The Trump administration is running out of time to put its stamp on the Consumer Financial Protection Bureau.
Recent polls suggest that political change is coming in November, and Democrats have an opportunity to gain control of one or both houses of Congress. Nationally, political sentiments in midterm elections tend to shift away from the sitting president’s party — and this time around, polls suggest the nation appears to be shifting left.
The odds of Democrats taking back the House have been growing stronger in recent months, though they face a much tougher battle in the Senate where they must defend a considerably larger number of seats than their Republican colleagues. But if Democrats are able to pull off a wave election, winning a majority in both chambers, it could spell trouble for the financial industry and the Trump administration. Even if the risk is somewhat remote, it’s a risk worth considering before it’s too late.
This looming shift has already compressed the time frame for the financial services industry to enact regulatory relief, and there are important implications for federal financial regulators. At the forefront is leadership of the CFPB. The Federal Vacancies Reform Act, which President Trump used to install acting Director Mick Mulvaney over the continued objections of Democrats, permits Mulvaney to serve as acting director for only 210 days. Since Mulvaney’s tenure began on November 25, 2017, his term will expire on June 22, 2018. President Trump has not yet provided a nomination for a permanent leader of the CFPB, but if he does so before June 22, Mulvaney can continue to serve as acting director while the permanent director’s nomination is pending.
Having a permanent director is critical because the president cannot simply award Mr. Mulvaney a second 210-day term. To not name a permanent director — who would serve a five-year term — risks ceding that ability to the opposing party, or at the very least watering down his ability to name a long-term leader in his ideological vein.
In his relatively short tenure, Mulvaney has pledged to reshape the bureau, announcing an end to “regulation by enforcement” and publicly calling for the reconsideration of key regulations such as the CFPB’s rule focused on payday lending. Enforcement actions and efforts to issue additional regulations begun under the prior administration have come to a standstill. It’s almost certain that the White House will name a permanent nominee before Muvlaney’s term expires, but the fact that Trump has yet to do so is beyond surprising. With every day that passes, Democrats in Congress appear to be ramping up their anti-Mulvaney rhetoric.
A Democrat-controlled Senate would be hard-pressed to willingly confirm a permanent nominee less aggressive than former Director Richard Cordray, and Trump is unlikely to accommodate Democratic preferences. Even before the midterm elections, a conservative nominee is likely to face loud opposition from Democrats, but failure to get a nominee confirmed before the Senate possibly falls into Democrats’ hands will stymie the Trump administration’s efforts to install the kind of leadership it wants at the bureau. But there is some incentive for Congress to reach a compromise, as Mr. Mulvaney may continue to serve while a nomination is pending. Given the actions he’s taken so far, Democrats may be looking for ways to cut his tenure short.
Although his efforts have been incredibly ambitious, especially for an acting director, Mulvaney’s term has a looming expiration date. How a new permanent leader would treat Mulvaney’s delayed rulemakings, pledges to shift enforcement focus and attempts to remake the agency are all open questions. It is unlikely the president will let the opportunity to have his preferred nominee confirmed pass him by, but should his window of opportunity close, a more moderate director, if confirmed, would probably revisit the direction of some of Mulvaney’s reforms. Such a director may not bring back the glory days of Cordray, but new leadership invariably likes to put its own stamp on the agencies they lead. For example, a new director could bring the currently delayed payday lending rule back on track to become effective or amend it in specific ways that respond to its conservative critics. Similarly, the bureau’s Office of Fair Lending, reorganized and stripped of its enforcement responsibilities under Mr. Mulvaney, could be a point of emphasis under new leadership. Banks and other financial services providers must be prepared to be nimble in the event that CFPB priorities shift. But they should not have to live with this uncertainty.
If President Trump wants the bureau reimagined in his vision, he would be wise to nominate a permanent leader to the CFPB. But with each passing legislative day, his opportunity to have the nominee of his choice confirmed is fading, and the Democrats become more emboldened. Financial services firms that have enjoyed the appearance of a more friendly regulator may soon have to revisit their optimism.