President Trump could nominate a permanent director to lead the Consumer Financial Protection Bureau any day now. The eventual pick will likely encounter heavy scrutiny from senators and, if confirmed, would take the helm of an agency still defined by turmoil nearly seven years after its creation.
Numerous names have emerged as front runners to replace current acting CFPB Director Mick Mulvaney. The two most cited in recent days are National Credit Union Administration Chairman J. Mark McWatters and Jonathan Dever, a Republican Ohio state representative whose Akron, Ohio-based law firm has defended consumers against foreclosure actions.
An immediate question for a new director is whether the agency will continue initiatives launched by Mulvaney, who in just over three months has sought to transform the consumer bureau from the aggressive regulator led by former Director Richard Cordray into a more industry-friendly agency.
Though Republicans only need a simple majority to get a permanent CFPB director confirmed by the Senate, they have virtually no wiggle room because of Sen. John McCain's absence due to medical issues. Republicans may also try to move quickly before Sen. Thad Cochran, R-Miss., leaves on April 1, and any delay could be extended by the slowdown in congressional business as the midterm elections approach.
Some have said the administration may opt for a nominee who could attract both Democratic and Republican support. But any Trump pick to lead the agency would be subjected to public grilling by Democratic senators, particularly Sen. Elizabeth Warren of Massachusetts, the CFPB's original architect.
"The nominee is going to have to walk a fine line to make it through the confirmation process," said Jean Veta, a partner at Covington & Burling LLP.
If any nomination gets stalled or withdrawn, Mulvaney could potentially remain acting head of the CFPB well into 2019.
Here are four questions for the next CFPB nominee:
Do you agree with Mulvaney's recent actions, or would you set another new course?
A key question for the future CFPB director is how he would approach Mulvaney's aggressive dismantling of the bureau's enforcement operations.
In order to even be considered by Democrats, the next CFPB director likely will have to vow to take a fresh look at all of Mulvaney's actions.
Whereas Mulvaney has sharply criticized the agency run by Cordray, Senate Democrats are likely to home in on whether the nominee plans to use the bureau's expansive authority under the Dodd-Frank Act to protect consumers. On the other side of the coin, Republicans who hold the Senate majority likely will want to ensure that a new director shares Mulvaney's concerns that the agency went too far in targeting companies during the Obama era.
"I think the biggest challenge is that Republicans and Democrats hold diametrically opposed views about what the bureau should be doing," Veta said.
Mulvaney recently told state attorneys general that he would cede authority to them and to other federal banking regulators. He also has deftly laid the groundwork for pulling back on the agency's consumer protection priorities by issuing a dozen requests for information on all aspects of the CFPB's processes.
Ben Olson, a partner at Buckley Sandler and a former deputy assistant director in the CFPB's Office of Regulations, said lawmakers may want to rethink the idea of the CFPB giving deference to state attorneys general on interpretation of federal law.
"For any lender or provider who operates on a national basis or in multiple states, the idea of complying with different interpretations of federal law on a state-by-state basis is just unworkable," Olson said.
What is your view of the CFPB's payday lending rule?
High on the list of questions for the CFPB nominee will be how to proceed with the CFPB rule restricting payday lending practices, which has drawn enormous controversy.
In January, Mulvaney scuttled the small-dollar lending rule. His decision to reconsider the regulation along with the agency's moves to drop investigations of certain small-dollar lenders represent a sea change in the agency's approach compared with Cordray, which is magnified by the campaign donations Mulvaney had received from payday lenders while a political candidate.
The payday industry has lobbied hard to get rid of the payday rule, claiming its main requirement that lenders determine a borrower's ability to repay a short-term loan of 45 days or less would kill the entire industry.
Democrats will want some assurance from a nominee that consumers will be protected from being charged interest rates of 400% or more. Consumer advocates also will be pressuring Democrats to back a nominee that has demonstrated some involvement, even empathy, with consumers. But Republicans may hope that a new CFPB director continues Mulvaney's plan to alter the rule to ensure consumers still have access to credit.
