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.

We have previously blogged about two upcoming events that have led to speculation that Richard Cordray is about to resign as CFPB Director.  The first event is a speech he is giving in Cincinnati, Ohio at a Labor Day picnic sponsored by the AFL-CIO.  That seems like an ideal venue to launch his campaign for Governor of Ohio.  The second is an Ohio gubernatorial debate on September 12.

There is now a third sign that his resignation may be imminent.  The CFPB this week posted on its website a notice of a meeting on September 7, 2017 at 3:30pm of the Fall 2017 Credit Union Advisory Council Meeting in Washington, D.C.  The notice states that Acting Deputy Director David Silberman will be present and will make some remarks.  This represents a departure from Director Cordray’s usual practice of giving remarks at advisory group meetings.   Acting Deputy Director Silberman has given remarks in Director Corday’s stead very rarely.

While Director Cordray has stated nothing publicly about his intent to resign, this latest CFPB announcement supports the notion that he will resign at the end of next week, perhaps after issuing the final small dollar lending rule.

Clients are always asking me and others in our Consumer Financial Services Group about how long Richard Cordray will remain as CFPB Director.  The short answer is nobody knows, perhaps not even Richard Cordray.  There are a number of factors, however, that lead me to believe that he will remain as Director until the end of his term on July 16, 2018 unless he voluntarily resigns before then to run for Governor of Ohio.

A Politico article yesterday reported that Gary Cohn, top White House economic aide, recently had a dinner meeting with Director Cordray at which he gave him an ultimatum:  resign or be removed by President Trump.  The article reported that Mr. Cohn had heard the rumors that Director Cordray wants to run for Ohio governor and, according to people familiar with the meeting, left the dinner thinking that the rumors were true.  According to the article, the White House decided to hold off on firing Director Cordray because President Trump “didn’t want to cause a sensation that could boost his candidacy and juice his fundraising.”

While it is very hazardous to predict what President Trump will do, I doubt whether he will try to remove Director Cordray either for cause or without cause.  As things now stand, the only event which could change my opinion would be if the Court of Appeals en banc in the PHH case were to reach the same conclusion as the 3-judge panel in the case – namely, that the CFPB was unconstitutionally structured and the appropriate remedy is to enable the President to remove the Director without cause – and the en banc judgment were to become final before Director Cordray’s term ends on July 16, 2018 (which is only 15 months away).  In my view, the likelihood of those events happening before July 16, 2018 is remote.

The recent filing of a brief  by the DOJ in the PHH case essentially urging  the en banc court to adopt the opinion of the 3-judge panel  suggests that President Trump will not jump the gun by attempting to remove Director Cordray before a final judgment in the PHH case authorizes him to do so.  An attempt by the President to remove Director Cordray for cause would likely trigger a legal challenge by Director Cordray that would outlast the expiration of his term unless his removal were to coincide with a decision by him to voluntarily resign to run for Ohio Governor.  Such a lawsuit would likely be stayed pending the outcome of the PHH case.  If President Trump intended to pursue a removal for cause, I believe he would have done so by now.  If he were to attempt now to remove Director Cordray for cause, that would also likely result in litigation that would outlast July 16, 2018 and, in the meantime, Director Cordray might remain in office.

Ultimately, I believe the length of Director Cordray’s remaining tenure at the CFPB will turn on whether he decides to run for Ohio Governor, and, if so, his view on when he needs to resign as Director to begin his campaign.

Even if Director Cordray remains at the CFPB for several months or longer, it does not necessarily mean that he will finalize any new regulations.  While he should have sufficient time to finalize at least the arbitration regulation, he may be deterred from doing so because of his concern that the rule will be overridden by Congress and President Trump under the Congressional Review Act.  Congress and President Trump have already overridden at least 13 final regulations issued by other federal agencies.

While Director Cordray may be deterred from finalizing any additional regulations, there is no reason to believe that there will be any let-up in his continuing pursuit of his enforcement and supervisory activities.  Indeed, the CFPB has initiated 9 enforcement actions since President Trump’s inauguration.

