Richard Horn
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Consumer Finance Regulation Blog

Update on the Battle over the Interim Leadership of the CFPB

Update on the Battle over the Interim Leadership of the CFPB – The Deputy Director’s New Argument, a New Lawsuit, and Some Thoughts on the Current Situation at the CFPB

December 9, 2017

I am writing this post to update you on the ongoing battle to lead the CFPB. Although the District Court for the District of Columbia denied Deputy Director English’s motion for a temporary restraining order, giving the Trump administration an initial win, the case continues and has to be decided on the merits. On December 6, 2017, Deputy Director English filed a motion for a preliminary injunction. The hearing on this motion is scheduled for December 22.

In this post, I discuss the current status of the lawsuit, briefly summarize some the main arguments made by Deputy Director English in her filing for a preliminary injunction, and highlight a new argument that her legal team made. This new argument is that the CFPB Director is exempt from the Federal Vacancies Reform Act (FVRA), because the FVRA expressly exempts members of boards of government corporations, and the Director is also a member of the Board of Directors of the Federal Deposit Insurance Corporation (FDIC). I actually suggested this as a possible argument on a Mortgage Bankers Association webinar that I presented on November 29 regarding the leadership situation at the CFPB. The webinar was a great discussion about the lawsuit and the potential effects on the CFPB. You can obtain a recording of the webinar by clicking here: https://store.mba.org/ProductDetail.aspx?product_code=DL2-011413-WC-W.

In addition, a new lawsuit was filed by the Lower East Side People’s Federal Credit Union on December 5, 2017 to fight the Trump administration’s designation of Director Mulvaney as Acting Director of the CFPB. I briefly summarize the main arguments in this new lawsuit, which also uses the new argument made by Deputy Director English in the motion for a preliminary injunction.

I also discuss the current situation at the CFPB and the steps that Acting Director Mulvaney has already taken at the bureau. It appears that Acting Director Mulvaney could have a substantial impact on the CFPB’s rules and enforcement actions during his interim leadership. This may be a good time for industry to consider submitting information to the CFPB regarding steps Acting Director Mulvaney can take to provide regulatory relief.

I.  Status of the Lawsuit by Deputy Director English

A.  Trump Administration Wins the First Round

As you already know, President Trump designated Mick Mulvaney (who is also the Director of the Office of Management and Budget) the Acting Director of the CFPB upon Richard Cordray’s resignation on November 24, 2017. However, on his last day at the CFPB, Richard Cordray had also named the CFPB’s Chief of Staff, Leandra English, the Deputy Director and, pursuant to the automatic succession provision under the Dodd-Frank Act, the Acting Director of the CFPB.

Deputy Director Leandra English filed a lawsuit on Sunday, November 26, 2017, in the U.S. District Court for the District of Columbia, to prevent from assuming the role of Acting Director. Deputy Director English asked the District Court for a temporary restraining order (TRO) to temporarily prevent Mulvaney from assuming the role, and asked for a declaratory judgment that she is the authorized Acting Director. The case was assigned to Judge Timothy J. Kelly, who coincidentally was appointed by President Trump and joined the court in September 2017.   At a hearing on Tuesday, November 28, Judge Kelly issued a judgment denying the motion for a TRO, effectively keeping Mulvaney in place as the purported Acting Director of the CFPB while the case continues, as described below.

 B.  Deputy Director English Files a Motion for a Preliminary Injunction with a New Argument

Although the Trump administration won the first round, Deputy Director English continues to pursue the case. On December 6, 2017, Deputy Director English filed a motion for a preliminary injunction in the case. Below I briefly summarize the main arguments made by Deputy Director English’s legal team:

  1. The Dodd-Frank Act’s succession provision controls the Acting Director position of the CFPB, rather than the FVRA, because the two statutes conflict and the Dodd-Frank Act was enacted later and is more specific. They point to the Dodd-Frank Act’s mandate that the Deputy Director “shall” serve as the Acting Director of the CFPB, and argue the mandate is more specific with respect to the CFPB because the FVRA’s provision provides that the President “may” designate an acting official. They also argue that although the FVRA has been determined to continue to apply to other statutes with mandatory succession provisions, those other statutes are distinguished from the Dodd-Frank Act, because they were enacted before the FVRA. They also point to the legislative history of the Dodd-Frank Act, noting that Congress in the final legislation changed the succession provision from a previous version that expressly relied on the FVRA, arguing that this indicates a choice by Congress to override the FVRA.
  2. The President’s appointment violates the Constitution’s Appointments Clause, because there is no statute authorizing the President to designate an Acting Director of the CFPB (based on their arguments that the Dodd-Frank Act’s mandatory succession provision controls).
  3. Even if the FVRA did apply to the CFPB’s Acting Director position, it would violate the requirement under the Dodd-Frank Act that the CFPB be “independent” (noting that the CFPB’s Director position is removable only for cause and it is not funded through appropriations). They argue that the CFPB’s independence is violated by Mulvaney serving as Acting Director, because he will continue to be an at-will employee of the White House as Director of OMB. In addition, they argue that the CFPB and FDIC are expressly exempted from OMB oversight by statute, and thus, the designation of the OMB Director to lead the CFPB and also serve on the FDIC board violates that independence.

In addition to these arguments, as noted above, Deputy Director English’s legal team also made a new argument that was not included in the initial complaint or filing for the TRO. The new argument is that the CFPB Director position is exempt from the FVRA, because the CFPB Director is also a member of the FDIC’s Board of Directors and FDIC board members are exempt from the FVRA. Specifically, the FVRA exempts, “any member who is appointed by the President, by and with the advice and consent of the Senate to any board, commission, or similar entity that governs an independent establishment or Government corporation.” 5 U.S.C. § 3349c(1). The CFPB Director is by statute a member of the FDIC board, which member positions satisfy this exemption under the FVRA, because the FDIC board is a board of a government corporation. 12 U.S.C. § 1812(a)(1). To support this argument, they also note that the Acting Director of the CFPB automatically serves on the FDIC board in the event of the absence of the CFPB Director. 12 U.S.C. § 1812(d)(2).

