Slideshow Winners and losers of CFPB's leadership showdown

Published
  • November 28 2017, 9:06pm EST
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A dramatic legal fight over leadership of the Consumer Financial Protection Bureau all but ended on Tuesday after a federal judge ruled that Office of Management and Budget Director Mick Mulvaney is the legal interim head of the agency.

District Judge Timothy J. Kelly blocked CFPB Deputy Director Leandra English's request for a temporary restraining order, rejecting former CFPB Richard Cordray's pick to lead the agency and upholding President Trump's interim choice.

Though English is expected to appeal, her chances of success are slim, according to most legal experts.

While the battle is nearly finished, however, the impact may reverberate for some time to come.

Democrats obviously hoped to keep control of the agency for a few months longer. That now appears highly unlikely with Mulvaney in control for the foreseeable future. Moreover, their ability to stop President Trump from choosing a permanent successor is virtually nonexistent since Senate rules were changed to prevent filibusters of nominees.

Republicans, meanwhile, could not have hoped for a clearer way to paint the CFPB as out of control. They've long argued that Cordray could act as he pleased, a position that appeared confirmed when he selected his own temporary successor who subsequently sued the president of the United States.

"If you were to dream up what fact pattern would fit [House Financial Services Committee Chairman Jeb Hensarling's] insane 'unaccountable bureaucracy' meme, I’m pretty sure this would be it," said one former CFPB employee who is sympathetic to the agency but critical of the past week's events.

To many, the entire episode felt like a stunt, one that reflected badly on those trying to implement it and helping longtime critics of the agency in the process.

Following are the winners and losers of the so-called #CFPBDebacle:

Winner: Office of Management and Budget Director Mick Mulvaney

Like it or not, Mulvaney is now legally the acting director of the CFPB.

That was the position taken by Judge Kelly, one that is going to be extremely difficult for English to overturn.

Mulvaney has wasted no time in taking charge. In a press conference on his first day on the job, he pledged a dramatic shift in direction. He instituted a 30-day hiring and policy freeze, and stopped payouts from the CFPB's civil penalties fund while undertaking a review of its operations. He pledged to keep the agency operating, but many employees privately fear he will begin shrinking staff and cutting back on enforcement.

"The CFPB is certainly not getting larger and people are concerned about the uncertainty or direction of it, so it might get smaller voluntarily," said Allison Schoenthal, a partner at Hogan Lovells.

Some former CFPB officials expect a purging of the ranks of senior managers, many of whom are not in the bureau's union.

One thing is clear: Mulvaney has no intention of being a seat-warmer while a permanent director is named.

President Trump "wants me to fix it," Mulvaney said of the agency. "He wants me to get it back to the point that it can protect people without trampling on capitalism, without choking off the access to financial services that are so critical to so many folks, and so many folks in the lower and middle classes."

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Loser: Former CFPB Director Richard Cordray

In just about every way conceivable, Cordray's final move to appoint a new deputy director was a disaster.

For starters, he tarnished his own legacy, many said, attempting a legal maneuver that made it seem like the CFPB was trying to avoid facing a GOP-appointed leader.

"The loser is Cordray, who thought he'd fire off a shot by appointing a presumably sympathetic deputy director and it totally missed the mark," said Edward Lenci, a partner at Hinshaw & Culbertson.

He also angered many inside his own agency, who were skeptical of his last- minute move to appoint English.

Cordray's maneuver was also a poor way to begin a political campaign, assuming that's what he's doing. He is widely expected to announce that he is running for governor of Ohio. Though he will likely paint his decision to appoint English as a bold stand against President Trump, the fact that it was unsuccessful and undermined his agency in the process will likely prevent it from being seen as a success.

In the eyes of many, he's also confirmed what Republicans have claimed about Cordray: that he was a Democratic operative more interested in politics than helping consumers.

Winner: Republicans

It's not just Mulvaney who won, but the GOP overall.

For the first time since its inception, the CFPB is under the control of a GOP-appointed leader, one who has promised a sea change in how the bureau operates.

It was almost surreal to see House Financial Services Committee Chairman Jeb Hensarling — one of the agency's most outspoken critics — supporting the bureau's new leadership publicly on Tuesday. The sense of victory is palpable among Hensarling and others on the committee in part because Mulvaney is one of them. He was a former South Carolina congressman who served under Hensarling on the banking panel.

Republicans have long bided their time waiting to have control of an agency they believe has unparalleled power. Now they have it.

Loser: Democrats

Democrats rallied around English.

Sen. Elizabeth Warren, D-Mass., and Senate Minority Leader Chuck Schumer held an awkward press availability with the deputy director on Monday in which nobody said anything and reporters were left confused why they were there. Dozens of Democrats issued fiery statements and joined an amicus brief declaring English the rightful interim director.

Warren even led a protest outside CFPB headquarters on Tuesday.

But it was all to no avail. It wasn't just that they lost in court, either. Democrats appeared desperate to stop Republicans from taking control, even when their own argument was considered weak by most lawyers. It furthered the impression that they viewed the CFPB not as an independent agency, but something under their exclusive control.

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Winner: Banks, payday lenders, auto lenders

Aside from Republicans, the financial services industry, covering everything from banks to credit unions to payday lenders, was breathing easier on Tuesday night.

With the CFPB under GOP control and a 30-day rule moratorium, it is unlikely to issue any tough, new restrictions over the next several years. Enforcement activities may be curbed as well.

"I do see very beneficial changes for business and a moderation at the bureau," said Stephen Ornstein, a partner at Alston & Bird. "Where [the CFPB] ran off the rails is they were making laws with consent decrees and coming up with regulations that have changed business practices, and a restoration of older views is going to change lending."

The agency is expected to delay or scrap plans to rein in the debt collectors and may rethink its approach to new data collection under the Home Mortgage Disclosure Act.

Mulvaney may also rescind the agency's controversial 2013 guidance warning auto lenders they are on the hook for any discrimination by partner auto dealers, even if it is unintentional.

Though Mulvaney said he could not take back the recent final rule restricting payday lending, he could opt to delay it or reopen it for public comment, preventing it from taking effect soon.

Too early to say: Consumers

Lost in the legal and political wrangling of the past week are consumers, the constituency that the CFPB was created to protect after widespread failures in mortgage underwriting caused the financial crisis.

In its six-year existence, the CFPB has returned $12 billion to 29 million Americans through enforcement actions and civil money penalties assessed mostly against banks.

On the one hand, many consumer groups fear the CFPB will be a less active regulator, dialing back its enforcement activities and closing up its rule-writing shop. That may leave consumers without a strong federal agency willing to step in to detect and punish wrongdoing.

But Mulvaney and industry representatives argue that the consumer agency may not be effectively helping the people it is supposed to protect. They charge it has caused a reduction in credit, tightening standards too far and making lenders afraid of extending credit.

At this stage, it's not clear who is right. But it's an issue that will bear careful watching.