Editor’s Note: This story is the first of a series examining the election’s impact on the CFPB and its rulemakings. Read part two here.
The Consumer Financial Protection Bureau and its director Richard Cordray are on a collision course with President-elect Donald Trump in what may become a nasty legal and political showdown over the limits to executive power.
A key question is whether Trump will attempt to fire Cordray soon after assuming the presidency next month even though there is a pending court appeal challenging his authority to do just that.
“We’re dealing with a situation where there is a lot of legal uncertainty about how this administration will act, so how this will unfold is unpredictable,” said Scott Nelson, an attorney with Public Citizen Litigation Group, who has argued several cases before the Supreme Court.
Following are four legal and political issues that could affect how long Cordray holds on to his job at the CFPB.
Can Trump Fire Cordray?
Many legal experts said there’s sufficient legal wiggle room for Trump to fire Cordray, who has been a thorn in the side of Congressional Republicans and the financial industry since he was confirmed for a five-year term on July 16, 2013. Up until recently, the prevailing analysis was that Cordray couldn’t be removed until his term expired in 2018 unless he was fired “for cause.”
That changed in October, when a federal court said that the president did not need a reason to remove the CFPB director, arguing the language in the Dodd-Frank Act that created the agency was unconstitutional.
That has fueled talk that Trump will move quickly once in office.
“The transition team has been promising from Day One that a lot of stuff will happen and why not please a bunch of people on the right and in the business community?” said Daniel A. Crane, a senior profess at the University of Michigan Law School.
Some legal scholars have written that once in office, Trump could fire Cordray outright by asserting that he does not believe there is a limit to a president’s removal authority.
Or Trump could hedge his bets and seek to remove Cordray “for cause,” by listing various reasons why he should be removed.
J.W. Verret, an associate law professor at George Mason University School of Law, listed some reasons why he thinks Cordray could be removed for cause: allegations of employee discrimination and retaliation at the CFPB, and a settlement with auto lender Ally Financial that some allege was a false claim.
Others see that as a stretch.
“I don’t think there is anything that Director Cordray has done that would constitute cause,” Nelson said. “Cause doesn’t mean you disagree with a person’s policies, cause is considered to mean malfeasance.”
A Risky Move
If Trump chooses to attempt to fire Cordray, it’s a risky maneuver for both him and the CFPB chief.
Cordray could try to fight the president in court, but doing so would carry risks for the agency.
“If Cordray did stay on at the agency, every action the entire agency takes could potentially be undermined later and he would put everything at the agency at risk,” Verret said.
That said, some also see risks to the president in trying to fire Cordray out right, particularly given Trump’s reputation as a populist. (The CFPB remains popular with the public despite GOP opposition.)
“It would be a pretty stunning move [to fire Cordray], not only because there’s no recent example of someone being removed for cause, but also because there’s no basis,” said Brianne Gorod, chief council at the Constitutional Accountability Center. “Richard Cordray has clearly been effective at helping the people that Trump said during the campaign that he wanted to help.”
If Cordray is fired, he could seek a declaratory judgment stating that he is lawfully in his job, and a preliminary injunction requiring that the president permit him to stay, lawyers said. A court battle over the job raises another set of questions, including what relief a court would offer and whether doing so could include a reinstatement as the CFPB’s director.
The firing would also give Sen. Elizabeth Warren, the Massachusetts Democrat who founded the CFPB, and others a chance to rally sentiment against the new president.
“If Trump loses the legal battle, it’s an immediate setback,” said Crane. “So maybe [Trump] wants to save that fight. But my guess is there’s enough feeling on the right against the CFPB, and it plays into the desire for a strong-man executive that [Trump] has run on. I can imagine [the administration] saying let’s not turn this down, let’s have this fight.”
Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, signed an amicus brief last week in support of the CFPB’s appeal of the October court ruling. She said the three judge panel’s decision “flatly contradicts” the text of the Constitution and Supreme Court precedent.
Some consumer advocates even think Trump’s populist rhetoric has legs.
“It’s important for people who are fighting for consumers to clearly draw the lines that Trump has said he sides with regular Americans against special interests,” said Paul Bland, the executive director at the public interest law firm Public Justice.
The Other Court Fight
To be sure, the potential legal battle over Cordray’s fight takes place in the shadow of a court fight already underway.
Cordray filed an appeal of a contentious district court ruling in PHH Corp. v. CFPB, which raised important constitutional issues about the separation of powers doctrine.
A three-judge panel of the D.C. Circuit ruled in a split decision in October that the CFPB’s single-director structure was unconstitutional because it limited the president’s authority to remove the head of an agency.
The panel’s solution was to rule that the president can dismiss a CFPB director for any reason — not just “for cause,” the term that the then-Democratically controlled Congress used in the Dodd-Frank Act to shield the bureau’s director from being fired at will.
Until the D.C. Circuit accepts Cordray’s appeal, the panel’s decision that the bureau’s structure is unconstitutional is not in effect, lawyers said.