In an email to staff, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced on Wednesday, November 15, that he will be stepping down this month. His departure was widely anticipated. Because the CFPB is headed by a single director – as opposed to a 5-member commission – the agency’s director wields enormous power. Below we address some of the most frequently asked questions regarding Director Cordray’s resignation.
Who takes over when Director Cordray steps down?
Like so much else involving the CFPB, the answer to this seemingly simple question is controversial. On the one hand, the Dodd-Frank Act provides that the agency’s Deputy Director shall “serve as acting Director in the absence or unavailability of the Director.” That suggests that Acting Deputy Director David Silberman would take over as Acting Director until the President appoints and the Senate confirms a new Director.
Press reports, however, indicate that the White House plans to appoint an Acting Director. Presumably, that step would be taken pursuant to the Federal Vacancies Reform Act. That Act provides that the when a Senate-confirmed official resigns, the President can appoint another Senate-confirmed individual to serve on an acting basis.
What powers does a CFPB Director have?
The CFPB Director has substantially more power than the Commissioner of a typical 5-member Commission. The Director personally authorizes all enforcement actions (settlements and lawsuits) as well as new regulations. Moreover, the Director can establish the agency’s priorities and policies. In short, the CFPB Director has substantial authority to determine how the CFPB exercises the broad powers granted to it by Congress. We can reasonably expect that a Trump-appointed successor will exercise these authorities very differently than Director Cordray did.
What happens to existing investigations or lawsuits?
We expect existing investigations to continue, but their resolution may well be impacted by who takes over and when. Particularly in cases that are at the edge of the agency’s authority, that represent novel or aggressive legal interpretations, or in which the CFPB is seeking broad remedies, a new Director may be less inclined to support staff’s recommended course of action.
It is unlikely that today’s announcement will have any impact on pending CFPB litigation while Director Cordray remains in office. However, once a new Director is named by President Trump, either on an Acting or permanent basis, the new Director may review pending litigation to determine if he or she wishes to continue to take the same legal positions the agency has been taking. It wouldn’t be surprising if the agency backed off some of its more aggressive legal positions. In the interim, defendants in such cases will likely seek to delay proceedings pending new CFPB leadership.
Can the CFPB initiate new investigations or send out CIDs?
Yes. New investigations and Civil Investigative Demands (CIDs) do not currently require the approval of the CFPB Director and we expect the Office of Enforcement to continue with business as usual until and unless a new Director instructs them otherwise. Once a new Director takes over, we would expect the CFPB’s enforcement priorities to change, and we would hope that the scope and breadth of CIDs will change and that the agency will be more attuned to the burdens that such requests impose on businesses.
Is the CFPB going to continue to bring enforcement cases?
The CFPB will clearly continue to bring enforcement cases at least until a new Trump-appointed Director takes over. Indeed, the agency filed a lawsuit on the same day that Director Cordray announced his impending departure. Once a new Director takes over, we would expect proposed new enforcement actions – all of which require Director approval – to be scrutinized carefully and that the nature of the claims asserted and the scope of the relief sought may change.
What happens to final and proposed rules?
That remains to be seen. Final rules impacting the mortgage industry, prepaid cards and payday lending remain effective unless the agency takes action to roll them back, which is not as simple as waving a wand. Instead, the agency would have to follow proper procedures under the Administrative Procedure Act. Proposed rules are easier to put the brakes on; the new Director can simply decide not to move forward. With respect to debt collection, however, industry may want a new rule to clarify and update existing law and guidance. Such a rule will presumably look different under a Trump-appointed Director than it would have under Cordray.
What does this mean for the PHH litigation?
That case is still pending before the full D.C. Circuit. If the court upholds the constitutionality of the agency (as seemed likely based on the questions asked at oral argument; see our prior blog post), it will be up to PHH to determine whether to seek certiorari before the Supreme Court. With Director Cordray at the helm of the CFPB that seemed likely. But if the D.C. Circuit remands the case to the CFPB for reconsideration of the RESPA issues involved, PHH may decide not to seek Supreme Court review but instead try its luck with a new, and presumably more sympathetic, CFPB Director. If the D.C. Circuit holds that the CFPB’s structure is unconstitutional, and that any Director is removable for cause, it will be interesting to see what happens next. The Justice Department under President Trump (which must approve any CFPB appeal to the Supreme Court) has taken the position that the current agency structure is unconstitutional, so the CFPB would be unlikely to seek Supreme Court review. PHH might seek such review, if the remedy for the constitutional violation is anything other than dismissal of the action against it, but as noted above it may also pursue its RESPA arguments on remand.