Trump and Cordray: Five Scenarios for the CFPB

By Chris Bruce

Richard Cordray has good reason to feel uncertain about his job security as President-elect Donald Trump prepares to take office Jan. 20.

Even before the election, a panel of federal appeals court judges had made Cordray’s position less secure with a ruling that said the Consumer Financial Protection Bureau’s director can be dismissed at the pleasure of the president.

The D.C. Circuit hasn’t yet acted on the CFPB’s request that the full U.S. Court of Appeals for the District of Columbia review the decision, and isn’t considered likely to do so before Inauguration Day. And neither the CFPB nor the Trump-Pence transition team responded to requests for comment.

But here are five potential scenarios on what might happen to Cordray once the new president arrives.

One: Bigger Fish Prevail

Competing priorities may push back any big decisions about the CFPB or its director, even if the new administration ultimately plans an all-out assault on the agency, several sources predict.

“There are a lot of things on the President-elect’s to-do list, and it is likely that dealing with the CFPB is one of them,” Rick Fischer, senior partner with Morrison & Foerster in Washington, told Bloomberg BNA. “But I’d be surprised if it’s at the top of the list.”

In a Jan. 9 letter, Republican Sens. Mike Lee (Utah) and Ben Sasse (Neb.) said Trump should remove Cordray after taking office.

But several factors may encourage delay. Litigation and procedural uncertainties could dramatically complicate any effort to remove Cordray immediately.

There are questions about the propriety of Trump acting while the PHH petition is still before the D.C. Circuit, and other complications may follow. For example, there’s a chance that consideration of the CFPB’s petition in the PHH case could be tied to a separate challenge to the CFPB and Cordray by a Texas bank.

A delay also would avoid one more confrontation with congressional Democrats in what is sure to be a contentious year. A group of 21 Democrats on the House Financial Services Committee Jan. 9 urged the President-elect not to dismiss Cordray, issuing a warning about initiating “costly, meritless litigation” and saying “we stand ready to oppose any efforts you may make to do so.”

Alan S. Kaplinsky, who heads the consumer financial services practice at Ballard Spahr in Philadelphia, also sees good odds of delayed action.

“I question whether that would be the type of battle that a new president would want to get involved in early on when he’s got a lot of other things that he may want to deal with,” Kaplinsky said.

Two: Congress Moots Controversy

Congress could moot the removal question entirely by changing the CFPB’s leadership structure.

Last year, the House Financial Services Committee by a 30-26 vote approved a measure by Chairman Jeb Hensarling (R-Texas) that would have converted the CFPB’s single-director leadership model to a bipartisan, five-member commission. A similar effort is expected this year.

Isaac Boltansky of Compass Point Research & Trading said the shift to a commission structure is the most likely scenario and predicted legislation enacting the change late this year.

Three: Trump Dismisses Cordray

Trump could dismiss Cordray ahead of the CFPB’s director’s statutory end-of-term in July 2018, and perhaps even as early as Jan. 20.

The October PHH ruling is stayed while the D.C. Circuit weighs the CFPB’s petition, but it might nonetheless provide a basis for an independent assessment by the White House that Cordray should be dismissed without cause.

Aditya Bamzai, an associate professor at the University of Virginia School of Law, said in a November blog post that, as president, Trump will have authority to independently decide the constitutionality of Cordray’s position and to remove him, and to do so without a court order.

Bamzai added, however, that other questions could arise, such as whether any removal order would in fact be constitutional, and whether and to what extent Cordray might have legal remedies, such as a claim for reinstatement or for back pay.

In a Jan. 12 radio interview, Hensarling told host Hugh Hewitt that the president has the power to remove the CFPB’s director. “He has the power to remove him for cause, number one, under the current statute, and under the ruling of the court.” Hensarling said, referring to the PHH decision.

There’s plenty of disagreement on whether Trump could make such a move. Among others, Brianne Gorod, chief counsel at the Constitutional Accountability Center, said in a December blog post that an effort to dismiss Cordray probably would be unlawful if based on a conclusion that the Dodd-Frank Act’s for-cause limitation is unconstitutional.

And even if Trump dismissed Cordray, she said, Cordray could seek relief in the courts. There is “clear precedent that the current Director of the CFPB could resist his removal by bringing an action for injunctive relief if President Trump were to try to remove him,” said Gorod, a former law clerk to Associate U.S. Supreme Court Justice Stephen Breyer and formerly an attorney-adviser in the Justice Department’s Office of Legal Counsel.

The other option is an attempt to remove Cordray for cause, based on the grounds specified in the Dodd-Frank Act provision struck by the D.C. Circuit panel in October. A “for cause” removal effort is more likely if the full D.C. Circuit disagrees with the October panel and finds the limits on removal constitutional.

A “for cause” dismissal effort must accord with the limitations language itself, which says the CFPB director may be fired only for “inefficiency, neglect of duty, or malfeasance” during the director’s five-year term.

Among other potential grounds, some have cited allegations of employment discrimination and retaliation at the CFPB. Those allegations were the focus of a July 30, 2014, hearing by the House Financial Services Subcommittee on Oversight and Investigations.

The allegations, and the Oversight Subcommittee’s attention to them, got plenty of ink in the Jan. 9 letter by House Financial Services Committee Democrats, who told Trump that “for cause” removal is “an extraordinary remedy whose use must be subjected to enhanced congressional, judicial, and public scrutiny.”

The letter essentially laid out a defense to allegations of discrimination or retaliation, saying Cordray acknowledged the difficulties of standing up a new agency while making “significant strides” in a range of personnel and other matters.

Four: Cordray Quits

Cordray could opt to leave on his own, either when his term ends in July 2018 — or sooner.

That’s the endgame preferred by Mike Crapo (R-Idaho), the new chairman of the Senate Banking Committee.

“I think that he should submit his resignation and let the new president put his nominee in place,” Crapo told Bloomberg BNA on Jan. 10.

Cordray’s political ambitions may weigh in favor of an early departure. The former Ohio state treasurer and attorney general who ran unsuccessfully for U.S. Senate is reportedly interested in running again for elected office in Ohio. A potential campaign for governor in 2018 would require plenty of lead time.

Five: Common Ground

It’s also possible that Trump and Cordray may yet find common ground. Although much of the prognosticating has assumed that Trump and Cordray will be at odds, there’s little in the way of hard evidence so far, at least in terms of public pronouncements.

The Trump-Pence transition team, while generally tagging the Dodd-Frank Act as a brake on economic growth, has said nothing specific about the CFPB or its director. And although the conventional wisdom is that there’s little common ground between Trump and Cordray, there is the possibility, however remote, that Trump might actually see Cordray as an ally.

It’s not likely, but neither is it impossible, said F. Paul Bland, Jr., executive director of Public Justice. Like many others, he said a dismissal of Cordray by Trump would undermine Trump’s campaign pledges to advance an economic agenda to protect working class voters.

But Bland went further, saying a meeting of the minds can’t definitively be ruled out, and that Trump might affirmatively decide to keep Cordray in place and lend his support.

“If President-elect Trump really meant what he said on the campaign trail, it would make sense that he would strongly support the things Director Cordray has been doing as head of the CFPB,” Bland told Bloomberg BNA.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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