United States: President Likely Has Authority To Appoint Acting Director To Replace Cordray At CFPB

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray's announced yesterday (as covered here) that he will be resigning from his position by the end of this month.

The Administration appears poised to announce Office of Management and Budget Director Mick Mulvaney as an interim replacement until a permanent director can be selected by the President and approved by the Senate.

From a legal perspective, when it comes to determining the interim CFPB director, the succession issue is a simple one.

Some commentators have asserted that the Acting Deputy Director of the CFPB must succeed Cordray as Acting Director, until a permanent Director is confirmed; however, an analysis of the applicable statutes suggests the President does have the authority to select the Acting Director.

Statutory Framework for Interim Succession at the CFPB

There are two statutes under which an interim director potentially could be appointed.

The first is the Dodd-Frank Act, which created the CFPB, and which 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).

The second statute is the Federal Vacancies Reform Act of 1998 ("FVRA"), 5 U.S.C. § 3341 et seq., which applies when "an officer of an Executive agency...whose appointment to office is required to be made by the President, by and with the advice and consent of the Senate, dies, resigns, or is otherwise unable to perform the functions and duties of the office." 5 U.S.C. § 3345(a).

Under the FVRA, an acting director may perform the duties of the vacated office for 210 days, without approval by the Senate. 5 U.S.C. §§ 3345-46. (The Supreme Court has recently ruled that the interim director cannot be the same person as the nominee for the permanent position. See Natl. Labor Relat. Bd. v. SW Gen., Inc., 137 S. Ct. 929 (March 21, 2017).)

By default, under the FVRA, the "first assistant" to the resigning officer performs the duties of the office on an acting basis. So, by default, the deputy director would step into Cordray's shoes. But, the FVRA also provides that the president may bypass the "first assistant" and choose to appoint a senior employee or officer of the CFPB, or an officer at any agency who has already been approved by the Senate, as acting director. 5 U.S.C. § 3345(a)(2)-(3).

Some Analysts Have Suggested Dodd-Frank Requires that the Acting Deputy Director Replace Cordray

So far, there have been few analyses of how these statutes would apply to determining an interim replacement for Cordray. Some of those who have analyzed how these statutes interact have concluded that the Dodd-Frank provision likely controls. See articles here and here. These commentators make two primary arguments:

First, they rely on 5 U.S.C. § 3347(a)(1)(B), the "Exclusivity Provision" of the FVRA, which provides that the FVRA vacancy-filling methods are:

the exclusive means for temporarily authorizing an acting official to perform the functions and duties of any Executive agency...for which appointment is required to be made by the President, by and with the advice and consent of the Senate, unless...a statutory provision expressly...designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity..."

(Emphasis added.)

Those who assert Dodd-Frank controls for purposes of filling the vacancy at the CFPB, interpret this provision to mean that if another statute – like Dodd-Frank – designates an officer or employee to perform duties temporarily, then the FVRA's otherwise applicable vacancy-filling provisions do not apply.

Second, those who argue that Dodd-Frank should control cite the basic principle of statutory interpretation that the specific statute controls over the general. Because Dodd-Frank specifically deals with vacancies in the Director position at the CFPB, so this argument goes, Dodd-Frank should control over the more general provisions of the FVRA dealing with vacancies in federal offices.

The President Likely Has the Authority to Appoint Cordray's Interim Successor

There are three reasons that these arguments in favor of a Dodd-Frank-controlled appointment likely would be rejected in favor of the President's authority to appoint the interim director under the FVRA. 1

1 The Ninth Circuit and legislative history suggest the President may elect under which statute to proceed in making the appointment.

The first argument is based on Hooks ex rel. NLRB v. Kitsap Tenant Support Servs., 816 F.3d 550 (9th Cir. 2016), a case that involved the appointment by President Obama of a new General Counsel for the National Labor Relations Board ("NLRB"). The facts of the case are unimportant, but the court's discussion of one of the arguments raised by the plaintiff is on point.

In Hooks, the plaintiff asserted that because the National Labor Relations Act (the "NLRA") provided a means for temporarily filling vacancies in its top positions, in light of the Exclusivity Provision of the FVRA, the "NLRA provides the exclusive means for the President to appoint an Acting General Counsel." 816 F.3d at 555.

The court rejected this argument, holding that when the Exclusivity Provision of the FVRA and another statute both provide means for filling a vacancy, the President may elect between the statutes to designate an acting agency head. The court reasoned that because both the NLRA and the FVRA provide means for filling a vacancy, "neither the FVRA nor the NLRA is the exclusive means of appointing an Acting General Counsel of the NLRB. Thus, the President is permitted to elect between these two statutory alternatives to designate an Acting General Counsel. " Id. at 556 (first emphasis in original; second emphasis added).

