How Far Will Mulvaney Go in Scaling Back the CFPB?

By Michael Ferullo

Consumer Financial Protection Bureau Acting Director Mick Mulvaney told reporters on his first day on the job in November that he wouldn’t “set the place on fire or blow it up or lock the doors.” At the same time, Mulvaney noted that “anybody who thinks that a Trump administration of CFPB would be the same as an Obama administration is simply being naïve.”

Just weeks on the job, Mulvaney has ordered a temporary freeze on hiring and final rules, as well as case-by-case review of litigation and other enforcement actions. Mulvaney plans to add more political appointees to the CFPB’s ranks during his time as acting director, which he expects will last five to seven months.

“He clearly has no intention of simply keeping the seat warm,” Benjamin Olson, a partner at Buckley Sandler, who previously served as deputy assistant director for the office of regulations at the CFPB, told Bloomberg Law.

Mulvaney and whomever Trump picks and the Senate confirms as the next permanent director can’t dramatically change the bureau’s structure or independent funding—only Congress can do that. Still, Trump’s team can reverse many of the policies established during the five-year tenure of former director Richard Cordray, who resigned Nov. 24 to run for Ohio governor as a Democrat.

“Richard Cordray did good by consumers. However, at times, the bureau also overreached regarding its jurisdiction, penalties, and regulations,” Gerald Sachs, a partner with Venable LLP who previously served as senior counsel for policy and strategy with the CFPB’s enforcement office, told Bloomberg Law.

“The pendulum is going to swing back and, while many people in the industry believe there has to be some enforcement and regulation—how far back the pendulum will swing is the question.”

Enforcement Freeze

Some of the 100 lawsuits that were in the pipeline before Cordray’s departure could get slowed or scuttled entirely due to new scrutiny. Mulvaney has said he’s reviewing pending litigation on a “case-by-case” basis and has asked to freeze at least two active cases.

In the first, the bureau withdrew its previous opposition to a plan by an Ohio-based mortgage company to stay execution of a $7.9 million judgment in favor of the CFPB. The CFPB also suspended further action on a civil investigative demand against a Virginia company that helps detain immigrants obtain bonds they must post in order to be released from custody.

Michael Calhoun, president of the Center for Responsible Lending, told Bloomberg Law that a number of the delayed CFPB cases are “clear violations of the law. I think as these enforcement actions come to light, it’s going to be harder for Mulvaney or any actual confirmed director to roll them back.”

Calhoun pointed to the agency’s investigation of Wells Fargo for wrongly charging mortgage customers fees to lock in interest rates. Reports that the CFPB could delay the case under Mulvaney’s leadership were followed by a tweet from President Donald Trump that promised stiff penalties against the bank, which has been embroiled in multiple scandals since last year.

Mulvaney has also said that the CFPB will stop issuing rules “for a while.” Congressional Republicans are already trying to block the bureau’s October rule aimed at payday lenders, just as they intervened earlier against another rule curbing mandatory arbitration clauses in financial products.

But a longer-term freeze on rulemaking could have unintended effects. Olson said lenders are anticipating certain actions, such as technical amendments to the CFPB’s mortgage servicing and mortgage disclosure regulations.

“The mortgage industry relies on these types of routine actions to guide their day-to-day operations,” he said.

Consumer Complaints

Then there’s the CFPB’s Consumer Response system, a public database that has logged more than 1 million complaints about financial products and services since launching in 2011.

Banks and other financial companies have long complained that information is posted by the CFPB without getting fact-checked for accuracy. As a congressman, Mulvaney cosponsored a 2016 bill that would have barred the CFPB from posting unverified complaints. He now has the authority to halt the practice.

“I don’t think the database will go away in its entirely, but I think certain information may become non-public,” Sachs said.

Calhoun said it would be a violation of Dodd-Frank to entirely scuttle the Consumer Response system, “or even to functionally eliminate it.” The 2010 law mandated that the agency have a consumer complaint database, but it doesn’t specify that the material has to be made public.

“If complaints go private, you essentially take away one of the main functions of the system,” Calhoun said. “Banks and other financial services providers have established internal programs to actively resolve complaints submitted to the CFPB. That’s exactly what consumers want—someone to take their complaints seriously.”

First Days

Mulvaney is spending Tuesdays, Thursdays and Saturdays at the CFPB and three days at his other job as head of the Office of Management and Budget. He has tried to avoid giving the impression he’s an occupying general.

He brought Dunkin Donuts on his first day Nov. 27 and has made a point of keeping his initial conversations focused inside the bureau, refusing to meet with lobbyists during his first month on the job.

At the same time, Mulvaney wants to pair Republican appointees with senior civil servants in areas such as supervision, regulations, and enforcement. One recent arrival, senior CFPB adviser Brian Johnson, previously served as a top aide to the agency’s most vocal critic, House Financial Services Chairman Jeb Hensarling (R-Texas). Hensarling has sponsored legislation that would strip the agency of most of its current powers.

“Maybe they didn’t think they needed to have any political people here because a lot of the people here were political anyway, even though they’re professional,” Mulvaney said during a press briefing Dec. 4, referring to CFPB career staff.

‘Plenty to Do’ at CFPB

The immediate impact of the new Trump administration oversight on the agency’s approximately 1,600 employees is unclear.

“I think there’s a good number of people that will start looking for other jobs just because of the uncertainty at the CFPB,” said Elizabeth Corbett, who is now counsel at Alston & Bird after spending five years at the bureau in various roles, including acting chief of staff.

Sachs anticipates that the hiring freeze will stay in place for the forseeable future, meaning that positions that come open won’t be filled. “Typically, 5 to 10 percent turnover is routine, so in the next year, a hundred or so employees might leave and they won’t be rehired,” he said.

Olson said employees that stay at the agency will have “plenty to do” regardless of who’s in charge up top. Rules, investigations and other key projects often take several months, if not years, to complete.

“Routine functions such as researching markets, reviewing comment letters and preparing drafts of rules, and reviewing information produced in response to reviewing rules, and following up on examinations and civil investigation demands will continue,” Olson said.

“The real question will come when decisions will have to made by the agency’s leadership on what rules to issue and what findings to pursue,” he said.

Industry Uncertainty

Cordray’s aggressive approach to enforcement became the hallmark of his tenure and the biggest magnet for criticism. He assembled strong supervisory, regulatory, and enforcement teams that took action against traditional banks and ventured into new territory by supervising indirect auto lenders, credit reporting bureaus, and debt collectors.

While many in the financial industry might welcome Cordray’s departure, it also brings a certain degree of uncertainty.

“There is a lot of confusion on the industry side because they don’t know what the priorities are of the new acting director,” Corbett said. “They don’t know if the new leadership puts them in more of a safe zone in terms of regulatory scrutiny, or if perhaps they might be in a select group of institutions that will be the subject of additional focus.”

Sachs sees potential parallels to the Federal Trade Commission, which went through a similar transition when Ronald Reagan, a conservative Republican, was elected President in 1980. The FTC put the brakes on some of its enforcement activity, but eventually had to pick it back up due to the prevalence of unlawful activity and industry complaints.

“Eventually the FTC had to start bringing enforcement actions because fraudsters were running rampant,” Sachs told Bloomberg Law. “Set aside Republicans versus Democrats—I don’t think anyone thinks fraud is ok,” Sachs said.

With assistance from Lydia Beyoud

To contact the reporter on this story: Michael Ferullo at mferullo@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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