Consumer Financial Protection Bureau (CFPB)

On January 16, the Consumer Financial Protection Bureau announced its intention to reconsider a controversial rule affecting the short-term (payday) and auto-title lending industries.  This reconsideration could signal that a stripped down rule that omits a number of the rule’s more controversial provisions could be in the offing.

The original rule was finalized in October 2017, when Richard Cordray was still the head of the Bureau, and required lenders to determine whether a borrower could afford his or her loan payments while still meeting basic living expenses and other financial obligations.  For short-term or auto-title loans due in a lump sum, lenders must determine whether a borrower can make a full payment of the total loan amount, plus any fees and finance charges, within two weeks or a month.  For loans with a longer term and a balloon payment, lenders must determine whether a borrower can afford the highest total payments.  The rule also includes additional requirements, including a principal-payoff option for certain short-term loans, loan options, and debit attempt cutoff.  The rule officially took effect on January 16, yet the majority of key provisions are not scheduled for implementation until August 19, 2019.

The rule has proved controversial, as consumer advocates fully supported the measure while lenders contended that the rule’s restrictions would result in a number of lenders going out of business and reduced credit options for many borrowers.  Members of Congress have introduced measures to repeal the rule under the Congressional Review Act, a tactic that proved effective with the arbitration rule.

The CFPB’s announcement did not offer any details regarding the scope of its reconsideration or any timeline for changes to the rule.

2017 was a transformative year for the consumer financial services world. As we navigate an unprecedented volume of industry regulation and forthcoming changes from the Trump Administration, Troutman Sanders is uniquely positioned to help its clients find successful resolutions and stay ahead of the compliance curve.

In this report, we share developments on consumer class actions, background screening, bankruptcy, credit reporting and consumer reporting, debt collection, payment processing and cards, mortgage, auto finance, the consumer finance regulatory landscape, cybersecurity and privacy, and the Telephone Consumer Protection Act (“TCPA”).

We hope you find this helpful as you navigate the evolving consumer financial services landscape.


On December 27, the Consumer Financial Protection Bureau released “The Consumer Credit Card Market,” its report on the state of the industry. Mandated to be released every two years by the Credit Card Accountability and Disclosure Act, the report was last released in 2015. The 2017 report focused on tracking credit card market trends and developments.

The CFPB has found that since the release of its last report there has been growth in the credit industry. Outstanding credit card debt increased by nine percent, and the total value of consumer credit lines is now $4 trillion, an increase from 2015, but still below the $4.4 trillion high of 2008. 2016 saw 110 million new credit card accounts being opened by consumers – the most cards opened in any year since 2007. In addition, there was a 21 percent increase in secured card applications in 2016, with 6.4 million consumers applying for a secured card. The amount of new secured accounts opened also increased from 2015 to 2016 by seven percent.

The report found that credit card issuers are also changing the way they communicate with existing and potential customers. As technology continues to evolve, more consumers are engaging online with credit card companies. In 2016 more than 60 percent of active accounts were established by consumers using an online portal. More issuers are providing incentives such as free credit scores to encourage consumers to use their online services. The CFPB reports that as of April 2017, more than 100 financial institutions were providing free credit scores to their consumers.

A copy of the report can be found here.

Until last week, the CFPB was accepting comments on its proposal to conduct a survey on debt collection disclosures. This survey was closely linked to the CFPB’s planned debt collection rule that would impose additional restrictions and burdensome regulations on the debt collection industry. However, on December 14, 2017 – the last day to submit comments – the CFPB abruptly withdrew its proposal to survey consumers. In explaining the reason for the withdrawal, the CFPB stated that its leadership decided to reconsider collecting information in connection with its “ongoing related rulemaking” – a clear reference to the debt collection rule.

The CFPB had planned for this survey as early as December 3, 2013, when the CFPB announced that it was assessing the need for regulations in debt collection and would test consumer disclosures in connection with that aspect of its rulemaking agenda. The consumer disclosures survey was a long-standing endeavor and was mentioned along with the development of the debt collection rule in CFPB’s rulemaking agenda blog posts during 2014 to 2016. This web-based survey of 8,000 individuals was intended to “explore consumer comprehension and decision making in response to debt collection disclosure forms.”