Notably, Deputy Director English’s filing did not cite the CFPB Director’s membership on the Financial Stability Oversight Council (FSOC), which is also required by statute under the Dodd-Frank Act. This may be another fact that supports the CFPB Director being exempt from the FVRA under section 3349c(1), because the FSOC is similar to a board or commission, and arguably an independent establishment.

Deputy Director English’s legal team appears to have largely abandoned the argument that the Dodd-Frank Act is exempt from the FVRA pursuant to 5 U.S.C. § 3347 (which exemption I discuss in my previous Client Update), although there are still references to this exemption in their filing. As I noted in my previous Client Update, the plain language of this exemption states that it provides an exemption from the “exclusivity” of the FVRA, and for that reason, it has been interpreted that even if a statute satisfies this exemption, the FVRA would still remain available to the President. In fact, the DOJ made this argument in its memorandum in opposition to the TRO. For this reason, they may have decided to focus their efforts on the other arguments.

C.  Possible Counterarguments for the DOJ

Before we turn to the possible counterarguments to the new argument in Deputy Director English’s motion for a preliminary injunction, it is worth noting that her filing uses some of the same arguments that were in the previous motion for a TRO. For that reason, in its opposition to the preliminary injunction, DOJ may use some of the same counterarguments it used to oppose the TRO. I briefly review some of the DOJ’s counterarguments below:

  1. With respect to the argument that the Dodd-Frank Act overrides the FVRA because it was enacted later and is more specific, the DOJ argued that for the Dodd-Frank Act to implicitly repeal the FVRA, under prior precedent, there has to be a “clear and manifest” intent of Congress. The DOJ argued that this intent is not clear, noting that the Dodd-Frank Act explicitly provides that it does not override federal laws dealing with employees and officers, unless expressly provided. See 12 U.S.C. § 5491(a). The DOJ also argued that the legislative history does not indicate this intent, and that if Congress had intended to override the FVRA, they would have made it clearer in light of past interpretations of the FVRA.
  2. With respect to the argument regarding the independence of the CFPB, the DOJ argued that the FVRA can apply to independent agencies, as it has previously been determined to apply to independent agencies such as the NLRB, Export-Import Bank, and Social Security Administration. The DOJ also argued that the court does not have jurisdiction to grant an injunction against the President from exercising his official appointment power.

Turning to the new argument, I believe that this is a potentially strong argument. As noted above, I actually raised this as a possible argument on a Mortgage Bankers Association webinar regarding the leadership situation at the CFPB on November 27. The legislative history for the exemption indicates that the drafters of the FVRA believed that this exemption “has always been the case with the respect to the Vacancies Act…” and wanted to preserve it in its legislation replacing the prior Vacancies Act. And there does not appear to be an issue with the FVRA remaining available to the President for a board member, as there is with the exemption from the “exclusivity” of the FVRA under 5 U.S.C. § 3347. In addition, this is the main argument that Lower East Side People’s Federal Credit Union used in its new lawsuit filed on December 5, 2017, which I briefly describe below.

A possible counterargument is that the exemption under section 3349c(1) of the FVRA only applies to members that were specifically appointed and confirmed to the board, and thus, it does not apply to the CFPB Director whose membership on the FDIC board is based on a statutory mandate. This argument is based on the plain language of the exemption, which expressly states that it applies to a board member “who is appointed by the President, by and with the advice and consent of the Senate to any board….” 5 U.S.C. § 3349c(1) (emphasis added). Arguably, the person appointed and confirmed to be the CFPB Director is not appointed and confirmed to the FDIC board. The CFPB Director only serves on the FDIC board pursuant to a statutory mandate under the Federal Deposit Insurance Act (FDI Act). 12 U.S.C. § 1812(a)(1)(B). This is different than the members who are expressly appointed and confirmed to the FDIC board, including the Chairperson, under the FDI Act. 12 U.S.C. § 1812(a)(1)(C). In contrast, the statutory mandate for the CFPB Director means that the CFPB Director is not appointed and confirmed to the FDIC board. Accordingly, the CFPB Director position is not “appointed…to any board” as required under the FVRA for the exemption to apply, and thus, is not subject to the exemption.

With respect to the vacancy provision under 12 U.S.C. § 1812(d) under which the Acting Director of the CFPB automatically serves as a member of the FDIC board in the event of a vacancy in the CFPB Director’s seat, this provision does not speak to whether or not the FVRA applies to the CFPB. In addition, this vacancy provision was in the FDI Act before the FVRA was enacted, when it applied to the Comptroller of the Currency and the Director of the Office of Thrift Supervision (OTS). Notably, it appears that case law has interpreted the previous version of the FVRA to apply to the OTS, which could indicate that an acting official designated under the FVRA can serve on the FDIC board under this succession provision.

I raise these only as possible counterarguments. There may be deficiencies to these arguments, or there may be other possible counterarguments and interesting threads that could be analyzed further. For example, there are cases under the prior version of the Vacancies Act involving the Acting Director position at the OTS, which also served on the FDIC board under a statutory mandate, in which the issue of an exemption for FDIC board members does not appear to have been raised. This is in spite of the legislative history of the FVRA noting that this exemption for board members had “always been the case.” It will be interesting to see the upcoming briefs and hearing on this issue.

