Despite its long duration (over five hours including a recess for a vote), the House Financial Services Committee’s hearing on April 5 at which Director Cordray was the sole witness provided a strong dose of political theater but little in the way of new information or substance.   Although there were many important questions that Committee members could have asked Director Cordray (we suggested several in a prior blog post), members mostly returned to familiar themes in their questions and remarks.  For Republican members, those themes included CFPB overreach and unaccountability to Congressional oversight, damage to credit availability and community banks resulting from CFPB guidance and regulations, excessive spending, and mistreatment of CFPB employees.  Familiar themes of Democratic members included how the financial crisis gave rise to the CFPB and how the CFPB serves consumers by protecting them from discrimination, fraud, and other unlawful practices.

The hearing’s battle lines were drawn during the opening remarks of Chairman Hensarling and Ranking Member Waters.  Chairman Hensarling began his remarks by referencing press reports that Director Cordray intends to run for Ohio governor, expressing surprise that he had not returned to Ohio to do so, and was still serving as CFPB director given that President Trump had the right to dismiss him at will.  He then called on the President to immediately dismiss Director Corday, claiming that the PHH decision allowed the President to do so without the need to show cause.   He also asserted that even if the President needs cause to dismiss Director Cordray, there are numerous grounds on which President Trump could rely.  According to Chairman Hensarling, such grounds include the harm inflicted on consumers by the CFPB’s auto lending guidance (as well as the illegality of the CFPB’s attempt to regulate auto dealers through such guidance) and Director Cordray’s unilateral reversal of well-settled RESPA guidance in the PHH case.

In her opening remarks, Ranking Member Waters praised Director Corday for fighting for “hard working Americans” and thanked him for his continued leadership of the CFPB.  She referenced how much money the CFPB has recovered for consumers and assessed in civil money penalties and mentioned her efforts and those of other Democrats to defend the CFPB’s constitutionality in the PHH litigation.

In addition to Chairman Hensarling’s comments, several other committee members, in their questioning of Director Cordray, raised the issue of his resignation.  Rep. Duffy asserted that because Director Cordray had served as a recess appointee from January 2012 until his Senate confirmation in July 2013, he has already effectively served a five-year term as director and  “consistent with the spirit” of Dodd-Frank, should step down voluntarily now.  In response to Rep. Zeldin’s question whether Director Cordray intended to serve the remainder of his term, Director Cordray stated that he had “no insights to provide.”  When asked by Rep. Hollingworth if he would resign if requested to do so by President Trump, Director Cordray responded that he would follow the law.

While its substantive content was slim, the hearing did produce the following noteworthy information:

