CFPB Upheaval Continues: From RFIs to Leadership Philosophy

Financial Services Law

With the near-daily stories coming out of the Consumer Financial Protection Bureau (CFPB or Bureau), the question has become what isn’t happening at the Bureau.

What happened

Since President Donald Trump’s appointment of Mick Mulvaney, Director of the Office of Management and Budget (OMB), as Acting Director of the CFPB in November, the Bureau has remained in the headlines. As we reported on January 31, a divided en banc panel has now upheld the constitutionality of the CFPB’s structure. As a result, the battle over who is allowed to run the CFPB until Trump names a permanent director becomes even more important. Leandra English, who was tapped by outgoing Director Richard Cordray as Deputy Director before he stepped down, has challenged Mulvaney’s appointment, and the same D.C. Circuit that just championed CFPB independence is preparing to rule on whether Ms. English or Mr. Mulvaney is entitled to serve as Acting Director.

So far, it has not been a smooth run for Ms. English, whose attempt to obtain a temporary restraining order against Mulvaney’s appointment and dibs on the leadership position was denied by a U.S. district court, as was her subsequent request for a preliminary injunction.

But she has appealed the case to the U.S. Court of Appeals for the D.C. Circuit, which has agreed to an expedited briefing and oral argument in the case. A similar challenge to Mulvaney’s leadership was filed by the Lower East Side People’s Federal Credit Union and also remains pending, with the New York federal court having heard oral argument on the government’s motion to dismiss, and a ruling is likely in the near future.

In the interim, Mulvaney has moved aggressively in managing the Bureau. On his first day, he ordered a 30-day freeze, halting all new rulemakings, hiring (which has been partially lifted) and payments generated from enforcement actions. And the changing of the guard continued with new appointees.

Most recently, the CFPB announced a complete review of the Bureau’s enforcement, supervision, rulemaking, market monitoring and education activities. Set to appear in the coming weeks, the requests for information (RFIs) are an effort to ensure the CFPB is “fulfilling its proper and appropriate functions to best protect consumers,” providing “an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.”

First on the list for review is the Bureau’s process for requesting documents from companies under investigation, with the CFPB specifically asking to hear from businesses that have received multiple civil investigative demands (CIDs).

According to the RFI, “The Bureau is especially interested in better understanding how its processes related to CIDs may be updated, streamlined, or revised to better achieve the Bureau’s statutory and regulatory objectives, while minimizing burdens, consistent with applicable law, and how to align the Bureau’s CID processes with those of other agencies with similar authorities.”

Also on the agenda for the revamped Bureau: reconsideration of the final rule on payday, vehicle title and other so-called high-cost installment loans. The announcement came as no surprise, as lawmakers were already considering repeal of the rule pursuant to the Congressional Review Act.

Mulvaney then took the unusual step of passing on federal funding for the CFPB. “This letter is to inform you that for the second quarter of fiscal year 2018, the Bureau is requesting $0,” he wrote to Janet Yellen, Chair of the Board of Governors of the Federal Reserve System. At the end of 2017, the Bureau had a reserve fund of approximately $177 million—more than enough to carry out its statutory mandates for the second quarter, Mulvaney said.

Finding no practical reason for such a large reserve fund, Mulvaney explained he planned to spend it down in lieu of requesting more money from the federal government. “[T]his request—or lack thereof—will serve to reduce the federal deficit by the amount that the Bureau might have requested under different leadership,” he told Yellen. “While this approximately $145 million may not make much of a dent in the deficit, the men and women at the Bureau are proud to do their part to be responsible stewards of taxpayer dollars.”

The Bureau also released its first post-Cordray rulemaking agenda for the coming year. The Federal Register notice commits the CFPB to “working on a wide range of initiatives to address issues in markets for consumer financial products and services,” as well as “a series of reviews of existing regulations that it inherited from other agencies through the transfer of authorities under the Dodd-Frank Act.”

However, the agenda offers little informational value for the industry as it was drafted prior to Mulvaney taking the helm and launching his efforts to overhaul the Bureau. He did provide some indication of the future of the agency in a recent memorandum to all CFPB employees.

Referencing his predecessor, who was quoted as saying he liked to “push[] the envelope,” Mulvaney distinguished his leadership philosophy for the Bureau.

“[T]hat is going to be different,” Mulvaney wrote. “In fact, that entire governing philosophy of pushing the envelope frightens me a little. I would hope it would bother you as well. We are government employees. We don’t just work for the government, we work for the people. And that means everyone: those who use credit cards, and those who provide those cards; those who take loans, and those who make them; those who buy cars, and those who sell them. All of those people are part of what makes this country great. And all of them deserve to be treated fairly by their government.”

Noting that the Bureau will be reviewing “everything that we do, from investigations to lawsuits and everything in between,” Mulvaney said the CFPB’s efforts will be directed in part by consumer complaints. “In 2016, almost a third of the complaints into this office related to debt collection. Only 0.9% related to prepaid cards and 2% to payday lending. Data like that should, and will, guide our actions.”

For enforcement, the CFPB will focus on “quantifiable and unavoidable harm to the consumer,” while on the regulation front, Mulvaney vowed “more formal rulemaking on which financial institutions can rely, and less regulation by enforcement.”

To read the opinion and order in English v. Trump, click here.

To read the RFI announcement, click here.

To read the RFI on CIDs, click here.

To read the statement on the payday lending rule, click here.

To read the letter regarding funding, click here.

To read the rulemaking agenda, click here.

To read Acting Director Mulvaney’s memo to CFPB employees, click here.

Why it matters

The actions of Acting Director Mulvaney over the past few weeks leave little doubt of his intention to completely overhaul the CFPB. From a series of RFIs about every aspect of the Bureau’s activities to passing on any funds for Bureau funding to reconsideration of one of the cornerstones of former Director Cordray’s rulemaking efforts, the CFPB under Mulvaney is a completely new Bureau.