA and other trade groups recently sent a letter to the BCFB seeking reforms in connection with the BCFP’s loan originator compensation rule. When asked by MBA President and CEO Robert Broeksmit about the letter, Acting Director Mulvaney advised that he knew the letter was received and that it is being reviewed by staff, but that he had not actually seen the letter. Mr. Broeksmit then handed Mr. Mulvaney a copy of the letter, drawing laughs from the audience.

With regard to payday lending, Acting Director Mulvaney advised that it can be really dangerous for people given the high interest rates, but that people want it so it exists. He noted he has told payday lenders they exist because bank regulators forced banks out of the business. But he stated that the OCC has signaled it will allow banks back in, and that the way to fix payday lending is through competition.

 

Seth Frotman, the CFPB’s Student Loan Ombudsman, has sent a letter to CFPB Acting Director Mulvaney tendering his resignation effective September 1, 2018.  (In addition to Treasury Secretary Mnuchin and Department of Education Secretary DeVos, Mr. Frotman’s letter indicates that copies were sent to various Senate and House lawmakers.)

In his letter, Mr. Frotman is highly critical of the CFPB’s actions in the student loan arena.  He comments that the Bureau’s current leadership “has abandoned its duty to fairly and robustly enforce the law,”  “has made its priorities clear—it will protect the misguided goals of the Trump Administration to the detriment of student loan borrowers,” and “has turned its back on young people and their financial futures.”

 

 

By a 13 to 12 party-line vote today, the Senate Banking Committee approved President Trump’s nomination of Kathy Kraninger to serve as CFPB Director.

When the full Senate will consider her nomination and whether it will be approved remains uncertain.  We continue to believe that the full Senate is unlikely to consider her nomination before the mid-term elections.

 

According to media sources, the Senate Banking Committee has rescheduled a vote on President Trump’s nomination of Kathy Kraninger to serve as CFPB Director for August 23.

There is little doubt that the Committee will approve Ms. Kraninger.  It remains unclear, however, whether and when the full Senate will consider her nomination.  We continue to believe that it is unlikely that the full Senate will consider her nomination before the mid-term elections.

 

As we previously reported, Kathy Kraninger, President Trump’s nominee to become the next CFPB Director, testified at a hearing of the Senate Banking Committee on July 19.  Following the hearing, Democrats on the committee sent her a list of questions relating to her involvement in the development of President Trump’s “zero tolerance” immigration policy and how she would manage the Bureau.

Ms. Kraninger recently sent responses to the follow-up questions in which she denied being involved in the development of the “zero tolerance” policy and largely deflected questions related to how she would run the Bureau.  Perhaps the most illuminating answer she gave is one indicating that she agreed with the changes made by Acting Director Mulvaney in managing the Bureau.

I anticipate that the Senate Banking Committee will vote to confirm her nomination.  The timing of that vote is very unclear.  The vote was scheduled to take place today, but was postponed when Senator McConnell announced that the Senate would be in recess beginning today until August 13. It remains unclear whether and when the full Senate will consider her nomination. I still believe that it is unlikely that the full Senate will consider her nomination before the mid-term elections.

Leandra English, who was appointed CFPB Deputy Director by former Director Cordray before his November 2017 resignation, announced today that she will resign as Deputy Director early next week.  Ms. English indicated that her resignation was prompted by President Trump’s recent nomination of Kathy Kraninger to serve as CFPB Director.

Ms. English’s announcement was accompanied by a statement from her attorney indicating that he will be filing papers on Monday to terminate her lawsuit against President Trump and Acting Director Mulvaney which is now pending before the D.C. Circuit Court of Appeals.  The District Court had previously held that Mr. Mulvaney is the lawful Acting Director.

On April 12, 2018, Mick Mulvaney, the Acting Director of the Consumer Financial Protection Bureau (Bureau) testified before the Senate Committee on Banking, Housing, and Urban Affairs regarding the Bureau’s Semi-Annual Report to Congress.  The Senate Hearing comes the day after Democrats in the House Financial Services Committee questioned Mulvaney about his leadership at the Bureau.  A copy of his written testimony is here.