The court went on to note that its reasoning was supported by the history of the FVRA:

The Senate Report on the FVRA confirms this interpretation. The Senate Report explains that the FVRA retains the vacancy-filling mechanisms in forty different statutes, including NLRA section 3(d), and states that "even with respect to the specific positions in which temporary officers may serve under the specific statutes this bill retains, the [FVRA] would continue to provide an alternative procedure for temporarily occupying the office." S. Rep. 105-250, 1998 WL 404532, at *17 (1998) (emphasis added).

Id. The court's holding applies with equal force to vacancy filling at the CFPB. Under Hooks, the President should have the authority to elect which of the two procedures – the procedure in Dodd-Frank or the procedure in the FVRA – to follow in appointing a temporary replacement for Cordray.

2 Dodd-Frank may not apply to "permanent-until-appointed" vacancies.

The second argument in favor of the President's appointment authority stems from comparing the language of Dodd-Frank, which provides for the deputy director to fill the role of acting director in case of "the absence or unavailability of the Director," 12 U.S.C. § 5491(b)(5) (emphasis added), with the language of the FVRA, which applies when an officer "dies, resigns, or is otherwise unable to perform the functions and duties of the office," 5 U.S.C. § 3345(a).

Because it is so new, courts have had little opportunity to interpret the succession provision in Dodd-Frank. But, in interpreting the FVRA, courts have differentiated between temporary absences that occur due to disability or sickness, and permanent vacancies in cases "when there has been a death or resignation, that is, when the vacancy will be permanent unless a successor is appointed." United States v. Lucido, 373 F. Supp. 1142, 1149 (E.D. Mich. 1974).

Based on this distinction, supporters of a presidential interim appointment should be able to argue that the provision in Dodd-Frank that places the deputy director in the position of acting director in cases of "absence or unavailability of the Director," only applies to temporary vacancies, as in the case of extended travel or sickness; while the FVRA provision that applies to an officer who "dies, resigns, or is otherwise unable to perform the functions and duties of the office" applies to vacancies that are permanent until appointment of a successor.

Lending credence to this interpretation is the fact that when Congress has adopted succession statutes in the past, it has seemed to specify when it intends an appointment to apply to all vacancies or to temporary vacancies only.

For example, 28 U.S.C. § 508, which deals with succession the position of U.S. Attorney General, provides: "In case of a vacancy in the office of Attorney General, or of his absence or disability, the Deputy Attorney General may exercise all the duties of that office...." (Emphasis added.) (Indeed, by its use of the disjunctive, "or," that statute seems to implicitly recognize a distinction between a "vacancy" (i.e., a vacancy that is permanent-until-filled) and an "absence or disability" that might leave the office temporarily unfilled.)

Had Congress intended Dodd-Frank's succession provision to apply to permanent-until-filled vacancies, it could have included similar language in that statute. The fact that it did not suggests that the FVRA, rather than Dodd-Frank, applies to a resignation like Director Cordray's.

3 Constitutional concerns favor the President's appointment power.

The third argument in favor of the President's appointment power under the FVRA is constitutional.

If the Dodd-Frank Act is read to dictate that the Acting Deputy Director automatically becomes the Acting Director, then this statutory method of succession may violate the Constitution.

As a panel of the D. C. Circuit noted: "[T]he Director enjoys significantly more unilateral power than any single member of any other independent agency.... Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power." PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 16 (D.C. Cir. 2016) (emphasis in original).

The panel went on to say: "The CFPB is exceptional in our constitutional structure and unprecedented in our constitutional history." Id. at 21. The panel then ruled that the Dodd-Franks Act is unconstitutional insofar as it prevents the President from removing a Director without "cause."

While that issue is now before the full D. C. Circuit, the panel's rationale was sound as applied to the Director, and it applies with even greater force to an Acting Deputy Director, who was simply hired by Cordray.

The idea of an official having an absolute right to appoint his successor is difficult to square with principles of democratic government. Fundamental constitutional principles should not permit an individual to exercise the unilateral power available to the Director, immune from any oversight, when that individual was never elected by any voters, never appointed by any President and never confirmed by the Senate.

In short, despite commentary to the contrary, the President likely has solid legal ground to appoint the Acting Director of his choice – by all accounts (at least of as of the time of publication), OMB Director Mulvaney – to head the CFPB until a permanent replacement for Cordray can be found.


1 Another less nuanced argument has been advanced to support the President's appointment power, which claims that the current deputy director at CFPB, David Silberman, is only Acting Deputy Director, rather than the Deputy Director, and therefore Dodd-Frank's succession provision may not apply. That objection is quickly overcome, however, if Director Cordray simply removes "Acting" from Silberman's title.

The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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David N. Anthony
Stephen Piepgrass
Alan D. Wingfield
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