D.  The Case Going Forward

Although the Trump administration won the first round, the judge ordered the parties to meet and confer and submit a proposed schedule by December 1. They filed separate schedules on December 1 and indicated that Deputy Director English planned to file a motion for a preliminary injunction. Notably, the two proposed schedules differed substantially, with the DOJ’s schedule continuing through February 2018 and Deputy Director English’s schedule completing briefings by December 15. Because the parties submitted separate schedules, Judge Kelly ordered a scheduling conference on December 5 and then ordered the following schedule for the motion for a preliminary injunction:

  • Deputy Director English’s motion for a preliminary injunction due by December 6
  • DOJ’s opposing brief is due by December 18 at 1:00 p.m.
  • Deputy Director English’s reply brief is due by December 20 at 1:00 p.m.
  • The hearing on the motion for a preliminary injunction is set for December 22 at 10:00 a.m.

I want to reiterate that it is not certain who will ultimately prevail in this case. It is an open question whether the Dodd-Frank Act or the FVRA controls the succession of the Acting Director of the CFPB.   There are many arguments and counterarguments on both sides, including a new argument by Deputy Director in her most recent motion, as described above. And there could be appeals by either party from the District Court’s decision, meaning that this leadership question could last some time. It is important to reiterate that, as I mentioned in my last Client Update, there will be a question mark hanging over any official actions of the CFPB while this issue is unresolved, because such actions could be void.

E.  Lower East Side People’s Federal Credit Union Lawsuit

On December 5, 2017, another lawsuit was filed against the Trump administration’s designation of Director Mulvaney as Acting Director of the CFPB. The Lower East Side People’s Federal Credit Union filed a lawsuit in the District Court for the Southern District of New York against the Trump administration and Mulvaney. The credit union asked the court for an injunction against Mulvaney serving as Acting Director of the CFPB, and a declaratory judgment that Deputy Director English is the Acting Director of the CFPB.

The credit union made similar arguments to those by Deputy Director English, including the new argument based on the CFPB Director also serving on the FDIC board. These arguments are that the Dodd-Frank Act controls succession at the CFPB, because it is more specific and was enacted later; the CFPB Director position is exempt from the FVRA under 5 U.S.C. § 3349c, because the CFPB Director is a member of the FDIC board; and the appointment of an at-will White House employee violates the independence of the CFPB that is required under the Dodd-Frank Act. It will be interesting to see how this separate case is handled by the court and the DOJ.

II.  Current Situation at the CFPB

Director Mulvaney has been serving as Acting Director of the CFPB since the day after his appointment on November 27. His ability to serve as Acting Director is due to the District Court’s denial of Deputy Director English’s motion for a TRO. In addition, the CFPB staff’s treatment of Director Mulvaney as Acting Director appears due to an internal November 25 memorandum by the CFPB’s General Counsel, Mary McLeod, which opined that President Trump has the authority to designate Mulvaney as Acting Director CFPB. Specifically, the General Counsel advised the CFPB’s senior staff to “act consistently with the understanding that Director Mulvaney is the Acting Director of the CFPB.” Therefore, it appears that Director Mulvaney will be performing the functions of the Director of the CFPB, including directing CFPB staff, for the time being.

It appears that the CFPB will be frozen for some time under Acting Director Mulvaney. On his first day, November 27, he announced that he is imposing a “freeze” on hiring, new regulations, and payments from the CFPB civil penalty fund. In addition, it was reported that Acting Director Mulvaney instituted a moratorium on CFPB’s collection of consumer data citing cyber security risks.

With respect to the CFPB’s enforcement activities, it was also reported that Acting Director Mulvaney is reviewing the CFPB’s pending investigations and enforcement actions. Notably, the outcome of one of Mulvaney’s reviews of a pending investigation involving a large bank may be affected by a December 8 tweet by the President that signaled the President’s desire for a certain outcome. This could potentially serve as evidence of the claims in the two lawsuits that the CFPB’s independence under an at-will White House employee is violated. In addition, this also highlights the policy concerns of many regarding the ability of any administration to directly influence consumer financial regulation and enforcement, and may serve to increase support from both sides of the aisle for a change to the CFPB’s leadership structure to a board or commission.

With respect to the CFPB’s regulatory activities, it appears that Acting Director Mulvaney will be open to regulatory reform. He reportedly inquired about revising the CFPB’s payday loan final rule, which the CFPB issued this fall, but instead announced his support for the disapproval of the rule under the Congressional Review Act, for which a resolution was introduced in the House on December 1, 2017. It is still possible Acting Director Mulvaney could take action to curtail the rule if the disapproval resolution does not pass Congress. He also reportedly plans to bring on politically appointed staff to move the CFPB’s priorities closer to those of the Trump administration. This signals what is likely to be an increased focus at the CFPB on regulatory relief and reform during this time. There have already been some notable requests to Acting Director Mulvaney for regulatory relief. For example, an industry trade association and House Republicans have already asked Acting Director Mulvaney to delay the effective date of the HMDA rule. In addition, letters submitted to the CFPB have raised concerns with the CFPB’s plans for the public disclosure of the expanded HMDA data.

It is also interesting that many of these actions by Acting Director Mulvaney come to us through the news media. While this may not be surprising in light of the recent change and the public interest in the leadership situation at the CFPB, it is hopeful that as time goes on, information about the CFPB’s activities under its interim and future permanent leadership will come through official CFPB statements and announcements that are also published on its website and/or in the Federal Register.

In spite of the questions surrounding this interim leadership situation, as I noted above, this may be a good opportunity for the industry to inform the CFPB about opportunities for regulatory relief and reform. Please let me know if you’d like me to assist you in submitting information to the CFPB.

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Please let me know if you have any questions or if you’d like to discuss.

