When we woke up on November 9, 2016, to the election of a Republican President and Republican Congress, many speculated on the coming end of the Consumer Financial Protection Bureau ("CFPB" or "Bureau") leadership and regulatory activism as we know it. Political reality and legal guardrails – judicial, legislative and statutory – will ensure that no dramatic change in the CFPB's leadership and direction will take place in the near term, however.
Will New CFPB Leadership Be Installed Soon?
The election came on the heels of the October 11, 2016, ruling by the U.S. Court of Appeals for the D.C. Circuit in PHH Corp. v. CFPB that the current structure of the CFPB is unconstitutional, and that the cure is to give the President the power to remove the agency's Director at will. Watchers of the CFPB have focused on the prospect that, soon after assuming the Presidency, Donald Trump will remove Richard Cordray from his position as head of the CFPB, heralding a rapid turn-around of the agency. Putting aside the question of how rapidly the new President could turn to taking action concerning the CFPB in light of other, more urgent goals that he has described in his election campaign, the judicial process itself will preclude him from exercising that removal power immediately – and probably not until Director Cordray's present term expires naturally in 2018. The PHH ruling is stayed pending a timely petition for rehearing or appeal. The CFPB, already committed to fighting that decision, undoubtedly will file a petition for rehearing en banc by the D.C. Circuit, and we can expect the case to play out all the way to the U.S. Supreme Court. Even if the PHH ruling ultimately is upheld (a likely outcome), the appeal process will push off by approximately two years or more the date when the President would have the power to remove the CFPB Director at will.
Moreover, the departure of Richard Cordray from the position of CFPB Director, whether voluntary or involuntary, would not mean a quick change at the CFPB. Pursuant to the Dodd-Frank Act, the Deputy Director would assume the role of Acting Director until a new Director is appointed and confirmed. Experience teaches us that the confirmation process for the position of CFPB Director will be an extended one. While the Republican party will control both the White House and the Hill, its margin in Congress will be slim, and confirmation of the President's choice for CFPB Director likely won't be rapid. In the meantime, Deputy Director David Silberman and others in the line of succession at the Bureau, though they might have somewhat different leadership styles or regulatory priorities, likely would continue to steer the CFPB along its current direction.
Will The CFPB Become More Reticent In Its Regulatory Activities?
Whether reacting to an adverse judicial ruling or adverse election results, the CFPB's leadership will remain firm in demonstrating that it is not cowed by opposition to its pro-consumer mission, and remains zealous in advancing that mission. Now, however, the leadership must consider at every step if, when and how the new Republican Congress, backed by a Republican President, could successfully rein in the CFPB.
At the top of the list is the possibility that the new Congress could enact legislation to undo the Dodd-Frank Act. Republicans' slim margin in Congress and the CFPB's track record make it unlikely that legislation would be passed to do away with the agency. Legislation to change the CFPB's structure and powers (e.g., changing it to an appropriated agency or a five-member commission), which has been an ever-present threat since the Bureau's inception, becomes a more realistic possibility. To avoid giving opponents more ammunition to push for such major changes, the CFPB may become more careful about taking actions that could be deemed major over-reach. At the same time, as in its early days when the CFPB faced constant threat to its existence, the leadership will adhere to its belief that the best way to defend the agency is to demonstrate its value through rigorous action on all fronts, particularly in the form of large numbers of dollars returned to consumers, immense volumes of consumer complaints handled, and high-profile and politically popular actions taken against big targets (such as the recent action against Wells Fargo).
In addition to legislation to change its structure, the CFPB also faces a stronger threat of legislation directed to specific agency activities, including, in particular, its rulemakings. Expectations that the Bureau will drop some current rulemaking proceedings in which it faces strong opposition, such as the arbitration or payday rulemaking, are unfounded. But the CFPB's leadership undoubtedly is analyzing the possibility that Congress will pass legislation to block certain regulations, and trying to develop a strategy to achieve as much of the agency's regulatory objectives as possible in the changing political environment. That effort may encompass everything from developing a new Hill strategy, to adjusting the timing of certain rulemakings, to considering modifications in its proposed rules as a last resort.
Will The Industry Face A Lower Threat of Enforcement Action?
Besides new regulatory requirements, the biggest burden that the CFPB presents for the industry is its aggressive enforcement activities, which can involve new interpretations of existing statutes and regulations, or prosecution of long-standing business practices as unfair, deceptive or abusive acts or practices ("UDAAPs"). The CFPB is unlikely to cut back on its enforcement activities as a result of the changing political environment, although it may become more circumspect in pushing novel legal theories to impose liability for companies' past actions, in part due to recent court losses.
One of the most important aspects of the PHH decision is the Court's ruling that the CFPB's application of its new interpretation of existing law to impose liability for past company actions violates the company's Due Process rights, at least where the government previously had appeared to sanction such activities. This critical ruling, coupled with the above-mentioned concern about avoiding the appearance of overreach, may cause the CFPB to be more careful about litigating aggressive new legal claims. As a counterpoint to that concern, however, the CFPB also is likely to focus more on using its supervision and enforcement arms to push its agenda – first, because they are highly visible means for the Bureau to validate its existence and authorities, and second, because there is little that Congress or the President can do to block the agency's advancement of its regulatory agenda through those channels. Even if legislation could be passed to curtail the CFPB's supervisory and enforcement authority, it is worth noting that the industry should not expect dramatic relief, given the likelihood that state attorneys general who have taken a backseat to the Bureau will promptly take up the slack, following the enforcement model of an activist CFPB.
In sum, the election will not cause a rapid change in the CFPB's leadership and direction. The agency's leadership will be as concerned about the threat posed by legislation, as by the President's potential power to remove the Bureau's Director at will. Unfortunately for the industry, the CFPB's reaction may be to rely even more on its supervisory and enforcement authorities to advance its aggressive regulatory agenda. And state authorities will be waiting in the wings to take up the mantle should the CFPB's activism be curtailed by Congress or the President.
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