At the hearing, Mulvaney stuck to the theme of Bureau accountability—an issue raised in his written remarks and Semi-Annual Report—and fielded questions on topics including the Bureau’s role of protecting consumers, payday lending, data security, political favoritism, and constitutionality of the Agency:

  • Increased Congressional Oversight. Throughout the hearing, Mulvaney stressed his recommendations for greater oversight to hold the Bureau accountable.  “I don’t think that any director of any bureaucracy has ever come to you and said please take my power away, but that is what I am doing, and to the extent you can do that, I think we will all be well served by it.”  To illustrate his point, Mulvaney quipped in his opening remarks that Dodd-Frank merely required him to “appear” before Congress, but not to answer any questions.  Later, in exchanges with Republican senators, Mulvaney explained that Congress currently could do nothing to him as the Acting Director:  “You could make me look bad and that’s about it.  You can’t touch me statutorily. . . . Don’t rely on the person.  Fix the structure.”  According to Ranking Member Sherrod Brown (D-OH), however, Mulvaney “is hoping that if he does a bad enough job running the CFPB, Congress will take away CFPB’s ability to protect consumers.  Congress should not fall for it.”
  • Consumer Protection.  Several Democratic senators confronted Mulvaney about the Bureau’s goal of protecting consumers.  Sen. Elizabeth Warren (D-MA) outlined past Bureau successes, as well as Mulvaney’s attempts as a Congressman to get rid of the agency, and rebuked Mulvaney for “tak[ing] an obvious joy in talking about how the CFPB will help banks more than it will help consumers….  You’re hurting real people to score cheap political points.”
  • Payday Lending.  Other Democrats targeted Mulvaney’s payday lending decisions, including his decision to dismiss a lawsuit filed by his predecessor against a payday lender and his decision to reconsider the Bureau’s payday lending rules. Mulvaney refused to comment on the dismissal based on advice from legal staff and an ongoing investigation.  He also defended his decision to reconsider the payday lending rules.  He repeatedly stated that he has no “preconceived notions” about revoking the payday lending rules, but rather believes the rules were “rushed” and should go through the notice and comment period.  Mulvaney noted, however, that he has the discretion to reach a different conclusion about the payday lending rules than his predecessor, Richard Cordray.  During questioning by Sen. Doug Jones (D-AL), Mulvaney flaunted his view that payday lending concerns should be resolved by state legislatures, not consigned to the discretion of the Bureau’s director or Congress: “Who do you trust more, home town legislature or United States Congress.  Personally, I have a great deal of faith in my state legislature.”  Surprisingly, as was the case during his appearance before the House Committee, nobody asked him to comment on the lawsuit filed last week by the CFSA (the trade association of payday lenders) against the Bureau challenging the legality of the payday lending rule.
  • Data Security.  While data security was an issue that spanned both sides of the aisle, Republican senators focused on the Bureau’s handling of consumer data while their Democratic colleagues focused on Mulvaney’s position on the Equifax data breach.

As to the Bureau’s handling of data, Mulvaney explained that he has instituted a data freeze and commissioned a report about the Bureau’s data collection and protection.  While the data freeze does not apply to enforcement actions, the Bureau plans “to limit data that we take possession of.  . . . instead of having them send it to us electronically, we are going to look at it.”  Mulvaney acknowledged that “everything that we keep is subject to being lost.”  When Sen. David Perdue (R-GA) asked what data had been lost, Mulvaney declined to publicly comment.

Sen. Mark R. Warner (D-VA) explained that much of the data collected by the Bureau is anonymous and needed to show discriminatory patterns.  He, along with Sen. Chris Van Hollen (D-MD) and Sen. Robert Menendez (D-NJ), questioned Mulvaney instead on the Bureau’s failure to take action against Equifax for its data breach.  Mulvaney testified that his regulatory agenda includes rulemaking to protect consumers from credit reporting abuses and agreed that companies should have to inform the public about hacked data in a certain amount of time.

  • Political Favoritism.  Democrats also scrutinized Mulvaney’s decision to hire political “cronies” for Bureau positions and pay them large salaries.  Mulvaney asserted that he used the same “pads-and-dads” system used at the OMB, where a career staffer and political designee work on a team, and that the appointees were paid using the scale set by his predecessor.  While Mulvaney also claimed that he had “complete authority under the statute” to hire and pay such appointees, the Committee questioned how his hiring decisions were consistent with Mulvaney’s fiscally conservative views.  Sen. Jon Tester (D-MT) noted that Mulvaney’s chief of staff is paid $47,000 more per year than her predecessor and stated the hiring “smacks of political favoritism…. [Mulvaney] can’t be conservative just when it’s convenient.”

Sen. Tom Cotton (R-AR) struck back on the salary issue with questions about the salary of Leandra English, the Deputy Direct of the Bureau and the plaintiff in a pending lawsuit that seeks to have her named as Acting Director instead of Mulvaney. Mulvaney testified that he does not speak with English because of the litigation, nor does he know what she does at the Bureau.  Sen. Cotton commented, and Mulvaney agreed, that “she’s earning $212,000, claiming to be the director, running around and we have no idea what she does all day long.”  Ranking Member Brown took a different view, however, noting earlier in the hearing that Mulvaney’s appointment ignores the law, which states that the deputy director, rather than a political appointee, should take over the Acting Director role.