  • Somewhat surprisingly, Chairman Hensarling criticized the CFPB for not proceeding more quickly to issue a regulation to implement Section 1071 of Dodd-Frank (which amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses such as the race, sex, and ethnicity of the principal owners of the business).  He commented that the CFPB had engaged in discretionary rulemaking but had not completed the Section 1071 rulemaking mandated by Dodd-Frank.
  • Rep. Lukemeyer criticized the provision in the CFPB’s proposed rule concerning the disclosure of confidential supervisory information (CSI) that would restrict a company’s disclosure of either the receipt or the content of a CID or NORA letter.  Director Cordray indicated that, after considering comments received on the proposal, the CFPB is “going back to the drawing board,” and that Rep. Lukemeyer would  be “happy” with the outcome.   (The proposal would also expand the CFPB’s discretion to share CSI with state attorneys general and other agencies that do not have supervisory authority over an entity.)
  • In response to Rep. Maloney’s question whether the CFPB plans to propose an overdraft rule, Director Cordray noted the CFPB’s long-standing interest in overdrafts, stated that overdrafts continued to be  “on our minds very much,” and said he could not speak to the timing of any rulemaking.  With regard to the timing of other pending rulemakings, when asked about the timing of a final payday/small dollar loan rule and clarifications to the TILA/RESPA integrated disclosure rule, Director Cordray was unwilling to give an estimated date for either item, noting the unprecedented number of comments received on the payday/small dollar loan proposed rule.  Although the CFPB’s arbitration rule is the furthest along in the rulemaking process, Director Cordray was not asked about the timing of a final rule and was only asked about the rule’s application to insurance premium financing agreements.
  • Director Cordray was unwilling to respond directly to Rep. Posey’s question as to how many no-action letters the CFPB has issued.  (None have been published on the CFPB’s website.)  However, he stated that the CFPB’s no-action policy has “not yet generated a lot of demand” which could indicate the policy is not working properly.
  • Several Republican committee members criticized CFPB press releases about consent orders for containing conclusory statements that a company had violated the law despite language in the consent order stating that the company neither admits nor denies the order’s findings of fact and conclusions of law.  In an exchange with Rep. Huizenga, Director Cordray defended the press releases, stating that “the facts are the facts.”   He commented that a consent order’s “neither admit nor deny” language does not matter for the truth of the facts recited in the consent order but matters for whether the facts have been established for follow-on lawsuits by private attorneys.  He was also unwilling to concede that a company might enter into a consent order because it is intimidated by the CFPB’s authority and instead insisted that the main reason a company enters into a consent order is because the CFPB has completed a thorough investigation, “we know the facts,” “they know the facts,” and “they don’t have a leg to stand on.”
  • Director Cordray indicated that the CFPB is looking at possible changes to the prepaid card final rule dealing with the linking of credit cards to digital wallets and error resolution procedures for unregistered cards.

On March 30, Director Cordray gave his annual speech to the United States Chamber of Commerce’s 11th Annual Capital Markets Summit.  His prepared remarks focused on the CFPB’s role in adopting regulations.

He spoke at length about the factors involved in the economic meltdown and how Congress responded, in part, by creating the CFPB.  He trumpeted the CFPB’s promulgation of detailed regulations for the mortgage industry.  He also mentioned the CFPB’s regulation dealing with  international remittances.  Finally, he mentioned, in passing, pending rulemakings pertaining to arbitration, debt collection, and small dollar lending.  He curiously omitted mentioning the final prepaid cards regulation which is the only CFPB final regulation not mandated by Dodd-Frank.  He shed no light on the status of any of the pending rulemakings.

Although Director Cordray’s prepared remarks did not address the consent orders and lawsuits arising from the CFPB’s enforcement initiatives, several media reports indicated that he was asked why the CFPB often decides to make law through consent orders rather than regulations.  He stated that “rulemaking is prospective in nature and by definition then, in many respects, more evenhanded.  But it does take time to fashion the rules, and it is a difficult process.  It requires a lot of data, a lot of thought, a lot of input….  Enforcement is different.  It’s meant to address particular situations that arise.  It’s much more factually-based.  It may be more unique to a certain circumstance than a rulemaking.  It needs to be.”

As he has previously stated, Director Cordray indicated  that under his “principle of equal justice,” non-parties to consent orders should still consider consent orders to be guideposts of activity which the CFPB considers to be unlawful.  He stated that “[i]f we don’t enforce with the principle of equal justice in mind, then you’re taking random enforcement actions here and there that don’t have any generalized impact.  That is why, when we take enforcement actions, we make a point to publish a detailed order describing what the facts were.”  The Chamber of Commerce has previously criticized this type of “regulation by enforcement.”

We expect that during the remainder of Director Cordray’s term (which expires in July 2018), the CFPB will continue to focus on enforcement instead of rulemaking since it would face the risk of any new regulations it issues being overridden by Congress under the Congressional Review Act.



On April 5, 2017, the House Financial Services Committee will hold a hearing, “The 2016 Semi-Annual Reports of the Bureau of Consumer Financial Protection Bureau.”  Since Director Cordray has appeared at all of the Committee’s prior hearings on CFPB semi-annual reports, it is reasonable to expect him to appear at this hearing even though the Committee’s website does not yet identify any witnesses.  His appearance would represent Director Cordray’s first Congressional appearance since President Trump’s inauguration. 