Recently, Richard Cordray was interviewed by CNBC while eating breakfast at a diner in his hometown in Ohio.  The interview was more noteworthy for what it failed to cover than for what it covered.  He was not asked the following questions:

  1. Do you still intend to issue a final arbitration rule and, if so, when will that happen? Are you worried about the possibility that if you do issue such a rule, it will be overridden by Congress under the Congressional Review Act?
  2. If President Trump tries to remove you for cause, will you fight the removal in court?
  3. Rumors are swirling that you intend to run for Governor in Ohio? Are the rumors true and, if so, when would you need to resign and begin your campaign?
  4. The PHH case may result in giving President Trump the right to remove you without cause. Do you regret taking the action that your agency took in light of the fact that it was contrary to the position that HUD took regarding the same RESPA issue?
  5. Does your agency still take the position that there is no statute of limitations when you prosecute an enforcement action before an Administrative Law Judge in the face of the DC Circuit panel’s decision holding that the same statute of limitations that applies in court applies in an administrative proceeding?
  6. Have you had discussions with anyone in the White House or part of the transition team and, if so, what message have they delivered to you?
  7. Have you met with Attorney General Sessions or any of his aides and, if so, do you expect that there will be any changes in the level of cooperation between your two agencies, particularly in fair lending cases?
  8. Why haven’t you selected a Deputy Director?

I, for one, learned more about what he likes eating for breakfast than the answers to the important questions that I posed and that our clients are asking me every day.

Here are the highlights from Richard Cordray’s interview earlier today with the Wall Street Journal.

He refused to respond to the question of whether or not the memo issued on January 20 on behalf of President Trump by his Chief of Staff, Reince Priebus, directing a moratorium with respect to regulations issued by executive agencies applies to the CFPB. He stated that he would “leave it to the lawyers at this point” to figure that out.

He also refused to express an opinion about whether the governance and the funding of the CFPB should be changed legislatively. He stated that it is “above my pay grade” and up to Congress.

He also stated that he would accept the opinion of the DC Circuit with respect to whether the Dodd -Frank Act is or is not constitutional. He stated that it was completely up to the courts to figure out whether President Trump has the right to remove him as director and he did not indicate, one way or another, whether he would resign voluntarily. In answer to a question posed at a press conference briefing yesterday, President Trump’s Press Secretary Spicer, stated that “no decision” has been made about Director Cordray’s future at the CFPB.

He expressed the opinion that the “vast majority “ of all of the CFPB enforcement activity deals with deceptive conduct, implying that people on both sides of the political aisle would be hard-pressed to quarrel with that.

He stated that the pace of law enforcement will remain “steady and vigorous” during the remainder of his term.

Finally, he indicated that a rulemaking dealing with the collection of information regarding loans to small businesses is a “work in process.” It did not sound like anything is imminent.

Republican members of the House Financial Services Committee recently released a report, prepared by the Republican Staff of the Committee, titled “Unsafe at Any Bureaucracy, Part III: The CFPB’s Vitiated Legal Case Against Auto Lenders.”  This is the third Republican Staff report examining the automotive ECOA enforcement actions of the CFPB with respect to what its characterizes as a “dealer markup” of the wholesale buy rate established by the assignee of a retail installment sale contract (“RISC”).  We previously wrote about the first investigative report in this series, which was titled “Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending.”  The latest report discusses two subjects.

The “Vitiated Legal Case”

The third report is devoted principally to “demonstrat[ing] that under” the Supreme Court decision in Inclusive Communities, “if the CFPB were to rely upon the legal theory it deployed in previous enforcement actions against auto financiers, its claims would not survive judicial scrutiny.”  As a threshold matter, the report asserts that disparate impact claims are not cognizable under the ECOA because the ECOA does not contain “results-oriented language” like that which the Supreme Court relied upon in holding that disparate impact claims are cognizable under the Fair Housing Act (“FHA”).   The ECOA speaks instead in terms of discriminating against an applicant on a prohibited basis.  The report further asserts that Inclusive Communities interpreted the adoption of the FHA Amendments of 1988, which it said contemplated the existence of disparate impact liability, as Congressional ratification of prior appellate decisions holding that disparate impact claims are cognizable under the FHA.  By way of contrast, however, the report notes that “Congress has made no such amendments to ECOA.”