The CFPB Going Forward – Cordray’s Resignation, the Federal Vacancies Reform Act, and More

November 26, 2017

Clients and Friends,

You’ve probably already seen in the news that Director Cordray of the CFPB announced on November 15 that he planned to resign by the end of the month, and he officially resigned on Friday, November 24. Soon after Cordray announced his planned resignation, it was reported by several news organizations that the Trump administration planned to appoint the current Director of the Office of Management and Budget (OMB), Mick Mulvaney, as the Acting Director of the CFPB under the Federal Vacancies Reform Act of 1998 (FVRA). However, before Cordray resigned, he named the CFPB’s Chief of Staff, Leandra English, as the Deputy Director, and is reported to have stated to staff that she will be the Acting Director of the CFPB pursuant to the Dodd-Frank Act. In what is a sign of a coming fight over the leadership of the CFPB, soon after Director Cordray’s resignation, the Trump administration announced its appointment of Director Mulvaney as the Acting Director of the CFPB. Here are the relevant CFPB and White House press releases:

https://www.consumerfinance.gov/about-us/newsroom/leandra-english-named-deputy-director-consumer-financial-protection-bureau/

https://www.whitehouse.gov/the-press-office/2017/11/24/statement-president-donald-j-trumps-designation-omb-director-mick.

As you might suspect, the CFPB cannot have two Acting Directors. This situation sets up a new and interesting legal question, and likely a court battle, regarding whether the Dodd-Frank Act’s succession provision or the FVRA applies to the CFPB’s Director position. As I was quoted as stating in a RESPA News November 20, 2017 article regarding the FVRA, “I don’t think it’s entirely certain that the Vacancies Act applies to the CFPB, because the Act exempts statutes that designate an employee to perform functions in an acting capacity, and the Dodd-Frank Act provides that the Deputy Director acts for the Director in an acting capacity in the Director’s absence. So, the Dodd-Frank Act might be exempt from the Vacancies Act.” You can find the full article here: https://www.respanews.com/RN/ArticlesRN/The-tale-of-the-Federal-Vacancies-Reform-Act-71663.aspx. The White House is reported to have consulted with the Department of Justice before appointing Director Mulvaney and a formal opinion is reportedly forthcoming. But given the strong interests of both sides on this issue and the likelihood of a lawsuit, I think this question will ultimately need to be resolved by the courts. It will be interesting to see what happens at the CFPB on Monday.

Before this question can be answered by the courts, it is uncertain how the CFPB will be able operate with two supposed Acting Directors. And even if one side relents, the questions surrounding the legal authority of the Acting Director may persist. Actions undertaken by an unauthorized Acting Director of the CFPB may be void, which will place a huge question mark on any CFPB actions during this time period, including regulatory and enforcement actions. I will discuss in more detail below the FVRA and the legal issues regarding whether the FVRA or the Dodd-Frank Act controls the succession at the CFPB.

In addition, if Director Mulvaney is ultimately determined to be the authorized Acting Director of the CFPB, this interim directorship could last a significant amount of time under the FVRA and it could have a significant impact on the CFPB. In this update, I will briefly provide some of my thoughts on what this means for the CFPB going forward.

Finally, in other news, a bi-partisan regulatory relief bill was recently introduced in the Senate on November 16, 2017. Senate Bill 2155, titled the “Economic Growth, Regulatory Relief, and Consumer Protection Act” would affect a number of the CFPB’s mortgage rules, including the Ability to Repay/Qualified Mortgage and TRID rules. I will briefly highlight some of the provisions for you below.

I.  The Federal Vacancies Reform Act and the CFPB

A.  The Dodd-Frank Act and the FVRA

The question of whether the Trump administration can appoint an Acting Director of the CFPB in the event of Director Cordray’s expected departure has been the subject of much discussion recently. There are two relevant statutes, which appear to conflict: (1) section 1011(b)(5) of the Dodd-Frank Act, which provides that the Deputy Director “shall” act as the Director in the event of the Director’s “absence or unavailability;” and (2) the FVRA, which provides that the “first assistant” fills the role in an acting capacity, but also provides the President the authority to instead appoint someone already confirmed by the Senate or a different senior officer or employee on an acting basis. The question of the day is whether the Dodd-Frank Act or the FVRA controls the succession of the CFPB’s Acting Director in the event of the Director’s resignation. This is an open question that will likely need to be answered by the courts.

Specifically, the Dodd-Frank Act provides that the Director position is appointed by the President and has to be confirmed by the Senate, but the Deputy Director position is not. Instead, the Director appoints the Deputy Director. Dodd-Frank Act section 1011(b)(5) provides that the Deputy Director “shall serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491(b)(5). This provision appears to apply in the event of the Director’s resignation, because the Director would arguably be absent or unavailable.

However, the FVRA, which was enacted in 1998, well before the Dodd-Frank Act, also appears to apply to this situation. Specifically, it applies in the event an officer of an “executive agency” who is appointed by the President and Senate-confirmed “dies, resigns, or is otherwise unable to perform the functions and duties of the office.” 5 U.S.C. § 3345(a). The FVRA provides that the “first assistant” to the office fills the role in an acting capacity, as a default. But the statute also authorizes the President to appoint someone who has already been confirmed by the Senate to assume the role, or a different senior employee (if they meet certain conditions), in an acting capacity. Id. Significantly, the statute also provides that its authority is the “exclusive means for temporarily authorizing an acting official to perform the functions and duties” of a Presidentially-appointed and Senate confirmed position in an executive agency. But the FVRA provides an exception to its exclusivity if another statute “expressly…designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity.” 5 U.S.C. § 3347(a)(1).

B.  Is the CFPB Exempt from the FVRA?

One of the arguments in support of the Dodd-Frank Act controlling the succession of the Acting Director (which supporters of the CFPB would favor) is that Dodd-Frank Act section 1011(b)(5) satisfies the exemption from the exclusivity of the FVRA. At first glance, it appears that the Dodd-Frank Act does satisfy the exemption, because it provides that the Deputy Director acts as the Director in the Director’s absence or unavailability. In fact, the Dodd-Frank Act mandates that the Deputy Director serve in an acting capacity in this event. It does not provide that the Deputy Director “may” serve, but that the Deputy “shall” serve as Acting Director. This would appear to be the type of provision described by the exemption in the FVRA, because it designates an acting official.