"Does a nominee believe the agency needs to create bright lines and parameters around payday lending?" said John Taylor, president and CEO of the National Community Reinvestment Coalition, a consumer advocacy group. "Do they believe in reining in the worst practices to protect consumers?"
Dodd-Frank authorized the CFPB to write payday lending rules but left the agency plenty of latitude on how to structure the regulation.
Although the Trump administration has vowed to undo regulations it inherited from the Obama era, Mulvaney or his successor will still have to give some legal justification for scrapping the rule.
How will the CFPB treat fair-lending violations?
A nominee will most certainly be grilled on his view of enforcing fair-lending laws.
In February, Mulvaney stripped the CFPB's fair-lending office of its enforcement powers, claiming he was reorganizing the agency to be more efficient. Before the move, the fair- lending division was split equally between enforcement and supervision.
Sen. Sherrod Brown, D-Ohio, spearheaded a letter sent to Mulvaney last month, signed by 53 Democrats, questioning how the CFPB planned to protect consumers from the predatory lending practices that led up to the financial crisis.
Sens. Chris Van Hollen and Ben Cardin, both of Maryland, also have written to Mulvaney arguing that Wells Fargo's targeting of minority borrowers during the mortgage crisis was one of the main reasons the office, formally known as the Office of Fair Lending and Equal Opportunity, was created in the first place.
Taylor said he wants to know if a nominee "believes that in instances where the agency uncovers fair-lending violations, will the CFPB work to prohibit that through fines of other efforts?"
Yet the fair-lending office had come under intense criticism from Republicans during Cordray's tenure. Critics accused the CFPB of overreach in extracting settlements from indirect auto lenders for possible discrimination against minorities. A nominee may face questioning from GOP senators over whether he plans to guard against such overreach, and how.
Will companies be targeted for "unfair, deceptive or abusive acts or practices"?
Since it was created in 2010, the CFPB has relied heavily on UDAAP claims when bringing enforcement actions against financial firms. Roughly 90% of the $12 billion in consumer relief collected under Cordray came from cases where the bureau uncovered evidence of deception.
Though the CFPB has still pledged to use UDAAP, Mulvaney dropped the CFPB's emphasis on UDAAP in the bureau's new strategic plan.
Republican lawmakers may want some assurance that a nominee will be cautious about pursuing firms over UDAAP claims while Democrats will want basically the opposite: a CFPB director who is not shy about using the agency's enforcement powers.
A nominee will have to choose his words carefully to navigate competing interests.
"Even beyond UDAAP, what is the proper role of the bureau with respect to the enforcement of enumerated consumer finance laws?" asked Ben Saul, a partner at White & Case.
How will you interpret the agency's authority to exempt credit unions and small banks?
Credit unions repeatedly asked Cordray to use his authority to carve them out of most of the CFPB's rules and regulations. McWatters, in one of his first official acts after being named to head the credit union regulator, also asked Cordray to exempt credit unions with assets above $10 billion from CFPB examination and enforcement authority.
The carve-out that McWatters wanted would have benefited just six credit unions that are subject to CFPB exams: Navy Federal Credit Union, State Employees' Federal Credit Union, Pentagon Federal Credit Union, BECU (Boeing's credit union), SchoolsFirst Federal Credit Union and The Golden 1 Credit Union.
Cordray gave the credit unions and their regulator the same response every time: If Congress had wanted credit unions to be exempt from CFPB regulations, they would pass legislation to do just that.
But a new director could see it differently. That's one reason bankers have opposed naming McWatters as CFPB chief, fearful he will exempt large credit unions from the agency's oversight. Consumer groups, meanwhile, fear a director could exempt large credit unions from enforcement and also small institutions of all types from rulemaking.
Allowing some institutions to avoid regulations will invite criticism that the CFPB is creating an uneven playing field and picking specific winners and losers, an issue Republicans repeatedly harped on during the Obama administration.
Updated March 12, 2018 at 2:46PM: This article was updated to reflect a fifth question concerning potential carveouts for credit unions and community banks.