CFPB Likely to Be Reined in Under Trump, Republican Congress

By Chris Bruce and Gregory Roberts

Nov. 9 — The Consumer Financial Protection Bureau could have new leadership and curtail its robust rulemaking and enforcement activities under President Donald Trump.

Trump may be able to replace CFPB Director Richard Cordray if an October federal appeals court ruling in PHH v. CFPB that the bureau is an executive branch agency stands—that is if congressional Republicans don’t get rid of his job entirely first.

Congressional Republicans had already made clear they want to rein in the CFPB’s independence by replacing the CFPB with a board, subject it to the congressional appropriations process, and even rename the agency.

Any immediate changes are not expected, but the combination of the election and PHH ruling mean that, over time, new leadership is likely atop the CFPB, even if it’s not Trump’s highest priority, according to Lucy Morris, the CFPB’s former deputy enforcement director for litigation. “If that happens, I would expect the agency to take a more conservative approach and not be as activist as they have been,” said Morris, who is now a partner in the Washington offices of Hudson Cook.

At stake is the agency’s aggressive approach to regulating credit and prepaid cards, mortgages, payday and student loans, debt collection, credit reporting and other areas of consumer finance since opening for business in 2011.

The CFPB, which did not immediately respond to a Nov. 9 request for comment, has said the U.S. Court of Appeals for the District of Columbia Circuit in PHH v. CFPB was wrongly decided and likely will not be upheld.

The CFPB hasn’t yet formally moved to appeal the ruling or seek review, but it has several options, including petitioning the full D.C. Circuit to review the ruling.

Judge Brett M. Kavanaugh, joined by Judge A. Raymond Randolph, held the agency’s structure unconstitutional, but Judge Karen L. Henderson dissented on that point. She said the D.C. Circuit didn’t need to reach that question and shouldn’t have ruled on it.

That’s important because the full D.C. Circuit—if it reviews the case—might agree with Henderson and unwind the constitutional question that now confronts the CFPB.

“There’s a real possibility that the en banc court decides that the panel didn’t need to reach the constitutional issue, and leaves that issue for another day,” said Eric J. Mogilnicki, a partner with Covington & Burling in Washington.

Even so, some are predicting that Cordray will ultimately be replaced, including FBR & Co. analyst Edward Mills. “The case can still be appealed, but time is running out,” Mills said in a post-election note.

Quick Moves Unlikely

Quyen T. Truong, a partner in the Washington offices of Stroock & Stroock & Lavan, said she doesn’t expect any action right away with respect to a possible removal of Cordray.

“I don’t think you’ll see any immediate impact,” said Truong, a former CFPB assistant director and deputy general counsel, told Bloomberg BNA. “Even with regard to PHH, the effect of the ruling is stayed pending a timely appeal or a petition for rehearing en banc. The CFPB is certainly going to appeal, so the date when the president would have power to remove the Director is still some time off.”

She added that the CFPB’s chain of succession would kick in with any departure by its director, and that the CFPB’s senior leadership would remain in place until a new director is appointed and confirmed. “Any major changing of the guard will take some time,” she said.

A business-friendly director could abandon pending rulemakings or curtail enforcement of past rules issued by the CFPB.

“I think there’s going to be a change in the senior leadership of the CFPB very soon, and with that change in leadership there will be a greater opportunity to raise concerns with the agency about costs and unintended consequences of its policy choices, especially when it involves newer technologies,” Thomas Pahl, a partner at Arnall Golden Gregory LLP in Washington and former managing counsel in the Office of Regulations at the CFPB, told Bloomberg BNA.

Other agencies, such as the Federal Trade Commission, consider those issues without abandoning consumer protection, Pahl said. Legislation sponsored by Jeb Hensarling (R-Texas), the House Financial Service Committee’s chairman, includes such a provision.

“That approach is going to be a tough transition period for the bureau, but I don’t think there’s any reason they can’t evolve into an agency that takes an approach that gets them a broader base of political support than they currently enjoy,” Pahl said.

Rulemaking Under Way

CFPB rules still in the works include a comprehensive regulation of prepaid cards that brings them under key credit-card protections and an expansion of mortgage foreclosure safeguards, both issued as final rules this year but not scheduled to take effect until 2017.

The CFPB has proposed and taken comments on rules limiting the use of arbitration clauses in consumer contracts, imposing extensive regulations on payday lending and updating mortgage Know Before You Owe requirements but has not issued final rules in those cases. It has outlined a proposal to restrict third-party debt collection.

“I would think that the likelihood of further rulemaking will decline since a Republican-controlled commission is likely to be more industry-friendly,” Alan Kaplinsky, a partner at Ballard Spahr LLP who closely follows CFPB issues, told Bloomberg BNA in an e-mail.

Final CFPB rules in effect include ones governing the steering of customers to certain loans by mortgage originators and others making it easier for stay-at-home spouses and partners to get credit cards.

Congressional Action Possible

The issue of Cordray’s removal could become moot should congressional Republicans move forward with legislation to replace the agency’s single director with a multi-member board.

The Republican-controlled House Financial Services Committee approved a bill Sept. 13 that would rewrite Dodd-Frank and restructure the CFPB, changing its name to the Consumer Financial Opportunity Commission and placing it under a five-member bipartisan board. The bill also would subject the CFPB’s budget to appropriation and oversight by Congress; the agency now is financed outside the appropriations process by the Federal Reserve Board.

Congress could pass legislation reorganizing the bureau under a five-member commission soon after Trump takes office, or even in the lame-duck session before then, Kaplinsky said.

“The election spells very bad news for the CFPB,” Kaplinsky said.

With assistance from Rob Tricchinelli

To contact the reporter on this story: Chris Bruce in Washington at and Gregory Roberts in Washington at

To contact the editor responsible for this story: Seth Stern at

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