Slideshow The CFPB’s losing streak: A blow-by-blow

  • December 06 2017, 1:07pm EST
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It was the worst of times, it was the worst of times for the Consumer Financial Protection Bureau.

During the past two months, the agency has suffered a series of setbacks. Lawmakers scrapped one of its key rules and are aiming at another; its leader quit and his hand-picked successor is waging a legal battle to try and get control of the agency; the Trump administration's choice for interim agency head has signaled he intends drastic changes; and the Government Accountability Office just effectively eliminated the agency's guidelines to auto lenders. Meanwhile, the bureau has already pulled back on some enforcement matters and observers predict that trend will only continue.

While part time Acting Director Mick Mulvaney (he also runs the Office of Management and Budget) has pledged not to shut down the agency, he has made his disdain clear for many of its past activities.

“You could imagine that the Office of Management and Budget under the Trump administration might look very cautiously, even cynically, against rules that were produced by" former CFPB Director Richard Cordray, Mulvaney said.

Mulvaney said he's not sure what the agency will focus on next.

“I am trying to figure out how to articulate how things are going to be different,” he told reporters. “That is really what I need to set aside some time to do fairly quickly.”

Whatever it is, it's liable to look significantly different. Following are some of the defeats suffered by the CFPB in recent weeks — and others that may still be in the works.

Indirect auto lending guidance

The most recent blow against the CFPB came Tuesday, when the Government Accountability Office said the agency had not properly submitted its 2013 auto lending guidance to Congress for a review. The guidance had put indirect auto lenders on the hook for any unintentional discrimination on behalf of their partner dealers.

The finding was significant, as it means the guidance cannot be enforced until it is resubmitted to Congress — something unlikely to happen now that Mulvaney is in control. Even if the CFPB did rebsubmit it, Sen. Pat Toomey, R-Pa., and other Republicans would likely muster enough votes to repeal the rule under the Congressional Review Act, a process that allows lawmakers to scrap recent regulations via a majority vote.

The defeat of the guidance was a significant blow to the agency, which had sought to gain control over auto lending even though the Dodd-Frank Act specifically barred it from going after auto dealers.

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Arbitration rule

The GAO's decision against the CFPB came just six weeks after Congress successfully overturned its rule banning mandatory arbitration clauses in financial contracts.

The move, via the Congressional Review Act, doesn't just scrap the rule. It also prevents the CFPB from taking action against mandatory arbitration clauses in the future unless lawmakers expressly allow it.

When Senate Banking Committee Chairman Mike Crapo first announced the effort against the arbitration rule, it wasn't clear he would have enough votes. Key GOP senators like Lindsey Graham, R-S.C., and John Kennedy, R-La., defected, but Vice President Mike Pence cast the tie-breaking vote to push it over the finish line.

That move ranks as one of the financial industry's biggest victories over the CFPB since the agency was created by the Dodd-Frank Act in 2010.

Payday lending?

Speaking of the Congressional Review Act, a bipartisan group of House lawmakers introduced a bill last week to scrap yet another rule of the CFPB's, this one governing payday lending.

Though it's not clear this one will prevail, the fact that Democrats signed on to it is a bad sign for the CFPB, which typically has been fiercely protected by that party. It is also being actively pushed by House Financial Services Committee Chairman Jeb Hensarling, an outspoken critic of the agency.

Congress only has a short window remaining to overturn the rule, and precious little time in the legislative calendar, but the effort received a boost this week after Mulvaney said he supported overturning the rule.

“I would support the Congress to move forward with the” Congressional Review Act, said Mulvaney, a former South Carolina congressman.

A leadership battle

The battles over indirect auto lending and payday lending come even as the CFPB's leadership remains legally unclear.

For now, Mulvaney is in charge after a federal judge declined to grant a temporary restraining order brought by CFPB Deputy Director Leandra English. Another hearing on the case is scheduled for Dec. 22. Most lawyers expect Mulvaney to prevail, but English's lawyer has said she will appeal, arguing that language in the Dodd-Frank Act giving her temporary control of the agency supersedes the Federal Vacancies Reform Act, the statute used by Trump to appoint Mulvaney.

The entire episode, however, has put CFPB under a cloud, leaving many employees angry at ex-director Richard Cordray for appointing English as deputy director and then abruptly stepping down. Cordray launched a bid for Ohio governor on Tuesday.

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A challenge to CFPB's independence?

In addition to the leadership fight, many say the fact that the agency is headed by a Cabinet-level official who answers directly to the president is a threat to the independence of the CFPB.

Mulvaney has attempted to dismiss those concerns, saying he’s just as independent from President Trump as Richard Cordray was from President Obama. Some took that answer not as an affirmation of Mulvaney’s independence, but rather as a critique of the perception of Cordray’s autonomy.

Indeed, speaking this week to reporters, Mulvaney said he wanted to bring in more political appointees into the agency, something that could further compromise the perception of the agency's independence.

For "every major branch of CFPB — enforcement, rulemaking, education, legal, maybe somebody in the Northeast division, somebody in the Southeast division, somebody out West" — Mulvaney said he would "try to marry [that branch's] senior staffer ... up with a political position."

The plan has already received blowback, but Mulvaney is unlikely to change his mind.