The rule on debt collection as a totality was justifiably viewed with trepidation by the industry when it was first announced over four years ago. According to the CFPB’s outline of proposals issued on July 28, 2016, debt collectors would become subject to new strict limits and prohibitions in virtually all areas of debt collection:

  • Substantiation of Debt: Debt collectors would be required to substantially prove a debt is valid before starting collection, which would include obtaining information on the complete chain of title from the debt owner at the time of default to the collector and each charge for interest or fees imposed after default and the contractual and statutory authority source for such interest and fees.
  • Limits on Contact: The new rules would limit live communications to once per week if the collector has confirmed consumer contact. A collector would also be limited to no more than six communication attempts per week if the collector does not have confirmed consumer contact or three per week if the collector has confirmed consumer contact.
  • Consumer Disputes: The proposed rules would also require collectors to provide clearer and easier ways for that person to communicate the grounds for their dispute. This includes a proposed “tear off” portion of a collection notice or a telephone call. Additionally, under the proposed rules, if a disputed debt is sold, the new collector would inherit the dispute and would still have to provide validation.

In total, the proposed rule, at least as it was envisioned in July 2016, would have created a long list of compliance requirements for debt collectors. Furthermore, in the outline of its proposals, the CFPB emphasized that it considered “future rulemaking … [that] would apply to first-party debt collectors (i.e., creditors collecting their own debt excluded from coverage of the FDCPA).” The CFPB thus encouraged these “first-party debt collectors [to] carefully consider their own business practices in light of the proposals.”

What has changed is the control of the CFPB. The CFPB’s inaugural Director, Richard Cordray, resigned, and President Trump appointed Mick Mulvaney, director of the Office of Management and Budget, as interim director. Mulvaney immediately put all rulemaking on pause, and had made critical comments of the CFPB’s activism.

This pivot on the survey could well indicate a reversal of plans to develop the rule, at least on a pace that could have led to the rule being issued early next year.

On Tuesday, December 5, 2017, the Government Accountability Office (“GAO”) levelled a heavy blow on a major regulatory initiative of the Consumer Financial Protection Bureau (“CFPB”): its highly controversial “disparate impact” discrimination theories as applied to pricing in the indirect automobile financing industry. The specific GAO ruling finds that a 2013 “Bulletin” stating the CFPB’s interpretation of the Equal Credit Opportunity Act (“ECOA”) as applied to indirect automobile lending should have been issued as a rule and hence be subject to Congressional review. Under the ruling, the CFPB should have transmitted the Bulletin to Congress for evaluation, but failed to do so.

The GAO’s conclusion that the guidance qualifies as a rule means that the Bulletin must be re-submitted to Congress for review in order for it to become effective. As a result, the Bulletin can no longer be used by government examiners. Given the shift in control of the CFPB to a Trump appointee, chances seem slim that the CFPB would reissue the guidance. Hence, by its narrow finding, the GAO appears to have dealt the Bulletin a death blow.

In March 2013, the Bureau issued CFPB Bulletin 2013-02 to target dealer markups, a practice where an automobile dealer charges a consumer a higher interest rate than the rate by which an indirect lender is willing to purchase the consumer’s retail installment sales contract. The CFPB expressed concern that dealers were being allowed by the indirect lenders to exercise too much pricing discretion, opening the door to discrimination. In the Bulletin, the CFPB contended that it was “likely” to consider an indirect auto lender a “creditor” within the meaning of ECOA, if an indirect lender purchased a contract at an interest rate lower than the rate on the consumer’s contract. The Bureau also announced that it intended to use a disparate treatment or disparate impact theory to examine an indirect auto lender’s ECOA liability for prohibited pricing differences created by the dealer’s pricing activities. Under this view, indirect lenders would have liability for disparate pricing – even though they did not set the pricing and even without evidence that either the lender or the dealer intended to discriminate against anyone. The Bureau’s guidance has had considerable implications for financial institutions, as banks and lenders have seen significant increase in the cost of compliance, not to mention numerous and expensive investigations and settlements with the CFPB, banking regulators, and the U.S. Department of Justice.

