Georgetown law professor and former Special Counsel to the Congressional Oversight Panel Adam Levitin has just posted on the effort by some Republicans to goad Trump to oust the Director of the Consumer Financial Protection Bureau, Richard Cordray. Since Cordray is set to leave office in July 2018, one might wonder why the Republicans have put getting rid of Cordray so high on their Trump wish list, particularly since the mechanics of getting a new director in isn’t an overnight process.
As Levitin explains, the CFPB has two important rulemakings set for this year. Republicans are keen to make sure that they wind up being toothless. The one I regard as the real biggie is that the agency is set to restrict mandatory arbitration clauses. Recall that these are almost universal boilerplate in financial products, such as bank accounts, credit cards, and consumer loans. The main effect is to prevent class action lawsuits, which historically has proven to be the best mechanism for stopping low-level grifting that is too costly for individuals to purse. One of many class actions cases back in the days before banks figured out how to stymie them was banks charging 3% foreign exchange transaction fees on all foreign currency purchases, and even in some cases, ATM withdrawals, without disclosing them. Recall that these agreements have become a sore point in the Wells Fargo fake accounts scandal. A court ruled that mandatory arbitration agreements on valid accounts at Wells Fargo extent to bogus ones!
Not only would a CFPB rule severely limiting pre-dispute mandatory have a big impact on the financial services industry, but it could get the ball rolling for restrictions in other areas too, like mobile phone and cable agreements.
The other hot topic is that the CFPB is set to issue a requirement that lenders make sure that borrowers have the ability to repay payday and auto title loans. That provision, if enforced, would severely restrict payday lending.
Levitin notes that the agency could conceivably issue both rules before Trump is sworn in. Congress could also override either rule, but Levitin argues that Republicans are not certain to remain united on either issue.
However, Trump would likely wind up coming out a net loser if he were to try to fire Cordray. Why? The head of the CFPB does not serve at the President’s pleasure; he can be removed only for cause:
(3) Removal for cause
The President may remove the Director for inefficiency, neglect of duty, or malfeasance in office.
And there does not seem to be much cause for defenestrating Cordray. As Levitin explains, the op-eds calling for Cordray’s scalp have cited complaints about employment discrimination at the CFPB. There are two wee problems with that. The first is that these allegations were never proven; a GAO report on the controversy left the matter unresolved. So Team Trump would need to conduct a new probe to firm up the charges….even assuming they could be verified, and that would take time.
But the bigger issue is that this contretemps took place before Cordray took office as Director. So how could this possibly serve as grounds for firing him?
That means if Trump were to fire Cordray, Cordray could sue on the ground that Trump did not in fact have grounds for removing him from office. As Levitin writes:
There’s also a real cost to trying to remove Cordray for cause. It comes in four possible forms.
- First, it will poison Trump’s relations with Democrats on the Senate Banking Committee and with Democrats more broadly.
- Second, Cordray could contest his removal (and I would expect that he would). I would think there’s a decent chance Cordray could get his removal temporarily enjoined, and while there’s pending litigation I can’t see the Senate moving on confirming a nominee to a position that might not be open. (Indeed, I wonder such a process is enjoyable–there might be separation of powers concerns.) But most critically, if Corday were to litigate his removal, he would be able to get discovery on the Trump administration, including on the President (because after all it is the President who makes the ultimate removal decision). That means his attorneys would get to depose the President and everyone else involved in the removal decision, as well as see the entire associated paper trail. That could be incredibly embarrassing for the President and his advisors. Indeed, I would expect one of two things to emerge: either there would be a very clear paper trail running from a set of law firms and financial institutions preparing a dossier on Cordray that would have been accepted hook-line-and-sinker, or there will be no paper trail at all, which will make it very hard for the administration to justify the removal. And I wouldn’t count on being able to successfully make any sort of Presidential privilege claims about documents from the transition.
- Third, we might find out if the CFPB has been investigating any of the President’s businesses. Remember Trump University and the President-elect’s $25 million consumer fraud settlement? That was a private settlement. It didn’t cover any liability to the government for violation of federal statutes. CFPB has jurisdiction over private student loans, including not only lenders, but “service providers” and “related parties” and critically, parties that provide “substantial assistance” to the commission of unfair, deceptive, and abusive acts and practices. Similarly, Trump has done condo developments–those are subject to the Interstate Land Sales Act, which is also under CFPB jurisdiction. CFPB investigations aren’t public, so I have no idea if any of these issues are on the CFPB’s radar, but if the CFPB had been investigating any sort of Trump enterprise when Cordray was removed, well, then we’re in Richard Nixon territory, and that doesn’t end well.
Fourth, there is a very good chance Cordray would prevail in contesting his removal. That results in an ugly headline about the President having abused his power and acted arbitrarily to remove a good public servant in favor of the financial services industry.
I’m not sure that Trump would regard “poisoning relations with Democrats” as a risk, but he might be underestimating that. Democrats are great as posturing but not so good at effective opposition, in large measure because the policy differences between Republicans and Democrats are not as great as Democrats would have you believe. However, with the Democrats now in serious danger as a party, they may realize they need to up their game and a fight over Cordray, particularly with Warren and Sanders leading the charge, could cement their position as de facto leaders, which would not be to Team Trump’s advantage.
So trying to remove Cordray is likely to wind up being a case of Republican overreach. It will also be a test of Trump’s ability to control his own party and his ability to game out the potential downside of aggressive moves. Stay tuned.