  • Constitutionality of the Bureau.  Mulvaney also walked a narrow line to answer questions about the constitutionality of the agency that he heads.  “I’m not sure that I have the discretion to consider this agency to be unconstitutional. . . . I think the system starts to break down if people who work at places make their own conclusions about constitutionality.  If the President tells me it is unconstitutional, I’ll pay attention.  I am assuming it’s constitutional every single day when I go in. . . .”

On April 12, 2018, the United States Court of Appeals for the District of Columbia Circuit held oral argument on the appeal brought by Leandra English, CFPB Deputy Director, of the district court’s denial of her application for preliminary injunction. If granted as requested by Ms. English, the injunction would install Ms. English as the Acting Director, in lieu of Mick Mulvaney, whom President Trump appointed to the position following the resignation of Richard Cordray.

Judges Judith W. Rogers, Thomas B. Griffith, and Patricia Millet comprised the panel. All three judges showed significant interest in the issues presented by Ms. English’s appeal.  Oral argument was scheduled for twenty minutes per side, but the hearing lasted over an hour.

The fundamental issue presented by the appeal is whether or not President Trump had the statutory authority under the Federal Vacancies Refom Act (the “FVRA”) to appoint Mr. Cordray’s successor.  Ms. English argued through her counsel that he lacked such power because the Dodd Frank Act specifies that the Deputy Director – i.e., Ms. English – shall serve as Acting Director in the “absence or unavailability” of the Director until a new Director has been appointed by the President and confirmed by the Senate.  The Justice Department disagreed and argued that the FVRA affords the President the power to select an Acting Director upon resignation by the Director, regardless of the language in Dodd/Frank.

The panel expressed skepticism toward both sides. The panel was skeptical as to English’s argument that the language of Dodd-Frank is sufficiently specific to justify a ruling that would supersede the FVRA.  However, the panel was also skeptical as to the arguments advanced by the Justice Department, principally because President Trump appointed Mr. Mulvaney, the current Director of the Office of Management and Budget (“OMB”).  The panel seemed sympathetic to English’s argument that having Mr. Mulvaney wear the proverbial two hats, as noted by Judge Millett, would threaten the CFPB’s status as an independent agency. In underscoring this point, English pointed to specific language in Dodd-Frank which precludes the OMB from having any oversight over the CFPB. The Justice Department argued that there is no language in Dodd-Frank which specifically precludes someone from being both the acting Director of the CFPB and the Director of OMB.

The panel appeared troubled by the prospect of issuing an injunction limiting the powers of the President under the FVRA.  The tenor of the panel’s comments suggests that such a ruling might nevertheless issue, though in a limited fashion.  If the problem identified by the panel is the specific selection of Mr. Mulvaney, rather than the more general power of the President under the FVRA to select an Acting Director after the Director of the CFPB has resigned, then any victory awarded to Ms. English would likely be short-lived.  If the panel concludes that President Trump had the power to appoint the Acting Director but erred in selecting the current OMB Director, the President could correct his error by promptly appointing another Acting Director as long as such person has been previously confirmed by the Senate for another position and is independent of the President.   Even during any brief interim after such a ruling and the President’s appointment of a new Acting Director, it is not clear that Ms. English would serve as Acting Director.  As the panel noted, there is a substantial standing question that also needs to be addressed.  As noted by Judge Griffith, Ms. English’s standing problem could mean that if she prevails on her application for an injunction, she prevents Mr. Mulvaney from functioning as Acting Director, but that does not necessarily mean that she will occupy the position. However, someone needs to be in charge of the agency during that interim period and if it is not English, who else could it be?

The panel also raised questions to both sides regarding their shared assumption that the phrase “absence or unavailability” in the relevant Dodd-Frank provision applies to a vacancy created by the CFPB Director’s resignation.  Although the Office of Legal Counsel has concluded that this phrase does apply to a vacancy resulting from a resignation, for the compelling reasons set forth in our previous blog post [https://www.consumerfinancemonitor.com/2017/11/27/another-argument-for-why-mick-mulvaney-is-the-cfpb-acting-director/], we believe the phrase should not be construed so broadly.  Both parties responded to this line of questioning by noting that they do not disagree with each other on this point.  However, the panel’s questioning indicated that the issue may not be resolved by the parties’ agreement, or by the OLC’s opinion on the matter.

If the court should conclude that Mulvaney was not lawfully appointed as acting director, what are the implications for formal actions which he has taken during his tenure?  Although it is not free of doubt, it would seem that the new acting director appointed by the President could ratify all the actions previously taken by Mulvaney. While he has made many statements about how he is changing the CFPB, he has not taken too many formal actions. One example of a formal action would be his issuance of a final prepaid accounts rule.

In short, today’s oral argument suggested the possibility that Ms. English may prevail but that any victory secured by Ms. English may very well be pyrrhic.

An audio recording of the hearing is available on the court’s website.

We will monitor the case and update our blog after the panel issues its decision.