The Bulletin has long been the subject of controversy, as many indirect lenders contended that they should not be penalized for unintentional discrimination by dealers. Many also attacked the methodology used to prove disparate impact. In March 2017, Senator Pat Toomey (R-PA) asked the GAO, Congress’ investigative wing, to determine whether the financial guidance issued by the Bureau in 2013 qualified as a “rule.” The GAO concluded that the guidance did qualify as a rule, even though Bulletin 2013-02 is not legally binding. Specifically, the GAO found that:

The Bulletin provides information on the manner in which the CFPB plans to exercise its discretionary enforcement power. It expresses the agency’s views that certain indirect auto lending activities may trigger liability under ECOA. For example, it states that an indirect auto lender’s own markup and compensation policies may trigger liability under ECOA if they result in credit pricing disparities on a prohibited basis, such as race or national origin. It also informs indirect auto lenders that they may be liable under ECOA if a dealer’s practices result in unexplained pricing disparities on prohibited bases where the lender may have known or had reasonable notice of a dealer’s discriminatory conduct. In sum, the Bulletin advised the public prospectively of the manner in which the CFPB proposes to exercise its discretionary enforcement power and fits squarely within the Supreme Court’s definition of a statement of policy.

In conclusion, the GAO found that the Bulletin was subject to the requirements of the Congressional Review Act because it served as “a general statement of policy designed to assist indirect auto lenders to ensure that they are operating in compliance with ECOA and Regulation B, as applied to dealer markup and compensation policies.”

The GAO’s decision renders the Bulletin a nullity until the CFPB properly submits the measure to Congress. Bank examiners, and CFPB examination and enforcement personnel, cannot rely on the Bulletin to guide their supervisory and enforcement activity. Once the CFPB submits the rule – if ever – then Congress is free to challenge the rule under the Congressional Review Act.

“GAO’s decision makes clear that the CFPB’s back-door effort to regulate auto loans, which was based on a dubious legal justification, did not comply with the Congressional Review Act,” said Senator Toomey in a statement. “GAO’s decision is an important reminder that agencies have a responsibility to live up to their obligations under the law. When they don’t, Congress should hold them accountable. I intend to do everything in my power to repeal this ill-conceived rule using the Congressional Review Act.”

However, it is doubtful that the measure will ever make its way to Congress. Under the leadership of Acting Director Mick Mulvaney, it is highly unlikely that the CFPB will work to revive the rule. The Bulletin has long been vilified by many Republicans, as well as some Democrats. In 2015, the House of Representatives passed a bill that would have eliminated the Bulletin, though the measure was not taken up by the Senate.

Troutman Sanders routinely advises clients on the compliance risks posed by direct and indirect auto lending. We will continue to monitor these regulatory developments.

With President Trump’s pick, Mick Mulvaney, remaining as the Acting Director of the Consumer Financial Protection Bureau, the CFPB has filed a motion asking the United States District Court for the District of Kansas to extend briefing deadlines on a motion to dismiss filed in CFPB v. Golden Valley Lending, Inc., et al., No. 2:17-cv-02521.  The Court granted the extension.

The CFPB “s[ought] additional time to consult with new leadership before filing its briefs,” given the “recent leadership changes at the Bureau.”  This could prove to be a significant development as the change in administrations has led to delays in other cases, wherein an agency has had to reconsider its posture in litigation under the priorities of new leadership.  Commentators have anticipated a less aggressive CFPB under Acting Directory Mulvaney than under outgoing Director Richard Cordray, an appointee of President Obama.

Still, an opposition filed by Golden Valley Lending stated that “the Bureau has indicated to Defendants that it does not expect to change its position in any way,” and it will remain to be seen if or how the CFPB changes its posture under Mulvaney’s leadership.

We will continue to monitor the case for further developments.

