By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans.
Richard Cordray announced on Wednesday that he’ll step down as director of the Consumer Financial Protection Bureau (CFPB) by month-end.
Cordray has yet to reveal what he intends to do next— but it’s rumored he’s planning to run for governor of Ohio.
Trump will be able to name a new agency director, who– if confirmed by the Senate– will shift rule-making and enforcement policies in a more bank-friendly direction.
When Congress created the CFPB in 2010 in the Dodd-Frank act, it specifically structured the agency so as to insulate it from political pressure. That means that the President can only fire its director for cause. Thus far, Trump hasn’t been able to shape the direction of agency operations by replacing Cordray.
The usual mainstream media suspects– see the New York Times in Mulvaney Expected to Run Watchdog Agency He Wanted to Kill, for example— lauded Cordray’s tenure, giving him undue credit for pursuing an aggressive consumer financial protection agenda, “During his tenure, the agency gained a reputation as an active watchdog for the financial rights of consumers.”
Yet these plaudits are undeserved. The agency failed to pursue aggressive agenda in areas such as foreclosure abuses and student loan servicing.
In addition, the CFPB made basic tactical errors—especially its delay in promulgating a rule banning mandatory arbitration in consumer financial contracts. Such widespread, “voluntary” clauses prevent consumers from pursuing class action lawsuits.
Despite producing a comprehensive study on these clauses in December 2013, the agency dilly dallied and failed to issue a final rule until July. This slow walking allowed Congressional Republicans and Trump to overturn the rule earlier this month under special procedures authorized under the Congressional Review Act (CRA)– as I discussed further in RIP, CFPB Mandatory Arbitration Ban.
We Ain’t Seen Nothing Yet
To say that the CFPB underperformed under Cordray is not to deny that things won’t get worse now that Trump can name a new CFPB director. As has been widely reported, his first move is likely to be to name Mike Mulvaney, current head of the Office of Management and Budget (OMB) and a fierce critic of the CFPB, as interim director until a permanent replacement is nominated and confirmed by the Senate. Mulvaney would continue to hold his OMB position while serving as CFPB interim director.
The Wall Street Journal reports in Trump Is Expected to Name OMB Director Interim Head of Consumer Regulator:
At his OMB confirmation hearing in early 2017, Mr. Mulvaney called the CFPB “one of the most offensive concepts” in the U.S. government and said he stood by an earlier comment describing it as a “sad, sick joke.”
Trump has had a major impact on several areas of regulation, especially financial regulation and environmental policy, by selecting hatchet-wielding Cabinet officers and tasking them with pursuing a deregulatory agenda, as I discussed further in these posts, New EPA Lawsuit Policy Advances Trump’s Deregulatory Agenda and Financial Regulatory Rollback Proceeds.
As the Washington Post further notes in Richard Cordray is stepping down as head of Consumer Financial Protection Bureau when discussing how to achieve regulatory rollback:
The most efficient way, industry officials say, to remake the rules is through appointing new regulators who can change an agency’s focus, tone and priorities. Cordray’s departure “will complete the Team Trump take over of the regulatory agencies. It should mean by summer there are Republicans running all of the banking agencies,” said Jaret Seiberg, an analyst with Cowen and Co.’s Washington Research Group.
Whoever is installed as director, the long-anticipated departure of Cordray has already had an effect on ongoing enforcement activities, as Reuters reports in Financial firms stall settlement talks amid U.S. consumer watchdog upheaval:
The departure of Richard Cordray at the end of the month gives companies being pursued by the CFPB for alleged predatory lending practices added incentive to stall settlement talks until Republican President Donald Trump puts his own appointee in place, lawyers and analysts say.
Behind the scenes, other firms have been dragging out settlement talks – spending months wrangling over the extent of their liability, how consumers should be compensated and penalties calculated – all the while hoping for a sympathetic regime change, several lawyers working on dozens of cases told Reuters.
These companies will be emboldened to continue to hold out for better settlement terms in the belief new leadership at the CFPB will be unlikely to take them to court if they do not play ball.
On the enforcement side, the impact of the appointment of a new director would extend beyond potential settlements. Turning again to the Reuters piece cited above:
A Trump appointee likely would review all the CFPB’s pending litigation and pre-litigation enforcement actions, and could ultimately drop borderline cases or move to swiftly settle them on generous terms, lawyers and analysts said.
They highlighted the CFPB’s current actions against TCF, Navient, mortgage servicer Ocwen Financial Corp. N>, mortgage company PHH Corp. and consumer finance group World Acceptance Corp. as cases that might be quickly resolved. Shares in these companies closed up on Wednesday, when Cordray announced his departure.
And on the rule-making side, a new director is expected to shift CFPB’s approach significantly, in the following ways, as the Chicago Tribune reports in Trump is said to consider tapping Mulvaney for CFPB overhaul:
An interim director could immediately change the tone at the CFPB by making it more friendly to banks, halting work on unfinished regulations and slowing down rules that haven’t yet taken effect.
A temporary head could also have a major impact on the CFPB’s oversight of specific companies. Investigations into wrongdoing might be shut down and supervisory exams could be less intrusive.
Another expected target of a Trump-installed director would be the CFPB’s database of consumer complaints. Hated by banks, it allows the public to review grievances about specific firms and has been used by the CFPB to open investigations. Getting rid of the database entirely may be difficult, according to some lawyers, but it’s within the director’s authority to make it private and to temporarily shut it down.
The Bottom Line
The Cordray-led CFPB proved to be a major disappointment to consumer advocates. Under a Trump-nominated director, the situation will only worsen, with the CFPB expected to scale back the scope and range of it activities drastically.