The next act in the drama playing out over who runs the Consumer Financial Protection Bureau begins Monday as two people are expected to show up to lead the agency, and a federal judge will have to determine the finale.
President Donald J. Trump last week tapped Mick Mulvaney, the White House budget director and a fierce critic of the bureau, to serve as temporary director – after outgoing CFPB Director Richard Cordray, a Democrat, named his chief of staff and long-time aide Leandra English as his successor.
Both sides say the law is on their side over who gets to name the bureau's chief, and English was first to seek a ruling in her favor. She filed a lawsuit Sunday night to block Mulvaney from taking over. And then in another twist to the high-stakes political thriller, the White House released a memo written by the CFPB's general counsel stating that Trump does have the authority to appoint Mulvaney acting director.
(More: Consumer Financial Protection Bureau's Cordray to step down.)
Mulvaney arrived at the bureau's Washington headquarters Monday morning carrying a bag of doughnuts. He entered the building without answering questions from reporters.
If the fight persists, companies regulated by the agency may also wind up suing should either English or Mulvaney take actions before the leadership issue is resolved. In the meantime, the bureau's work including writing rules aimed at cracking down on financial abuses and suing companies that break the law will be in limbo.
"There is no way for this to get resolved short of court intervention," said Alan Kaplinsky, a lawyer at Ballard Spahr who has represented big banks in lawsuits against the CFPB. "The CFPB will be paralyzed until we figure out who is in charge."
EASING RULES
The power play over the CFPB's leadership could complicate Trump's broader efforts to roll back financial regulations. He's facing intense opposition from Democrats who are avid Wall Street critics such as Massachusetts Senator Elizabeth Warren, who is credited with conceiving and shaping the bureau.
A court decision could take months, meaning the feud could spill over to next year's midterm elections, when the Republican majorities in both houses of Congress could be at stake.
In appointing Mulvaney, the White House cites a 1998 law that enables the president to install a temporary director of an agency when there's a vacancy. The Justice Department agreed with the White House, issuing a memo on Saturday outlining its reasons.
Democrats and other law experts disagree. Cordray defended his decision to name English by citing a Dodd-Frank Act provision that puts a deputy director in charge when the director is absent.
"Trump's attempt to install Mulvaney as interim successor is null and void," Laurence Tribe, a law professor at Harvard University who did a stint at the Justice Department during the Obama administration, said on Twitter. "This has the makings of a constitutional crisis."
ENDING FIGHT
English could decide to end the dispute by deferring to the Justice Department's opinion, though her lawsuit indicates that's unlikely. Another way the fight might conclude is if Trump finds a way to fire English, a scenario that does have legal precedent, said Daniel Hemel, a law professor at the University of Chicago.
"This could play out in a number of ways," he said.
The best course of action would be for Trump to nominate a permanent director for the Senate to confirm, said Republican Senator John Thune of South Dakota.
"We'll process it as quickly as we can in the Senate and get somebody installed as soon as possible," Thune said in an interview on the "Fox News Sunday" program. "That ultimately is the best way to resolve this."
Getting a permanent director confirmed could take months. Trump will make a decision about the agency's next leader in the coming weeks, senior White House aides told reporters on a conference call Saturday. He's considering several options, including candidates who've served as state attorneys general and individuals with experience in the financial industry, people familiar with the matter have said.
CONSTITUTIONAL CHALLENGE
It's not the first time the courts would have to answer existential questions about the CFPB's power and leadership. Most notably, the mortgage company PHH Corp. sued in a case currently under appeal to overturn a penalty imposed by the CFPB on grounds the agency is unconstitutional because of the way it's structured.
At the crux of the conflict is Republicans' view that the CFPB lacks accountability because its sole director can only be fired for cause and because the agency is funded by the Federal Reserve, not Congress. Banks have also complained about what they say is the agency's overly aggressive rule-making and burdensome red tape.
(More: Senate's takedown of the CFPB's class-action rule may pave way for challenge to Finra policy.)
"Financial institutions have been devastated and unable to properly serve the public," Trump said in a Twitter post on Nov. 25, calling the bureau under Cordray "a total disaster."
"We will bring it back to life!" Trump said.
Democrats argue it is the bureau's independence that makes it effective. They have celebrated the agency as a Wall Street watchdog needed to advocate for ordinary Americans and say it has returned nearly $12 billion to customers who've been shortchanged.
By naming Mulvaney as the interim director, Trump is trying to "put a fox in charge of the hen house," Senate Democratic Leader Chuck Schumer said in a statement Sunday.
'DISDAINS THIS AGENCY'
"The CFPB should be led by someone who is committed to working around the clock on behalf of consumers, not by a part time director who clearly disdains this agency," Schumer said.
Even before Cordray announced his plans to resign Nov. 15, the White House had been working for months to determine his successor, and Mulvaney has been involved in those discussions, people familiar with the matter have said. The former lawmaker from South Carolina has called the CFPB a "joke," and said Cordray ran it like "a dictator." When he was in Congress, Mulvaney had sponsored legislation to eliminate the agency.
As its leader, English would be expected to continue Cordray's aggressive approach to oversight. She's worked at the bureau since its early days, serving in several leadership roles including deputy chief operating officer. She also spent some time at the U.S. Office of Personnel Management under President Barack Obama.
In a memo to staff announcing her promotion last week, Cordray said English had his "trust and confidence," and that her appointment would "provide for a smooth transition" after he stepped down.
DIFFERENT TONE
Mulvaney would likely set a much different tone. Lobbyists for financial firms said they expect he'll begin by halting everything the agency is doing, so he can review internal processes and assess what changes need to be made.
That means regulations in the pipeline could be stalled, such as efforts to impose new restrictions on companies that collect debt from consumers. Negotiations between the bureau and firms over enforcement settlements would also probably be affected, because it's unclear whether Mulvaney would want to pursue cases that were started under Cordray's watch, lobbyists said.
But until it's clear who's in charge, confusion at the CFPB risks spilling over to other financial regulators. The agency's director is a voting member of the Financial Stability Oversight Council – a panel of regulators that has a say in issues such as determining whether firms are too big to fail. The director is also a board member of the Federal Deposit Insurance Corp., which oversees the biggest U.S. banks.
"If this goes for longer than a week, banks are going to feel an impact," said banking lobbyist Richard Hunt, president and chief executive officer of of the Consumer Bankers Association. "And that kind of uncertainty isn't good for anyone."