Mick Mulvaney, President Donald J. Trump’s choice to head the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) until a permanent director can be appointed, will remain in place as Acting Director of the Bureau, following a ruling by Judge Timothy J. Kelly of the U.S. District Court for the District of Columbia on Tuesday denying a motion for a temporary restraining order (“TRO”) filed by Leandra English, the hand-picked choice of outgoing CFPB Director Richard Cordray.

English, who had been Cordray’s Chief of Staff, was named Acting Director by Cordray as he departed his office on Friday. Following Cordray’s announcement, President Trump quickly announced his own appointment of Mulvaney to head the Bureau.

English filed the lawsuit and sought a TRO based on language in the Dodd-Frank Act (the statute that created the CFPB), which provides that the deputy director “shall…serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491(b)(5).

Judge Kelly ruled from the bench that this language in Dodd-Frank was not the exclusive means by which an acting director could be appointed; the President also had the option of appointing an acting director under the Vacancies Reform Act of 1998 (“VRA”), 5 U.S.C. § 3341 et seq., which applies when “an officer of an Executive agency…whose appointment to office is required to be made by the President, by and with the advice and consent of the Senate, dies, resigns, or is otherwise unable to perform the functions and duties of the office.” 5 U.S.C. § 3345(a).

Judge Kelly’s ruling was consistent with another case involving competing appointment powers under the VRA and the federal statute governing the National Labor Relations Board, Hooks ex rel. NLRB v. Kitsap Tenant Support Servs., 816 F.3d 550, 555 (9th Cir. 2016). The ruling was also consistent with a legal opinion issued by the Department of Justice, as well as an opinion by the CFPB’s own general counsel.

Judge Kelly also pointed out that Dodd-Frank mentions “absent” directors, but not vacant positions, while vacancies are addressed by the VRA.

In addition, Judge Kelly observed that Mulvaney was appointed by the President and confirmed by the Senate, while English was not. So, of the two competing acting directors, Mulvaney was the only one qualified under the VRA to head the CFPB.

With the court ruling against English on the request for a TRO, English’s attorney indicated that she would not proceed with seeking a preliminary injunction, which, in all likelihood, would share the fate of the TRO.

Judge Kelly indicated that, given the constitutional implications of the case, he intended to proceed with full briefing on the merits before reaching a final decision, which could then be appealed to the D.C. Circuit Court of Appeals.

The case has significant ramifications for businesses regulated by the CFPB, because commentators believe Trump’s appointee, Mulvaney, who has called the CFPB a “joke…in a sick, sad kind of way,” will rein in some of the CFPB’s regulatory efforts. English, on the other hand, likely would carry on her predecessor’s policies.

The case is English v. Trump, No. 1:17-cv-02534, in the U.S. District Court for the District of Columbia.

On November 27, New Mexico Attorney General Hector Balderas joined the ranks of amici curiae in Consumer Financial Protection Bureau v. Golden Valley Lending, Inc., et al. (No. 2:17-cv-02521, pending in the United States District Court for the District of Kansas) filing a brief supporting the efforts of four tribal entities (“Tribal Defendants”) to dismiss claims brought against them by the Consumer Financial Protection Bureau.

In filing the amicus brief, Balderas voiced support for the Tribal Defendants’ argument that, as tribal entities, they are not subject to the CFPB’s enforcement authority:  “In this and other actions, [the CFPB] has asserted the authority to regulate other sovereigns—both States and Tribes—when providing financial services to consumers.”

The amicus brief argues that the CFPB’s position is flawed because the Consumer Financial Protection Act of 2010 does not clearly subject states or tribes to enforcement.  The brief also notes that the CFPB’s position would lead to anomalous results.  While the Act anticipates regulatory coordination among the CFPB, states, and tribes, by attempting to enforce the Act against a tribal entity, the CFPB attempts to treat its co-regulator as a regulated entity.

Balderas also points out the sweeping consequences of the CFPB’s position for the State: “[T]he CFPB asks to both be allowed to sue sovereign entities for money damages (including civil penalties) and injunctive relief, … and to force state and tribal officials to testify and create records for federal investigations … .”  As specifically concerns the State, “New Mexico has numerous government programs, such as the student loans issued by its universities and the lending assistance offered by the New Mexico Finance Authority and the New Mexico Mortgage Finance Authority, that are subject to suit—and even injunction—under the CFPB’s interpretation.”