Early last month, Director Cordray was interviewed by CNBC.  We commented that the interview was more noteworthy for what it failed to cover than for what it did cover and listed a number of important questions he was not asked.  We think several of those questions and some others would be appropriate for Committee members to ask Director Cordray at the April 5 hearing.  Committee members might consider asking: 

1. Does the CFPB still intend to issue a final arbitration rule or a final payday/small dollar loan rule and, if so, when will that happen?  Are you concerned about the possibility that if the CFPB does issue such rules, they will be overridden by Congress under the Congressional Review Act?

2. Do you intend to remain CFPB Director until your term ends in July 2018?

3. Is it still the CFPB’s position that no statute of limitations applies when it prosecutes an enforcement action before an Administrative Law Judge or has its position changed in light of the D.C. Circuit panel’s decision in the PHH case holding that the same statute of limitations that applies to a lawsuit filed in court applies to an administrative proceeding?

4. 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 and also in light of the fact that the DOJ is not supporting the CFPB’s position in the PHH case?

5. Why haven’t you selected a Deputy Director?

6. When does the CFPB expect to convene a second SBREFA panel to consider proposals for a rule covering first-party creditors collecting their own debts and others engaged in debt collection not covered by the proposals issued last July?

7. Will the CFPB follow all of the executive orders issued by President Trump dealing with regulatory reform even though certain of those orders may not apply directly to the CFPB?



The DOJ submitted its amicus brief in the PHH case on Friday, March 17.  We have blogged extensively about this case since its inception. Unsurprisingly, the Trump DOJ supports striking from Dodd-Frank the removal-only-for-cause protection currently applicable to the director of the CFPB.  In its “view, the panel correctly applied severability principles and therefore properly struck down only the for-cause removal restrictions.”  If the DOJ gets its way, the CFPB would remain intact with a director that President Trump can replace at any time.

While PHH likely appreciates the DOJ’s support, the DOJ is advocating a more limited remedial measure than PHH is seeking.  As we’ve noted before, PHH is arguing in the case that the CFPB should be dismantled in its entirety because its “unprecedented independence from the elected branches of government violates the separation of powers” and because the CFPB’s “constitutional infirmities extend far beyond limiting the President’s removal power…the proper remedy is to strike down the agency in its entirety.”  In sharp contrast, the Trump DOJ supports keeping the CFPB intact with a director removable at the will of the President.

Though the brief does not highlight the fact, the Trump DOJ has departed substantially from the position that the DOJ took under President Obama.  The departure is most obvious in brief’s first footnote, where the DOJ notes that “[i]n one case filed against several federal agencies and departments . . ., [t]he [DOJ’s] district court briefs . . . argued that, based on the Supreme Court’s decision in Humphrey’s Executor, the CFPB’s for-cause removal provision is consistent with the Constitution.”  However, the footnote goes on, “[a]fter reviewing the panel’s opinion here and further considering the issue, the [DOJ] has concluded that the better view is that the provision is unconstitutional.”  The obviously political nature of the change makes it difficult to predict how the judges on the court will react to the DOJ’s brief.

Of course, the change at the DOJ is not reflected in the CFPB’s view, which is diametrically opposed to the DOJ’s.  It’s rare that two executive agencies disagree so starkly and so publicly on an issue of such importance.  This contrast only highlights the problems created by a federal agency headed by a single person that is not accountable to the president.

There has been some debate about President Trump’s authority to designate a replacement for Director Cordray should he resign or be removed by the President.

The Dodd-Frank Act authorizes the CFPB Director to appoint a Deputy Director who shall “serve as acting Director in the absence or unavailability of the Director.”  Since the resignation of Steven Antonakes as Deputy Director in July 2015, the position of Deputy Director has remained unfilled.  Currently, David Silberman is serving as Acting Deputy Director.  Should Director Cordray resign or be removed by the President, it is unclear whether an Acting Deputy Director would be eligible to serve as Acting Director under the Dodd-Frank provision.