The staff report also asserts, and contains a robust discussion of, additional reasons why the Bureau could not establish a prima facie case of disparate impact liability against an assignee of RISCs.  Specifically, for reasons discussed therein, the report concludes that: (i) the asserted “discretion” to “mark up” the wholesale buy rate is not a specific “policy” upon which a disparate impact claim may be based; and (ii) the CFPB could not meet the robust causality standard that Inclusive Communities reiterated and expounded upon in its discussion of the safeguards against abusive disparate impact claims.  Finally, the report suggests that, “[b]y asking only whether a minority [buyer] paid more than the non-Hispanic white average, the CFPB does not accurately assess whether he or she was actually harmed by the disparate impact.”

The report’s discussion of the “vitiated legal case” against assignees of RISCs concludes with the observations that “[f]uzzy logic and false comparisons are unfortunately prevalent in the” Bureau’s ECOA auto enforcement actions, as is a “lack of rigor that leads to unsupported and unreliable conclusions.”  We have written previously about some of the issues discussed in the report, including in our articles on the Supreme Court decision in Inclusive Communities, “Auto Finance and Disparate Impact: Substantive Lessons Learned from Class Certification Decisions,” and a February 2006 Business Lawyer article titled “The ECOA Discrimination Proscription and Disparate Impact – Interpreting the Meaning of the Words That Actually Are There.”

The Auto Finance Larger Participant Rule

The press release issued by the Republican members of the Committee highlights the final subject covered by the report.   Titled “CFPB Director Failed to Heed Attorney Advice on Auto Lending Rule, Likely Violated Federal Law,” the press release asserts that the Bureau may have violated the Administrative Procedures Act in adopting the larger participant rule for the automobile financing market (the “LPR”).  Quoting from the Supplementary Information accompanying the proposed LPR, the report states that the definition of a “larger participant” is “based upon ‘quantitative information on the number of market participants and their number and dollar volume of annual originations’ taken from Experian’s AutoCount database.”

According to the report, during the comment period for the proposed LPR, the Bureau received requests for a list of the companies that it believed would qualify as “larger participants” under the proposed rule, and “‘a number of comments pertaining directly or indirectly to the Experian list.’” Believing the Experian AutoCount data, and any information derived from it, to be proprietary information that it was not at liberty to disclose, the Bureau did not respond with the requested information.

The report indicates, however, that after the comment period ended, Experian informed the Bureau that it had no objection to: (i) releasing the list of the names of the entities that the Bureau estimated would be “larger participants” under the proposed volume threshold for larger participant status; and (ii) the relative market share for each listed entity.  Relying upon internal CFPB documents obtained by the Committee, the report asserts that the Bureau did not follow an internal legal recommendation to reopen the comment period, publish this information and request comments with respect to it before proceeding to adopt a final LPR for the automobile financing market.

The CFPB announced that the following individuals are joining its senior leadership team:

  • Leandra English is returning to the CFPB to serve as the Chief of Staff.  Ms. English previously served in several senior CFPB leadership roles, including deputy chief operating officer, acting chief of staff, deputy chief of staff, and deputy associate director of external affairs.  Most recently, Ms. English served as the principal deputy chief of staff at the Office of Personnel Management.
  • Jerry Horton will serve as the CFPB’s Chief Information Officer.  Before joining the CFPB, Mr. Horton worked at the Department of State where he started and led the Office of the Chief Architect for State’s global information presence.  He also previously served as the chief information officer at the U.S. Agency for International Development and at the U.S. Mint in the Department of the Treasury.
  • Paul Kantwill will serve as the CFPB’s Assistant Director for Servicemember Affairs.  Prior to joining the CFPB, Mr. Kantwill served as the director of the Pentagon’s Office of Legal Policy, Office of the Under Secretary of Defense, Personnel & Readiness.  In that position, Mr. Kantwill was the Department of Defense’s legal policy expert on the financial industry and the effects of financial products and services on military members and their families.
  • John McNamara will serve as the CFPB’s Assistant Director of Consumer Lending, Reporting, and Collections Markets.  Mr. McNamara previously served in the same capacity in an acting role, and before that was the CFPB’s debt collection program manager.
  • Elizabeth Reilly will serve as the CFPB’s Chief Financial Officer.  Ms. Reilly previously served as the CFPB’s deputy chief financial officer.