With this filing, Balderas becomes the second attorney general to submit his views on the litigation.  As earlier noted on this blog, Oklahoma Attorney General Mike Hunter also filed an amicus brief in support of the Tribal Defendants’ motion to dismiss.  All other amici to weigh in on the case have supported the Tribal Defendants.

Further briefing on the motion to dismiss is expected from the parties.  We will continue to monitor the case for further developments.

As anticipated, the Consumer Financial Protection Bureau has officially removed from publication a rule that would have prohibited arbitration agreements in certain consumer contracts.  The CFPB published its removal of 12 CFR part 1040, titled “Arbitration Agreements,” from the Code of Federal Regulations.  The CFPB’s removal of part 1040 reflects Congressional disapproval of the underlying Arbitration Agreements rule of July 19, 2017.

The CFPB had promulgated the Arbitration Agreements rule pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorized the CFPB to “prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties.”

According to the CFPB, the Arbitration Agreements rule would have:

  • “prohibited providers from using a pre-dispute arbitration agreement to block consumer class actions in court” and “required providers to include a provision reflecting this limitation in arbitration agreements they entered into;” and
  • “required providers to redact and submit to the Bureau certain records relating to arbitral proceedings and relating to the use of pre-dispute arbitration agreements in court” and “required the Bureau to publish these records on its Web site.”

The rule went into effect on September 18, 2017.  Under the Congressional Review Act, however, a rule promulgated by an administrative agency “shall not take effect (or continue), if the Congress enacts a joint resolution of disapproval.”  Had Congress not disapproved the rule, it would have applied to agreements entered into after March 19, 2018.

The day after the CFPB promulgated the Arbitration Agreements rule, Congressman Keith J. Rothfus (R-Pa.) introduced H.J. Res. 111, a joint resolution of disapproval.  The measure prevailed in the House of Representatives by a vote of 231-190, and in the Senate by a vote of 51-50.  President Trump signed into law H.J. Res. 111 on November 1, thereby discontinuing the Arbitration Agreements rule.  With the underlying rule discontinued, part 1040 no longer has any force or effect.

Although the Arbitration Agreements rule and part 1040 were ostensibly intended to protect consumers, opponents of the rule cited a critical report by the Treasury Department that noted that the rule “would upend a century of federal policy favoring freedom of contract to provide for low-cost dispute resolution.”  Critics of the rule also maintained that it would harm community banks, credit unions, and other financial institutions, as well as consumers who might prefer to have their disputes arbitrated.

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray’s announced yesterday (as covered here) that he will be resigning from his position by the end of this month.

The Administration appears poised to announce Office of Management and Budget Director Mick Mulvaney as an interim replacement until a permanent director can be selected by the President and approved by the Senate.

From a legal perspective, when it comes to determining the interim CFPB director, the succession issue is a simple one.

Some commentators have asserted that the Acting Deputy Director of the CFPB must succeed Cordray as Acting Director, until a permanent Director is confirmed; however, an analysis of the applicable statutes suggests the President does have the authority to select the Acting Director.

Statutory Framework for Interim Succession at the CFPB

There are two statutes under which an interim director potentially could be appointed.

The first is the Dodd-Frank Act, which created the CFPB, and which provides that the deputy director “shall…serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491(b)(5).

The second statute is the Federal Vacancies Reform Act of 1998 (“FVRA”), 5 U.S.C. § 3341 et seq., which applies when “an officer of an Executive agency…whose appointment to office is required to be made by the President, by and with the advice and consent of the Senate, dies, resigns, or is otherwise unable to perform the functions and duties of the office.” 5 U.S.C. § 3345(a).

Under the FVRA, an acting director may perform the duties of the vacated office for 210 days, without approval by the Senate. 5 U.S.C. §§ 3345-46. (The Supreme Court has recently ruled that the interim director cannot be the same person as the nominee for the permanent position. See Natl. Labor Relat. Bd. v. SW Gen., Inc., 137 S. Ct. 929 (March 21, 2017).)

