Republican Threat to CFPB Rules May Mean Enforcement Boost

By Gregory Roberts

The Consumer Financial Protection Bureau likely will focus more on enforcement and less on rulemaking as the agency navigates an uncertain future and awaits the fate of its first-ever director, holdover Democrat Richard Cordray, several former CFPB officials told Bloomberg BNA.

Republicans’ willingness to deploy a regulation-busting tool known as the Congressional Review Act against rules issued by federal agencies will probably make the CFPB think twice about aggressive rulemakings going forward.

“Congress’ potential use of the CRA as a weapon to undo the CFPB’s rulemakings does have a chilling effect on the agency,” former CFPB assistant director and deputy general counsel Quyen Truong said. Truong is now a partner in the Washington office of Stroock & Stroock & Lavan LLP.

Instead, the CFPB may rely more on enforcement actions, although its targets have been more apt to fight back lately, thanks in part to ongoing litigation over the agency’s constitutionality.

“Rich Cordray talks about choosing the right tool, and given the difficulty of getting any rule finalized because of the CRA, I think we’ll just see more continued use of enforcement, as well as supervision,” Lucy Morris, a partner at Hudson Cook, LLP in Washington and former CFPB deputy enforcement director, said.

Turn to Enforcement

There are signs the CFPB is already ramping up its enforcement efforts. The bureau has brought 20 enforcement actions so far this year, an annual pace that would eclipse its peak total of 56 in 2015, according to Bloomberg Law’s CFPB Enforcement Tracker.

There are also indications that companies are less hesitant to push back.

“When the bureau was new, folks were still recovering from the financial crisis, and companies were far more worried about the reputational issues associated with going adverse to the government,” Benjamin Olson, a partner at Buckley Sandler LLP in Washington and former CFPB deputy assistant director for regulations, said.

“They didn’t see any upside to active litigation with their regulators.”

In a first, a commercial bank, TCF National, is contesting an enforcement action by the CFPB, which filed a lawsuit challenging TCF’s overdraft and marketing practices the day before Republican President Donald Trump’s inauguration January 20.

Constitutional Questions

Other targets have used ongoing litigation over the CFPB’s constitutionality to defend against enforcement actions. In April, for example, Ocwen Financial Corporation told a court it should first ask whether the CFPB is constitutional before considering the CFPB’s lawsuit that said the mortgage servicing company violated consumer protection laws.

“Companies have become more emboldened to resist the CFPB because of the change in administration,” Truong said.

Nevertheless, enforcement could remain a more attractive option than aggressive rulemaking given the threat of congressional intervention.

The clock ran out before the Senate could move against a CFPB rule on prepaid cards issued in 2016, under Democratic President Barack Obama. Congressional Republicans could still use the CRA should the CFPB try to finalize rules still in the works aimed at payday lenders, debt collectors and mandatory arbitration clauses in consumer finance contracts.

If a rule is shot down under the CRA, the agency is barred from proposing a similar rule in the future without specific approval from Congress.

“With regulations, they are likely slowing things down to rethink how to best proceed, especially with the threat of the Congressional Review Act,” Gerry Sachs, former senior counsel for policy and strategy with the enforcement office of the CFPB, said; he’s now a lawyer with Paul Hastings LLP in Washington.

Cordray’s Future Unclear

Another major source of uncertainly at the bureau is just how much time remains in the Cordray era.

An Obama appointee, Cordray, 58, is a possible candidate in 2018 for governor of Ohio, where he previously won statewide elections for treasurer and for attorney general. Should he run for governor, he probably would resign to begin his campaign several months before his official five-year term at the CFPB ends in July 2018 (Cordray served as initial director for 18 months before the Senate confirmed him).

Even if Cordray doesn’t try for governor, he may not serve out his term, depending on decisions ahead in the federal courts, Congress and the White House. Sooner or later, he will be succeeded by a director appointed by Trump, and Cordray’s replacement may take a less aggressive approach to cracking down on banks, payday lenders and other financial-services providers.

The 2010 Dodd-Frank Act, which created the CFPB, gave the agency an unusual degree of autonomy. Its operations are financed by the Federal Reserve Board, outside the congressional appropriations process, and its sole director can be removed from office by the president only for cause.

In October, in a legal dispute between the CFPB and a mortgage company, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled the governance structure of the bureau is unconstitutional. To fix it, the court struck the for-cause restriction on the president’s authority to fire the director, and Republicans in Congress have urged Trump to dismiss Cordray.

Case on Appeal

In the meantime, though, the CFPB appealed the October court ruling, and the decision was put on hold pending a review by all the court’s judges. The Trump Justice Department has weighed in on the side of the mortgage company; oral arguments in the case are scheduled for May 24.

Should the CFPB win the legal fight, Cordray could well stay until the end of his term, in July 2018, if he doesn’t depart voluntarily before that.

Meanwhile, the Republican majority on the House Financial Services Committee approved a Dodd-Frank repeal May 4 that would remove the for-cause provision and strip the agency of much of its autonomy. That bill is not expected to survive in the Senate, although the pressure to restructure the CFPB seems sure to persist.

“The bureau has been under political fire since the day it was formed,” Morris said. “People who work there are used to this kind of constant scrutiny, and this is a little bit more of the same.”

—With assistance from Chris Bruce and Nicholas St. John.

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

To contact the editor responsible for this story: Michael Ferullo at

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