However, those favoring the Trump administration’s ability to appoint an Acting Director under the FVRA could argue that the Dodd-Frank Act provision does not contain certain language necessary to satisfy the exemption from the FVRA. One of the potential arguments is that the Dodd-Frank Act provision does not refer to a “vacancy,” as does other statutes that are understood to be exempt. The legislative history for the FVRA shows that the drafters intended for 40 statutes that existed at that time in 1998 to be exempt. See S. Rept. 105-250 (1998). Some of these statutes have very similar provisions as the Dodd-Frank Act, and designate an agency official to serve as an acting head of the agency in the event of the official’s absence or inability to serve. However, these statutes also expressly refer to a “vacancy” in the office, which terminology does not appear in the Dodd-Frank Act. For example, the legislative history identified 49 U.S.C. § 102(c)(2), which applies to the Department of Transportation and provides that the Deputy Secretary “acts for the Secretary when the Secretary is absent or unable to serve or when the office of Secretary is vacant.” A recent report from the Congressional Research Service also stated that this statutory provision might satisfy the exemption from the FVRA. And while the language for the exemption changed in the final version of the legislation, the intent of the drafters may still be instructive to a court.

Is this a fatal flaw that prevents section 1011(b)(5) of the Dodd-Frank Act from satisfying the exemption under the FVRA? The plain language of the exemption under the FVRA does not expressly require use of the word “vacant,” and supporters of the CFPB could argue that the absence and unavailability of the Director are synonymous with a vacancy. On the other hand, supporters of the Trump administration could argue that the choice of Congress to use only the words “absence” and “unavailability” in the Dodd-Frank Act, while these other statutes also refer to a vacancy, means that it does not apply to a vacancy. They could also argue that even if Dodd-Frank Act section 1011(b)(5) satisfies the exemption in the event of the absence or unavailability of the Director, the FVRA is still the exclusive authority when the position is vacant (such as a resignation or removal of the Director).

There are other possible arguments that have been raised, aside from the issue of the exemption. For example, supporters of the Trump administration could argue that the FVRA applies to the resignation of the CFPB’s Director, because it specifically refers to the resignation of an agency official, while the Dodd-Frank Act does not. Supporters of the CFPB could argue that based on the rules of statutory interpretation, the Dodd-Frank Act should apply because it was enacted after the FVRA and is more specific to the CFPB than the FVRA. All of these potential arguments show that this is a difficult legal question.

C.  Can the FVRA Apply to the CFPB Even if it is Exempt?

Another legal issue is whether the FVRA’s authority for the President to designate someone remains available even if the Dodd-Frank Act satisfies the exemption from exclusivity under the FVRA. The legislative history for the FVRA indicates that the intent of the drafters was that the FVRA would provide an “alternative procedure for temporarily occupying the office” when a statute is exempt. There have been interpretations of the FVRA that have determined the FVRA provides additional authority to the President, even if there is existing authority under an agency’s statute to appoint an official temporarily. Under this interpretation, the Dodd-Frank Act and the FVRA would not be mutually exclusive, and both would be available as options for the President.

But supporters of the CFPB could argue that because the Dodd-Frank Act was enacted after the FVRA and provides the specific mandate as described above, the Dodd-Frank Act supersedes the authority of the FVRA. The legislative history of the FVRA shows that the drafters intended for the FVRA to be able to be superseded by future statutes, stating that if “a statutory provision expressly provides that it supersedes the Vacancies Reform Act, the other statute will govern.” The final legislation’s language does not contain a particular provision for statutes to supersede the FVRA. But the CFPB’s supporters could potentially argue that, in light of the intent of the drafters, the Dodd-Frank Act has the effect of superseding the FVRA by creating a mandate for the Deputy Director to act as Director.

D.  An Open Question

It is an open question whether the Trump administration has the authority under the FVRA to appoint an Acting Director to the CFPB upon Director Cordray’s resignation, or whether the Dodd-Frank Act exclusively controls. To my knowledge, the courts have not addressed this issue. And as I’ve hopefully illustrated above, there are some plausible arguments on both sides of this debate. Given the strong interests on both sides of this issue, we could be headed for a protracted legal battle for the interim leadership of the CFPB.

II.  What Does this Mean for the CFPB?

 A.  CFPB Actions Potentially Void if Unauthorized Acting Director

If there is any question of whether the Acting Director of the CFPB is legally authorized, it could have a significant effect on the CFPB’s operations. The FVRA provides that unless someone is acting in a Presidentially appointed and Senate-confirmed position as authorized by the FVRA, the office remains vacant, actions by that acting officer have no force or effect, and such actions cannot be ratified later. 5 U.S.C. § 3348(d). This means that, as long as this question remains unanswered, the actions of whoever purports to be the Acting Director of the CFPB could potentially be held void by a court. In addition, because the FVRA provides that a future duly appointed Director cannot simply ratify such actions, this raises significant questions about any CFPB actions during this period being adopted by the CFPB in the future.

This could have some serious consequences and poses some serious questions. For example, enforcement actions initiated the CFPB could potentially be void and unable to be ratified in the future. This means that the CFPB would likely need to refrain from initiating lawsuits or administrative enforcement actions during this time. And does this apply to other legal actions or court filings, such as Civil Investigative Demands, settlements, Consent Orders, or the filing of appeals? What about appeals of agency actions to the CFPB Director? Also, how does this apply to proposed rules, final rules, or adjustments of regulatory thresholds required by statute?

In addition, the lack of clarity regarding who is the authorized Acting Director of the CFPB could have consequences even if one side relents before the initiation of a lawsuit. The actions of the other Acting Director could be called into question in future lawsuits. For example, if the White House decides to relent and accept the current Deputy Director of the CFPB as Acting Director, interested parties could still attempt to defend against particular actions of the CFPB, such as Civil Investigative Demands, by arguing that they are void under the FVRA. In addition, if the CFPB’s Deputy Director decides to relent, the actions of Acting Director Mulvaney could also be called into question. For example, if the Acting Director attempted to withdraw or rescind a rule, the authority to do so could be raised in a lawsuit. These are serious consequences that the industry could face during this period.