By default, under the FVRA, the “first assistant” to the resigning officer performs the duties of the office on an acting basis. So, by default, the deputy director would step into Cordray’s shoes. But, the FVRA also provides that the president may bypass the “first assistant” and choose to appoint a senior employee or officer of the CFPB, or an officer at any agency who has already been approved by the Senate, as acting director. 5 U.S.C. § 3345(a)(2)-(3).

Some Analysts Have Suggested Dodd-Frank Requires that the Acting Deputy Director Replace Cordray

So far, there have been few analyses of how these statutes would apply to determining an interim replacement for Cordray. Some of those who have analyzed how these statutes interact have concluded that the Dodd-Frank provision likely controls. See articles here and here. These commentators make two primary arguments:

First, they rely on 5 U.S.C. § 3347(a)(1)(B), the “Exclusivity Provision” of the FVRA, which provides that the FVRA vacancy-filling methods are:

the exclusive means for temporarily authorizing an acting official to perform the functions and duties of any Executive agency…for which appointment is required to be made by the President, by and with the advice and consent of the Senate, unless…a statutory provision expressly…designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity…”

(Emphasis added.)

Those who assert Dodd-Frank controls for purposes of filling the vacancy at the CFPB, interpret this provision to mean that if another statute – like Dodd-Frank – designates an officer or employee to perform duties temporarily, then the FVRA’s otherwise applicable vacancy-filling provisions do not apply.

Second, those who argue that Dodd-Frank should control cite the basic principle of statutory interpretation that the specific statute controls over the general. Because Dodd-Frank specifically deals with vacancies in the Director position at the CFPB, so this argument goes, Dodd-Frank should control over the more general provisions of the FVRA dealing with vacancies in federal offices.

The President Likely Has the Authority to Appoint Cordray’s Interim Successor

There are three reasons that these arguments in favor of a Dodd-Frank-controlled appointment likely would be rejected in favor of the President’s authority to appoint the interim director under the FVRA. [1]

  1.  The Ninth Circuit and legislative history suggest the President may elect under which statute to proceed in making the appointment.

The first argument is based on Hooks ex rel. NLRB v. Kitsap Tenant Support Servs., 816 F.3d 550 (9th Cir. 2016), a case that involved the appointment by President Obama of a new General Counsel for the National Labor Relations Board (“NLRB”). The facts of the case are unimportant, but the court’s discussion of one of the arguments raised by the plaintiff is on point.

In Hooks, the plaintiff asserted that because the National Labor Relations Act (the “NLRA”) provided a means for temporarily filling vacancies in its top positions, in light of the Exclusivity Provision of the FVRA, the “NLRA provides the exclusive means for the President to appoint an Acting General Counsel.” 816 F.3d at 555.

The court rejected this argument, holding that when the Exclusivity Provision of the FVRA and another statute both provide means for filling a vacancy, the President may elect between the statutes to designate an acting agency head. The court reasoned that because both the NLRA and the FVRA provide means for filling a vacancy, “neither the FVRA nor the NLRA is the exclusive means of appointing an Acting General Counsel of the NLRB. Thus, the President is permitted to elect between these two statutory alternatives to designate an Acting General Counsel. Id. at 556 (first emphasis in original; second emphasis added).

The court went on to note that its reasoning was supported by the history of the FVRA:

The Senate Report on the FVRA confirms this interpretation. The Senate Report explains that the FVRA retains the vacancy-filling mechanisms in forty different statutes, including NLRA section 3(d), and states that “even with respect to the specific positions in which temporary officers may serve under the specific statutes this bill retains, the [FVRA] would continue to provide an alternative procedure for temporarily occupying the office.” S. Rep. 105-250, 1998 WL 404532, at *17 (1998) (emphasis added).

Id. The court’s holding applies with equal force to vacancy filling at the CFPB. Under Hooks, the President should have the authority to elect which of the two procedures – the procedure in Dodd-Frank or the procedure in the FVRA – to follow in appointing a temporary replacement for Cordray.

