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CFPB – What’s Next?

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced on Wednesday that he will resign from his post on November 30, seven months before the end of his five-year term. This development already is fueling substantial speculation about what is next for the agency.

The vacancy presents the president with an opportunity to appoint a director who shares the administration’s views on financial regulation and can put the agency on a different regulatory path. In due course, the president will nominate someone to fill the post permanently, and that person will be subject to Senate confirmation. The CFPB, however, enjoys strong support not only from Senate Democrats, but also in major sectors of the financial consumer community, having, among other things, collected over $12 billion in consumer restitution. In turn, the nomination and confirmation process for the new director may be difficult, depending in large part on who is nominated for the vacancy.

However, given the CFPB’s vast enforcement and rule-making authority, the issues of concern for the financial services industry raised by Mr. Cordray’s departure remain real and immediate. There are civil investigative demands (CIDs) being issued every day, investigational hearings (depositions) being taken, examinations being conducted and rules promulgated, and undoubtedly formal enforcement actions in the CFPB pipeline. Those are eggs that a new confirmed director will have difficulty unscrambling in the future.

In the short term, under the Federal Vacancies Reform Act, absent other action by the president, the current deputy director will become the acting director. But, the president instead could appoint an acting director from among the cadre of Senate-confirmed officials in his administration, and that person could serve for at least 270 days, and even longer under some scenarios. Also, a new appointee could hold two positions (but not draw two salaries) and could delegate much of the day-to-day work to a trusted associate who need not be Senate-confirmed.

None of these possibilities would change the essential structure of the CFPB, which the administration has argued in court is unconstitutional. (Read our previous post here.) As we have discussed at length in other posts, however, an acting director could make significant changes simply by adhering to the deregulatory principles relating to enforcement, rule-making, and examination already set forth in official administration position papers. In effect, these changes could materially change the overall regulatory direction of the agency.

But even if these actions are taken, they may be largely for naught in a practical sense. The Dodd-Frank Act expressly authorizes the state attorneys general to bring prosecutions for alleged “unfair, deceptive or abusive acts and practices” (UDAAP) in federal court. While there are some limits on this authority, most of the significant enforcement actions brought to date by the CFPB could be brought by a state attorney general. Those same state attorneys general also have their own state statutes similar to UDAAP and many, particularly Democrats, have obtained significant appropriations from their state legislatures to hire prosecutors to bring cases that the Trump administration will not bring.

While it is hard to imagine the state attorneys general replacing altogether the CFPB behemoth with its arguably unlimited resources, enforcement via the attorneys general will most likely continue unabated and perhaps enhanced.

In sum, the immediate situation thus remains fluid, and we will continue to provide our analysis as developments occur.

Copyright © 2018 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

TRENDING LEGAL ANALYSIS


About this Author

Nicholas Gess, Government and regulatory attorney, Morgan Lewis
Of Counsel

Nicholas M. Gess counsels on state and federal government enforcement and regulatory actions and their impact on business. He advises corporate clients on how to achieve results with governmental agencies and how to manage the risks of government action, particularly in the current environment where state enforcement authorities conduct parallel investigations with federal authorities such as the CFPB, DOJ, and FTC.

202-373-6218
Charles Horn, financial services attorney, Morgan Lewis
Partner

Charles M. Horn is a partner in Morgan Lewis's Investment Management and Securities Industry Practice. Mr. Horn focuses his practice on regulatory and transactional matters, primarily in the areas of banking and financial services. He works on behalf of domestic and global financial institutions of all sizes on regulatory, supervisory, enforcement and compliance matters before all major federal financial institutions regulatory agencies, and leading state financial regulatory agencies.

202-739-5951
David Monteiro, Morgan Lewis, litigation attorney
Partner

David Monteiro focuses his practice on counseling companies facing government investigations and enforcement litigation. A former enforcement attorney with the Federal Trade Commission’s Bureau of Consumer Protection, Division of Financial Practices, David guides financial institutions and other companies in complying with state and federal consumer protection laws and regulations, responding to examinations and investigations, and defending litigation against the government.

214-466-4133
Melissa R.H Hall, Financial services attorney, Morgan Lewis
Of counsel

Melissa R. H. Hall represents US and overseas banks, nonbank financial services companies, investors in financial services, and technology companies in regulatory and corporate matters. She advises them on a wide range of state and federal financial regulatory laws and regulations. She provides counsel on financial regulatory compliance and enforcement, including state and federal licensing requirements, consumer financial products and compliance, payment systems, corporate and transactional matters, financial institution investment and acquisition, and the development...

202-739-5883
Michael Cumming, Morgan Lewis Law Firm, Regulatory Attorney
Associate

Michael Cumming’s practice centers upon defending companies and individuals in government investigations and regulatory matters in the areas of securities, government contracts, and consumer financial services. A former licensed securities professional, Michael frequently aids clients in examinations and enforcement actions brought by the US Securities and Exchange Commission, FINRA, and state regulators. He has particular experience and industry knowledge relevant to oil and gas private placements. Michael also maintains a robust white collar criminal defense practice,...

214-466-4136