B.  The CFPB under an Acting Director Mulvaney

Industry should also consider how the CFPB might change if Director Mulvaney is determined to be the authorized Acting Director and takes the helm. The CFPB would be headed by someone who has been critical of the agency’s very existence. Director Mulvaney has been clear about his disdain for the agency. He referred to the agency as a “a sad, sick joke,” and stated, “I don’t like the fact that CFPB exists, I will be perfectly honest with you.” He also co-sponsored a bill to eliminate the CFPB in 2015 (HR 3118), among other bills affecting the CFPB.

One of the major areas where the effect of this change could be significant is the CFPB’s rulemaking function. The CFPB’s regulatory agenda would likely be stalled. The agenda included many rulemakings that are also controversial, such as rules affecting third party and first party debt collection, an overhaul of the overdraft disclosures, and a rule allowing the agency to supervise installment lenders. It is likely that the work on these rulemakings would cease. In addition, the CFPB could engage in rulemakings to rescind or delay the effectiveness of its other recent controversial rules, such as its HMDA final rule. Further, remember that Mick Mulvaney is currently the Director of OMB (he is expected to retain his role at OMB) and is responsible for implementing the administration’s executive orders on regulatory reform, which I have written about in the past. Director Mulvaney could potentially subject the CFPB to some of these executive orders on a voluntary basis.

And as you may recall, the CFPB issued two controversial final rules this year, its arbitration rule that would have restricted certain mandatory arbitration clauses and its payday loan rule that will restrict certain practices for short-term loans. As you may recall, Congress rejected the arbitration rule under the Congressional Review Act this fall. The payday loan rule is equally controversial. Significantly, Director Mulvaney has made critical comments about the CFPB’s payday loan rulemaking in the past, and sponsored a bill that would have put a moratorium on CFPB issuing a payday loan rule and allowed states to obtain renewable five-year waivers from such a rule. This means that an Acting Director Mulvaney could engage in a rulemaking to rescind the CFPB’s payday loan rule or provide such waivers, which would not require any action by Congress under the Congressional Review Act.

Hopefully, with a new agency head that is more sympathetic to the industry’s concerns, the CFPB would work to enhance its guidance function. The agency could improve its “No Action Letter” policy, or work on amendments to its current rules to provide additional official guidance or regulatory relief to the industry.

In addition, the CFPB would likely continue working on its assessments of the effectiveness of its significant rules under section 1022(d) of the Dodd-Frank Act. The CFPB is required to publish the report for each assessment no later than five years after the effective date of the rule. You may recall that the CFPB solicited information from the public for its review of the Ability-to-Repay/Qualified Mortgage rule this summer. The CFPB will soon need to begin its assessments of its other significant rules, including the TRID rule, which could require significant work.

The CFPB’s enforcement activity would also likely slow under an Acting Director Mulvaney. I expect the agency would be far less likely to engage in new investigations or to initiate new enforcement actions. This is especially true for those actions based on new or novel interpretations of the existing law, as Director Cordray has done in the past. The industry has been very critical of Director Cordray’s use of “regulation by enforcement,” which I would expect to cease under an Acting Director Mulvaney. This change in leadership might also affect the outcome of currently pending enforcement actions or settlement negotiations, or the CFPB’s willingness to appeal unfavorable court decisions.

While this slowing of enforcement activity appears to be a good result for the industry, it may be a double-edged sword. If the CFPB ceases enforcing against truly bad actors, companies that take compliance seriously could be forced to compete on an uneven playing field. Without the deterrent of a strong CFPB enforcement function, other companies may be more inclined to operate using potentially unfair and illicit practices. While state regulatory agencies or attorneys general may increase their enforcement activity to pick up the slack, this could still be an issue for industry. Industry should consider these potential effects of new interim leadership at the CFPB.

III. The Senate Regulatory Relief Bill

Senator Crapo, Chairman of the Senate Banking Committee, introduced a bill on November 16, 2017 to amend some financial regulatory statutes to provide regulatory relief. Senate Bill 2155, titled the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” is a bi-partisan bill with a number of Democratic co-sponsors. The legislation would affect several of the mortgage rules, including the Ability-to-Repay/Qualified Mortgage (ATR/QM) and TRID rules. Please find a link to the announcement of the bill here: https://www.banking.senate.gov/public/index.cfm/2017/11/senators-release-text-of-economic-growth-regulatory-relief-and-consumer-protection-act. I will briefly highlight a few of the provisions of the bill below.

The bill would amend the ATR/QM provisions of the Truth in Lending Act to add a safe harbor for mortgages originated and held in portfolio by depository institutions with less than $10 billion in total consolidated assets. The loans would still have to meet the existing ATR/QM 3% points and fees cap, documentation requirements, and prepayment penalty restrictions, and not contain negative amortization or interest-only features. The bill would also add an exemption from new data requirements the Dodd-Frank Act added to the Home Mortgage Disclosure Act for insured depository institutions that originated fewer than 500 closed-end or open-end mortgage loans in the preceding two calendar years, which were implemented in the CFPB’s HMDA final rule.

The bill would also provide transitional licensing under the SAFE Act for a 120-day period for federally registered loan originators that become employed by state-licensed lenders, or for state-licensed loan originators that transfer to a different state. The bill would also amend the timing requirement for the HOEPA disclosures to provide that if a creditor provides a second loan offer with a lower APR, the three-business day timing requirement for the HOEPA disclosures would not apply to that second offer.