  1. Dodd-Frank may not apply to “permanent-until-appointed” vacancies.

The second argument in favor of the President’s appointment authority stems from comparing the language of Dodd-Frank, which provides for the deputy director to fill the role of acting director in case of “the absence or unavailability of the Director,” 12 U.S.C. § 5491(b)(5) (emphasis added), with the language of the FVRA, which applies when an officer “dies, resigns, or is otherwise unable to perform the functions and duties of the office,” 5 U.S.C. § 3345(a).

Because it is so new, courts have had little opportunity to interpret the succession provision in Dodd-Frank. But, in interpreting the FVRA, courts have differentiated between temporary absences that occur due to disability or sickness, and permanent vacancies in cases “when there has been a death or resignation, that is, when the vacancy will be permanent unless a successor is appointed.” United States v. Lucido, 373 F. Supp. 1142, 1149 (E.D. Mich. 1974).

Based on this distinction, supporters of a presidential interim appointment should be able to argue that the provision in Dodd-Frank that places the deputy director in the position of acting director in cases of “absence or unavailability of the Director,” only applies to temporary vacancies, as in the case of extended travel or sickness; while the FVRA provision that applies to an officer who “dies, resigns, or is otherwise unable to perform the functions and duties of the office” applies to vacancies that are permanent until appointment of a successor.

Lending credence to this interpretation is the fact that when Congress has adopted succession statutes in the past, it has seemed to specify when it intends an appointment to apply to all vacancies or to temporary vacancies only.

For example, 28 U.S.C. § 508, which deals with succession the position of U.S. Attorney General, provides: “In case of a vacancy in the office of Attorney General, or of his absence or disability, the Deputy Attorney General may exercise all the duties of that office….” (Emphasis added.) (Indeed, by its use of the disjunctive, “or,” that statute seems to implicitly recognize a distinction between a “vacancy” (i.e., a vacancy that is permanent-until-filled) and an “absence or disability” that might leave the office temporarily unfilled.)

Had Congress intended Dodd-Frank’s succession provision to apply to permanent-until-filled vacancies, it could have included similar language in that statute. The fact that it did not suggests that the FVRA, rather than Dodd-Frank, applies to a resignation like Director Cordray’s.

  1. Constitutional concerns favor the President’s appointment power.

The third argument in favor of the President’s appointment power under the FVRA is constitutional.

If the Dodd-Frank Act is read to dictate that the Acting Deputy Director automatically becomes the Acting Director, then this statutory method of succession may violate the Constitution.

As a panel of the D. C. Circuit noted: “[T]he Director enjoys significantly more unilateral power than any single member of any other independent agency…. Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.” PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 16 (D.C. Cir. 2016) (emphasis in original).

The panel went on to say: “The CFPB is exceptional in our constitutional structure and unprecedented in our constitutional history.” Id. at 21. The panel then ruled that the Dodd-Franks Act is unconstitutional insofar as it prevents the President from removing a Director without “cause.”

While that issue is now before the full D. C. Circuit, the panel’s rationale was sound as applied to the Director, and it applies with even greater force to an Acting Deputy Director, who was simply hired by Cordray.

The idea of an official having an absolute right to appoint his successor is difficult to square with principles of democratic government. Fundamental constitutional principles should not permit an individual to exercise the unilateral power available to the Director, immune from any oversight, when that individual was never elected by any voters, never appointed by any President and never confirmed by the Senate.

In short, despite commentary to the contrary, the President likely has solid legal ground to appoint the Acting Director of his choice – by all accounts (at least of as of the time of publication), OMB Director Mulvaney – to head the CFPB until a permanent replacement for Cordray can be found.


[1] Another less nuanced argument has been advanced to support the President’s appointment power, which claims that the current deputy director at CFPB, David Silberman, is only Acting Deputy Director, rather than the Deputy Director, and therefore Dodd-Frank’s succession provision may not apply. That objection is quickly overcome, however, if Director Cordray simply removes “Acting” from Silberman’s title.