Chaos atop CFPB could get worse after appeals court ruling


With leadership of the Consumer Financial Protection Bureau already facing plenty of uncertainty, a looming court decision could further upend the calculus of who runs the agency.

The U.S. Court of Appeals for the D.C. Circuit has been deliberating since April on whether Mick Mulvaney can continue as acting CFPB director. The three-judge panel appeared skeptical of the claim by Leandra English, the chief of staff under former CFPB Director Richard Cordray, that she is the rightful acting director. But the judges also raised questions about Mulvaney’s dual role running the bureau and the Office of Management and Budget.

Lawyers say while a victory is unlikely for English, they are still preparing for a possible outcome where Mulvaney is disqualified as acting director as well. That could repeat the scenario from last fall where, for a short time, no one really knew who was in charge.

Acting CFPB Director Mick Mulvaney

As OMB director, Mick Mulvaney reports directly to President Trump. Experts say the court could determine that his appointment is in conflict with Congress’ description in Dodd-Frank that the CFPB be independent from the White House.

Bloomberg News

“The litigation could throw things into a cocked hat — until it gets sorted out again,” said Alan Kaplinsky, the co-practice leader at Ballard Spahr’s consumer financial services group.

As OMB director, Mulvaney reports directly to President Trump. Legal experts say the court could determine that his appointment is in direct conflict with Congress’ express description in the Dodd-Frank Act that the CFPB be independent from the White House.

The case stems from a lawsuit filed in November by English, now the agency’s deputy director. When he stepped down in the fall, Cordray had attempted to install English as acting director, citing authority under Dodd-Frank. But the administration argues that the Federal Vacancies Reform Act authorized Trump to name Mulvaney.

English faces long odds in challenging the president’s naming of Mulvaney as acting director. But the litigation raises bigger questions including whether the White House improperly sought control of the CFPB by naming Mulvaney, a Cabinet-level appointee.

“What if the court agrees that Mulvaney can’t be in that position, not because the appointment is improper, but because he’s not sufficiently independent?” asked Richard Gottlieb, a partner at Manatt, Phelps Phillips.

Lawyers point to oral arguments in April, in which the appeals court’s three-judge panel appeared particularly interested in Mulvaney’s dual roles.

“He is wearing two hats at the same time,” Judge Patricia Millett said at the court hearing. “If we’re talking about straining things, it seems a strain to suggest that Mr. Mulvaney would wake up and say, ‘I wish to do this as CFPB director, but of course as OMB director I think that’s a terrible, horrible thing to do.’”

CFPB leadership questions come at a time when the OMB appears to be asserting a greater role in financial regulatory policy. Last week, under his OMB hat, Mulvaney released a sweeping plan to reorganize the government, which included a proposal to release Fannie Mae and Freddie Mac from their conservatorships and privatize them.

Meanwhile, one of Mulvaney’s top OMB deputies, Kathy Kraninger, is the administration’s nominee to be the permanent CFPB director.

“That’s the creative tactic that struck a chord at the oral argument, that maybe the guy at OMB who reports directly to the President can’t also be the [acting] CFPB director,” Gottlieb said.

Kraninger, who spent most of her career at the Department of Homeland Security, is currently a program associate director for general government programs at the Office of Management and Budget. Last week, Sen. Elizabeth Warren, D-Mass., said that she will put a hold on Kraninger’s nomination until the nominee turns over documents to explain her involvement, if any, in Trump’s “zero tolerance” immigration policy.

Yet even Mulvaney has suggested that the nomination was a maneuver that could keep him in the job another two years, since he now is serving the second of three possible 210-day extensions.

“I am allowed to stay now until [Kraninger] is confirmed or denied by the Senate,” Mulvaney said last week at a fintech conference hosted by CB Insights. “The bottom line is this, in the extreme case — I doubt very seriously, and do not think it will come to this — I could stay until the end of the first term of the presidency,” which would be in 2020.

The court may not look kindly on the idea that the Trump administration may have nominated a permanent CFPB director only to prolong Mulvaney’s control over the agency, observers said.

Lawyers have gamed out at least four potential outcomes for the appeals court case.

The first is that the D.C. Circuit holds off on ruling in the hope that the Senate confirms Kraninger or, if she is denied, confirms a second nominee to lead the CFPB. If Kraninger is confirmed, it would make the appeals case moot and end the litigation altogether.

A second possible outcome is for the appeals court to affirm the lower court ruling that Trump could under the Federal Vacancies Reform Act of 1998 name a CFPB director, at which point Mulvaney stays in the job on an interim basis.

Under that outcome, it is unclear whether English would remain in her job, be fired by Mulvaney or otherwise resign.

Kaplinsky said it is the court’s third option that would throw a monkey wrench into the CFPB’s current leadership structure.

“The third option is the one where it really gets foggy, where the court says Mulvaney can’t serve,” Kaplinsky said.

“Depending on what the court does, the most dramatic thing it could do would be to say that the language of Dodd-Frank trumps the language of the Federal Vacancies Act and English is entitled to be the acting director.”

If that happened, Mulvaney and the Department of Justice could appeal to the Supreme Court.

A fourth option could complicate things even further: The court disqualifies Mulvaney — ruling that he is not independent — but also rules that English is not the rightful acting director either.

Trump could pick another acting director, but it would have to be somebody who has already been confirmed by the Senate for a different position that is independent of the White House.

Gottlieb said the court could side with the president on the appointment, but determine he has to pick someone other than Mulvaney.

“If the Court is forced to decide, the president has broad discretion but it can’t be someone who holds another position within the executive branch,” Gottlieb said. “Congress designed the CFPB to be an autonomous bureau and it can’t be autonomous if the director is somebody that already reports directly to the president.”

The court could also be saved from having to make a decision if the nomination of Kraninger or someone else advances.

Even if Kraninger’s Senate confirmation is held up, Trump could use his recess appointment powers to name her to lead the bureau. President Obama did the same in 2012 by appointing Cordray to be the first CFPB director. Senate Republicans had refused to allow an up-or-down vote on Cordray’s nomination but ultimately confirmed him a year later.

The court likely is holding off on issuing a ruling in the hopes that Congress confirms a permanent director.

“They don’t want this political football,” Gottlieb said.

Kate Berry

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