Finally, with respect to the TRID rule, the bill would also express the “sense of Congress” that the CFPB “should endeavor to provide clearer, authoritative guidance on” the applicability of the TRID rule to assumptions, construction-to-permanent loans, and the ability to rely on model forms published by the CFPB that do not reflect recent amendments to the rules.

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Please let me know if you have any questions or if you’d like to discuss.

CFPB Issues TRID 2.0 Final Rule – Summary Available

July 17, 2017

Clients and Friends,

The CFPB issued its final rule to amend TRID on July 7, 2017, almost one year after the CFPB issued its proposal. The CFPB stated that, “[t]his final rule will generally benefit consumers and industry alike by providing greater clarity for implementation going forward.” The final rule, which has been commonly referred to as “TRID 2.0,” finalized many of the proposed changes that would have affected the scope of the rule and the completion of the Loan Estimate (“LE”) and Closing Disclosure (“CD”) for particular loan transactions, but it did not finalize some of the most controversial proposed changes in the CFPB’s proposal. The press release and final rule are available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-finalizes-updates-know-you-owe-mortgage-disclosure/.

Weighing in at 560 pages, there is certainly a great deal of information in this rule for industry to review and implement. In addition, the final rule has some surprising changes and raises some new questions.

I have drafted a detailed summary of the final rule, which includes some of my thoughts on the changes.  Please contact me if you would like to obtain a copy of the summary.

My Article on the CFPB’s Consumer Testing Published in the Journal of Public Policy & Marketing

April 26, 2017

An article I authored titled “The Consumer Financial Protection Bureau’s Consumer Research: Mission Accomplished?” will be published in the spring issue of the Journal of Public Policy & Marketing (JPPM).  The issue is due out in a few weeks, but I wanted to share my article with you in advance.  The article first introduces the reader to the CFPB, and then analyzes the CFPB’s consumer research for its disclosure rulemakings and other initiatives, such as its mortgage servicing rule, prepaid card rule, consumer complaint database, and HMDA rule.  The article questions whether the CFPB has conducted enough research for these projects and suggests ways in which the CFPB could improve its work.

Of note is that the CFPB also authored a companion article in this issue of JPPM, which discusses the CFPB’s research efforts for its disclosure rules.  It is also worth reading.

Here are links to both articles: http://journals.ama.org/doi/abs/10.1509/jppm.17.037 and http://journals.ama.org/doi/abs/10.1509/jppm.17.025.

Please let me know if you’d like to discuss any of the issues in the article.

Client Update – Potential CFPB Changes and Issues for 2017

December 20, 2016

Clients and Friends,

I wanted to write and share some of my thoughts on recent events affecting our industry, now that we’ve had some time to reflect on the election’s potential effects on the CFPB. I have drafted a discussion of some of the possible changes to the CFPB’s structure and activities. I included a brief summary of the pertinent provisions of the proposed Financial CHOICE Act, which may provide a blueprint for legislation by the next Congress. I also addressed the CFPB’s Fall 2016 regulatory agenda, the CFPB’s recent enforcement actions against three reverse mortgage lenders for deceptive advertising, and the CFPB’s 2017 fair lending priorities.  Please let me know if you’d like a copy of this document.

Please let me know if you would like to discuss or have any questions.

Wishing you a wonderful holiday season. I look forward to working together in the new year.

DC Circuit PHH Decision

October 17, 2016

Clients and Friends,

The U.S. Court of Appeals for the D.C. Circuit issued its decision in PHH v. CFPB on October 11, 2016. The court, in a strongly worded opinion, held that the CFPB was wrong in its interpretation of RESPA, due process, and the applicable statute of limitations, calling the CFPB’s various arguments “absurd,” “nonsensical,” “strained,” “deeply unsettling,” and “alarming.” The court also called the CFPB’s lack of due process a violation of “Rule of Law 101.” Significantly, the court also held that the CFPB’s structure was unconstitutional, because it was an independent agency with a single director who could only be removed by the President for cause. The court allowed the CFPB to continue to operate as an “executive agency,” but held that going forward the President is able to remove the Director at will.

The court described the CFPB’s structure as a threat to individual liberties and likened the CFPB to a “wolf.” After the court’s strong words for the CFPB’s interpretations, the wolf should be limping away with its tail between its legs. But the CFPB will likely request an en banc review by the court, and the case most likely will ultimately be appealed to the Supreme Court by one of the parties. This is just the beginning, and whether this opinion will stand remains to be seen. It may not be time to start revising your marketing services agreements just yet.

It is worth noting one significant effect of this decision for current subjects of CFPB administrative enforcement actions or civil investigative demands. For those institutions, the court’s rejection of the CFPB’s argument that its administrative enforcement actions are not subject to any statute of limitations should warrant attention, as it could be raised to limit the actionable violations in such proceedings.

Another question is whether the CFPB will be more careful about the limits of its authority after this opinion. Remember that recently, in April 2016, the CFPB had one of its civil investigative demands issued to a college accreditation company rejected by the U.S. District Court for the District of Columbia, because it was outside the CFPB’s statutory authority. In that decision, the court stated that, “[a]lthough it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow head long into fields not clearly ceded to them by Congress.” Will the CFPB take this advice?

I have drafted a summary of the court’s opinion, and provided some of my thoughts on the current and future effects of the decision.  Please let me know if you’d like a copy of this document.

Please let me know if you have any questions, or if I can provide any assistance in understanding the repercussions of this opinion.

CFPB TRID Proposal Summary

August 11, 2016

Clients and Friends,

The CFPB issued its long-awaited proposed rule to amend TRID on July 29, 2016. The proposal was intended to “formalize guidance in the rule, and provide greater clarity and certainty.” The press release is available at: http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-proposes-updates-know-you-owe-mortgage-disclosure-rule

The proposal is available on the CFPB’s website at: http://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/amendments-federal-mortgage-disclosure-requirements-under-truth-lending-act-regulation-z/

As a general matter, this proposal addresses many of the difficult compliance issues in the rule. It does not, however, address major policy issues such as the disclosure of title insurance, cures, or liability. But it is apparent that the CFPB put a great deal of work into this proposal, and thoughtfully considered much of the input from the public regarding compliance with the rule. The CFPB also explained the proposed changes and its reasoning for the changes in the preamble in a clear and concise manner, which is very helpful. As with any proposed rule, there are issues that the public may want to comment on to provide further input, especially considering the detailed nature of the proposed changes. But the CFPB’s effort and the quality of its proposal should be commended.