Assuming Mr. Silberman could not serve as Acting Director (or was also removed by President Trump), the President might be able to rely on the Federal Vacancies Reform Act of 1998 to temporarily fill the vacancy with one of his Senate-confirmed Cabinet members or another confirmed agency head until his nominee for Director is confirmed.  The Act provides that “if an officer of an Executive agency…whose appointment to office is required by the President, by and with the advice and consent of the Senate, dies, resigns or is otherwise unable to perform the functions and duties of the office…the President (and only the President) may direct a person who serves in an office for which the appointment is required to be made by the President, by and with the advice and consent of the Senate, to perform the functions and duties of the vacant office temporarily in an acting capacity [subject to the Act’s time limitations.]”

It is unclear, however, whether Director Cordray would be considered the officer of an “executive agency” for purposes of the Act (which does not define the term).  The CFPB is designated an “executive agency” by the Dodd-Frank Act for purposes of its placement within the Executive Branch.  However, for purposes of the independence of its leadership, it is structured as an “independent agency” rather than an “executive agency.”  In its PHH decision, which has not yet taken effect, the D.C. Circuit changed the CFPB’s structure from an independent to an executive agency.  The Trump Administration could take the position that it does not have to wait for the PHH appeal to be resolved before it considers the CFPB to no longer be an independent agency.

Dodd-Frank Act Section 1066, entitled “Interim Authority of the Secretary,” authorized the Secretary of the Treasury “to perform the functions of the Bureau” under Subtitle X “until a Director is confirmed.”  Although it appears this provision would no longer apply pending confirmation of the next director, it suggests that Steven Mnuchin, President Trump’s nominee for Treasury Secretary, would be an appropriate person for Mr. Trump to designate under the Act as Acting CFPB Director (assuming Mr. Mnuchin is confirmed).  In addition, since only a simple majority vote would be required to confirm Mr. Trump’s nominee for CFPB Director, the confirmation process should not be lengthy (barring any legal action brought challenging Director Cordray’s removal that would delay the process).

On Inauguration Day, Reince Priebus, Assistant to the President and Chief of Staff, issued a “Memorandum for the Heads of Executive Departments and Agencies” with the subject line “Regulatory Freeze Pending Review” that directs the recipients to “send no regulation to the Office of the Federal Register (“OFR”) until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation.”  The memo also directs the recipients to immediately withdraw any regulations that have been sent to the OFR but not yet published in the Federal Register and to postpone the effective date of any published regulations that have not yet taken effect.

Since the memo does not identify by name the “executive department and agencies” to which it was sent, it cannot be determined with certainty whether the memo was sent to the CFPB.  A 2012 report by the Congressional Research Service discusses similar freeze memos that were issued by the Chiefs of Staff to Presidents Bill Clinton, George W. Bush, and Barrack Obama.  The report states that such memos “have generally exempted regulations issued by independent [agencies].”  That statement finds support in language that was included in the memo issued by Andrew Card, President Bush’s Chief of Staff.  Mr. Card’s memo stated: “[I]n the interest of sound regulatory practice and the avoidance of costly, burdensome, or unnecessary regulation, independent agencies are encouraged to participate voluntarily in this review.”

The inclusion of this language in Mr. Card’s memo suggests that the Bush Administration believed it did not have the authority to mandate a regulatory freeze by independent agencies and supports the conclusion that Mr. Priebus’ memo was not intended to apply to independent agencies.  That conclusion is also supported by the President’s inability to replace the leadership of an independent agency at will and the fact that most independent agencies are run by commissions whose members have staggered terms.  Since Mr. Preibus’ memo mandates a freeze until a regulation is reviewed and approved by a “department or agency head appointed or designated by the President after noon on January 20, 2017,” it appears intended to apply to an agency headed by a single individual.  In addition, assuming the absence of cause to replace an independent agency’s leadership, there could be a considerable delay until the new President could appoint new leadership.  (For example, Director Cordray’s term does not expire until July 2018.)  It seems doubtful that the memo was intended to result in such a lengthy freeze.