As a result of Donald J. Trump’s election as President, coupled with the Democrats’ failure to wrest control of the House or Senate from the Republicans, the CFPB can be expected to undergo significant changes that are likely to have the effect of reducing the agency’s impact.

On November 30, 2016, from 2 p.m. to 3 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Election Post-Mortem: What It Means for the CFPB, Other Federal and State Regulators, and the Industry.”  The webinar registration form is available here.

The most visible expected change is Mr. Trump’s replacement of Director Richard Cordray.  How soon that occurs post-inauguration may depend on whether the CFPB seeks further judicial review of the D.C. Circuit’s decision in CFPB v. PHH Corporation and, if so, the outcome of such review.  In its decision, the D.C. Circuit ruled that the CFPB’s single-director-removable-only-for-cause structure was unconstitutional.  To remedy the constitutional defect, the court severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President can now “remove the Director at will at any time.”  Unless and until the PHH decision takes effect (or Congress amends the Dodd-Frank Act), Mr. Trump could only remove Director Cordray “for cause” before the Director’s term ends in 2018.

Once appointed by Mr. Trump, a new Director can be expected to take aim at the CFPB’s “rulemaking by enforcement” approach that has been the target of Republican criticism by decreasing CFPB enforcement activity while using CFPB rulemaking as a way to limit the CFPB’s exercise of its enforcement authority.  For example, a new Director might seek the CFPB’s adoption of a rule to define the practices that are considered “abusive” for purposes of the CFPB’s authority to prohibit unfair, deceptive, or abusive acts or practices.  A new Director’s efforts to promote rulemaking over enforcement might also include seeking the repeal of the CFPB’s auto finance fair lending guidance.  (One of the criticisms leveled at the guidance is that it should not have been adopted outside the rulemaking process.)

In addition, if the CFPB’s proposed payday lending and arbitration rules have not been finalized when a new Director is appointed, a new Director might seek to withdraw or amend the proposals.  Also, since the CFPB has not yet issued a proposed debt collection rule but has issued only an advance notice of proposed rulemaking, it is possible a proposed rule, if any, will not be issued until a new Director is in place and therefore might be more industry-friendly.  (These potential scenarios could also motivate Director Cordray to accelerate the three rulemakings.)

The election results also substantially increase the likelihood that Congress will enact some of the reforms to the CFPB’s structure, funding, and operation that have been the subject of numerous bills introduced by Republicans over the approximately five years the CFPB has been operational.  Such bills include “The Financial CHOICE Act of 2016,” the Dodd-Frank Act replacement bill that was approved this past September by the House Financial Services Committee.  Most notably, the CHOICE Act, like previous Republican bills, would replace the CFPB’s current single director with a bipartisan, five-member commission and fund the agency through the appropriations process rather than through transfers from the Federal Reserve.  The effects of these changes are likely to include a longer timeline for CFPB rulemaking, a less partisan-driven CFPB agenda, and greater Congressional influence on CFPB decision-making.

The CFPB has announced the following senior leadership changes:

  • Stacy Canan will serve as the CFPB’s Assistant Director for the Office for Older Americans.  Ms. Canan had been serving as the deputy assistant director for the Office for Older Americans since joining the Bureau in November 2012.  Before joining the CFPB, Ms. Canan was the managing attorney at the AARP Foundation Litigation group where she handled consumer protection and healthcare cases nationwide.
  • John Coleman will serve as the CFPB’s Deputy General Counsel for Litigation and Oversight in the Legal Division. Since joining the Bureau in November 2010, Mr. Coleman has served as the assistant general counsel for litigation, and as senior litigation counsel.  Before joining the Bureau, Mr. Coleman worked as a trial attorney in the Department of Justice’s Federal Programs Branch.
  • Sonya White will serve as the CFPB’s Deputy General Counsel for General Law and Ethics in the Legal Division.  Ms. White previously served as the Bureau’s assistant general counsel for general law and ethics.  Before joining the CFPB in February 2013, Ms. White worked as the deputy chief counsel at the U.S. Treasury Department, Bureau of Engraving and Printing.