Please contact me if you’d like my summary of the proposal along with some of my thoughts on the issues for industry in the proposal. Please let me know if I can be of any assistance in understanding the proposal or preparing a comment letter for your organization.

CFPB Publishes LE and CD Annotated for TILA

May 12, 2016

Clients and Friends,

The CFPB announced in an email today that it has published on its website versions of the Loan Estimate (LE) and Closing Disclosure (CD) that are annotated with the sections of chapter 2 (Part B) of TILA that the CFPB says were “referenced in the Integrated Mortgage Disclosure final rule.” This is important information because, as you may already know, provisions of the rule that are implemented under authority in Part B of TILA will most likely be subject to civil liability under TILA section 130. In addition, the particular provisions of Part B that were relied on by the CFPB will determine whether statutory damages are available to plaintiffs.

Please note that the CFPB stated that these annotated forms contain the “citations…referenced in the preamble of the [final rule],” and the CFPB appears to have cited more than the statutory provisions that it expressly relied on in the preamble of the final rule. The CFPB appears to cite literally any statutory provision that was “referenced” in the preamble, which may indicate an intent to expand the statutory authority for the forms from what was relied on in the final rule, and to increase the potential liability under TRID.

For example, the annotated LE cites TILA section 128(b)(2)(C)(ii) for the Product disclosure under section 1026.37(a)(10), but the preamble for this provision only notes the existence of this statutory provision and does not include the provision in the statutory authority that was expressly relied on for the Product disclosure. This is also the case for the AIR Table under section 1026.37(j), for which the annotated LE cites TILA section 128(b)(2)(C)(ii), but the preamble only notes the existence of that provision and does not expressly rely on it as authority. In addition, significantly, page 2 of the annotated LE and CD both cite TILA section 128(a)(17) for the entirety of the Closing Cost Details.

For these reasons, these annotated disclosures will be important documents to review and understand to fully analyze the potential liability under TRID. For my clients, if I have already provided you with an analysis of the liability under TRID, please let me know if you would like to discuss updating it to reflect the CFPB’s annotated disclosures. For my other clients and friends, please let me know if you would like an analysis of the liability under TRID.

You can access the versions of the LE and CD at http://files.consumerfinance.gov/f/documents/201605_cfpb_loan-estimate-with-truth-in-lending-act-disclosure-citations.pdf and http://files.consumerfinance.gov/f/documents/201605_cfpb_closing-disclosure-with-truth-in-lending-act-disclosure-citations.pdf.

Please let me know if you have any questions.

VA Circular on TRID

April 18, 2016

Clients and Friends,

The Department of Veterans Affairs (VA) on April 11, 2016 issued Circular 26-16-11, in which the VA explains how it expects the Closing Disclosure (CD) under the TILA-RESPA Integrated Disclosure rule (TRID) to be itemized.

The Circular also discusses the allowable charges on VA loans, as set forth under 38 C.F.R. § 36.4313, including the 1% additional charge. The Circular states that the CD must be completed accurately for the VA to determine that a loan complied with the fee restrictions.

The Circular presents two examples of a completed CD, which appear to show that VA requires lender and seller credits to be itemized to count against the 1% additional charge allowed. The first completed CD contains what it appears the VA intended to be a general Lender Credit, for which the VA states that, “the charges were still made to the borrower and the lender’s credit was not able to be itemized.” Please note that in its example, the VA placed the general Lender Credit under the “Paid by Others” column. However, this is not the correct placement under the TRID rule. Under the TRID rule, a general Lender Credit is disclosed under § 1026.38(h)(3) and “designated borrower-paid at closing.”

The second completed CD contains “itemized credits in the Seller-Paid and Paid by Others columns rather than charging the Veteran.” The Circular appears to state that this complies with the 1% limit. The Circular states that additional itemization of credits is not required by the VA as long as the charges to the borrower do not exceed the 1% limit. However, please note that additional itemization of credits may be required under the TRID rule, if they are provided for specific charges under the terms of the legal obligation.

The Circular also states that the VA requires a final borrower-signed copy of the CD on all loans. The Circular can be accessed at: http://www.benefits.va.gov/HOMELOANS/documents/circulars/26_16_11.pdf.

Please let me know if you have any questions.

CFPB Webinar on TRID FAQs

April 18, 2016

Clients and Friends,

The Consumer Financial Protection Bureau (CFPB) conducted a webinar on April 12, 2016, in which it addressed frequently asked questions about the TILA-RESPA Integrated Disclosure rule (TRID). This was the first webinar since the effective date of TRID in which the CFPB answered general questions about the rule, and for that reason it was an important webinar. The CFPB did conduct a webinar about TRID in March 2016, but that webinar was focused only on construction lending issues.

This webinar provided some useful information, but it did not address all of the issues the industry has raised to the CFPB about the rule, such as the Black Hole, or the known issues with the Calculating Cash to Close table

A link to the archived recording of the webinar is available at: https://www.webcaster4.com/Webcast/Page/577/13784.

In addition, the CFPB posts links to the recordings of its TRID webinars, as well as an “index” of questions and answers from its webinars at this link: http://www.consumerfinance.gov/regulatory-implementation/tila-respa/

I’ve drafted a list of the questions, concise versions of the CFPB’s answers (including quotations as appropriate), and some of my thoughts on several of the CFPB’s answers. Please let me know if you’d like a copy.