Given all of the above, whether the Trump Administration sent the memo to the CFPB likely depends on whether it considers the CFPB to no longer be an “independent agency” in light of the D.C. Circuit’s PHH decision.  In PHH, the D.C. Circuit ruled that that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and, to remedy the constitutional defect, severed the removal-only-for-cause provision from the Dodd-Frank Act so that the President “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.”  The court stated that as a result of this structural change, the CFPB is no longer an “independent agency” and instead “now will operate as an executive agency.”

The PHH decision has not become effective because issuance of the mandate was stayed until the D.C. Circuit rules on the CFPB’s petition for rehearing en banc.  If the petition is granted, D.C. Circuit rules provide that the panel’s judgment, but ordinarily not its opinion, will be vacated.  Thus, the Trump Administration might take the position based on the PHH decision that the CFPB is now an executive agency.  The Trump Administration’s position on the application of Mr. Priebus’ memo to the CFPB may be revealed by President Trump’s actions regarding Director Cordray’s tenure, more specifically whether he attempts to remove Director Cordray while the PHH appeal is pending and, if so, takes the position that he can remove Director Cordray without cause.  (Conflicting views have been expressed on the new President’s removal authority.)

As Inauguration Day approaches, the rhetoric about the CFPB’s future continues to heat up. American Banker reported that, on a conference call with reporters earlier this week, Senate Minority Leader Charles Schumer stated that that he would not support legislation to replace the CFPB’s single-director leadership with a five-person commission.

Such a change in the CFPB’s leadership structure is among the changes to the CFPB proposed by the CHOICE Act, the bill released in July 2016 by House Financial Services Committee Chairman Jeb Hensarling to replace the Dodd-Frank Act and passed by the Committee in September 2016.  The bill is expected to be reintroduced early this year. In addition, it has been reported that another bill (S. 105) has been introduced by three Republican Senators that would also change the CFPB’s leadership structure to a five-person commission.

Senator Schumer was joined on the call by Senator Elizabeth Warren and Senator Sherrod Brown. American Banker also reported that the three Senators suggested that Director Cordray would file a lawsuit to challenge an attempt by President-elect to remove him.  Former Republican Congressman Randy Neugebauer has been identified as a possible replacement for Director Cordray.

As rumors swirl that President-elect Trump is planning to remove Director Cordray immediately after January 20th, conflicting views have emerged about his authority to do so before the appeal in PHH is resolved.  We previously blogged about an article written by Aditya Bamzai, an Associate Professor of Law at the University of Virginia School of Law, that asserted the new President could remove Director Cordray while the PHH appeal is pending if the Executive Branch determines that the Dodd-Frank Act’s “for cause” restriction on removal is unconstitutional.  Professor Bamzai also asserted that Director Cordray could not insist that he be allowed to remain in office following a presidential order to vacate it.

Professor Bamzai’s assertions have been challenged in a blog post written by Brianne Gorod, Chief Counsel at the Constitutional Accountability Center.  Ms. Gorod argues that even assuming there are circumstances in which the President can decline to enforce a statute he believes is unconstitutional, existing opinions of the Department of Justice’s Office of Legal Counsel (OCL) make clear that ignoring the law “would be wholly inappropriate” in the context of the CFPB Director.

According to Ms. Gorod, a major reason why the President can sometimes decline to enforce a law is to avoid taking action that is itself unconstitutional.  She argues that compliance with the Dodd-Frank Act’s for-cause removal provision would not require the President to take an action that he believes is unconstitutional (i.e., removal of the CFPB Director is not required to comply with the Constitution).  She also argues that because “there is every reason to think the courts will ultimately conclude that the CFPB’s for-cause removal provision is constitutional,” it would be inconsistent with OLC opinions for a President to choose not to enforce a statute when there is considerable law supporting its constitutionality.

Ms. Gorod also argues that Director Cordray would not have to leave his position to challenge an attempted removal in court and cites examples under President Ronald Reagan and President George H.W. Bush in which officers resisted a removal order until a court could decide whether removal was proper.

Battle lines over Director Cordray’s future at the CFPB are predictably forming along party lines.  Earlier this week, two Republican senators sent a letter to Vice President-elect Pence urging Director Cordray’s removal by President-elect Trump.  Also earlier this week, a group of 21 Democratic members of the House Financial Services Committee, including ranking member Maxine Waters, sent a letter to President-elect Trump “to caution [him] against entering into a protracted-and likely unsuccessful-legal battle to oust [Director Cordray] before his term expires in July 2018.”

In their letter, the Republican senators assert that the CFPB is unconstitutionally structured, pointing to the D.C. Circuit’s PHH decision as support.  The senators argue that despite the CFPB’s petition for en banc rehearing in PHH, “the president retains constitutional authority to remove the director until a valid court order says otherwise.”  (We previously blogged about an article written by a University of Virginia School of Law associate professor that asserted the new President could remove Director Cordray before the PHH appeal is resolved if the Executive Branch determines that the Dodd-Frank Act’s “for cause” restriction on removal is unconstitutional.)

The Democratic lawmakers do not mention the PHH decision in their letter and appear to assume that the new President could only remove Director Cordray “for cause.”  They defend Director Cordray’s efforts to respond to allegations of discrimination at the CFPB and promote diversity and inclusion.  The lawmakers claim that “no President has ever removed an independent agency head for cause,” urge the President-elect “not to bow to [the demands of many powerful special interests that would like to see Director Cordray leave] to initiate costly, meritless litigation,” and announce that they “stand ready to oppose any efforts [the new President] may make to do so.”

Since the CFPB is often described as Senator Elizabeth Warren’s “brainchild,” it is not surprising that she is reported to be rallying consumer advocates and others to launch a campaign to defend the CFPB.  According to American Banker, speaking on a conference call sponsored by Americans for Financial Reform, Senator Warren told the 3,000 consumer advocates participating in the call that a grassroots effort is necessary to protect the CFPB from Republican efforts to restructure the agency and to test whether the Trump administration and Republican lawmakers are prepared to battle with Democrats and consumer advocates over the agency’s future.  (Americans for Financial Reform describes itself as “a nonpartisan and nonprofit coalition of more than 200 civil rights, consumer, labor, business, investor, faith-based, and civic and community groups.”)

American Banker reports that “progressives plan to flood Congressional offices with demands to defend the CFPB and Dodd-Frank just as various constituencies targeted House Republicans last week when they sought to gut the little-known Office of Congressional Ethics.”

According to Politico, President-elect Trump met earlier this week with former Republican Congressman Randy Neugebauer, who previously chaired the House Financial Services Committee’s Financial Institutions and Consumer Credit Subcommittee.  While serving in Congress, Mr. Neugebauer was a strong proponent of CFPB reform.  American Banker has reported that Mr. Neugebauer is being considered as a possible replacement for Director Cordray.

Earlier this week, we blogged about reports that Director Cordray has no plans to leave the CFPB before his term expires in July 2018.  Yesterday, several national civil rights groups issued a joint statement applauding the CFPB’s work and expressing support for Director Cordray “as he continues to lead the CFPB in the fourth year of his five-year tenure.”  The groups are the Leadership Conference on Civil and Human Rights, NAACP, National Council of La Raza, and National Urban League.

In their statement, the groups express their view that under Director Cordray’s leadership, the CFPB “has significantly improved the lives of people across the country, especially in our diverse communities” and warn that “any effort to weaken the agency or undermine its leadership would risk severe impacts on our communities—including communities of color and low-income families who are most vulnerable to financial abuse.”  The groups tout the CFPB’s recovery of “more than $11 billion for 27 million consumers harmed by illegal, predatory financial schemes” and the CFPB’s efforts to fight “against discriminatory practices in the financial marketplace, including bringing enforcement actions to enforce fair lending laws that protect consumers of color from being charged more for a mortgage, auto loan, or credit card.”