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Volume XII, Number 340


December 05, 2022

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Practical Considerations for the New CFPB: The Dodd-Frank Goose Meets Its Gander

The Great Schism at the Consumer Financial Protection Bureau (CFPB) is over, at least for now, and White House Office of Management and Budget Director Mick Mulvaney is now firmly in control of the agency as its acting director, having been appointed pursuant to the president’s authority under the Federal Vacancies Reform Act. He has imposed a hiring and regulations freeze and said that while he does not intend to “burn the place down,” he intends to ensure that the CFPB operates under a budget and consistent with other executive branch agencies.

For the time being, we expect that this will mean new rules will be put on hold and be scrutinized further, particularly for the burden they impose on regulated businesses. We also expect a more measured approach in enforcement matters, and that the CFPB’s examination functions will be better coordinated with those of other federal banking agencies, further easing compliance costs and burdens for the CFPB-regulated firms.

On the other hand, Congress granted authority to state attorneys general to enforce the CFPB’s central enforcement statute under Dodd-Frank, which penalizes “unfair, deceptive, and abusive” acts and practices. While states may largely lack regulatory authority over national banks, enforcement is a different matter and many of the CFPB’s targets have been non-bank financial institutions or banks operating under a state charter. Therefore, a more measured approach by the CFPB may mean more activity by the state attorneys general.

All of this is possible because Congress itself created a uniquely powerful director who has the sole authority, among other things, to set agency policy and call for funds outside of the congressional appropriations process. Mr. Mulvaney need not consult fellow commissioners as he would at the US Federal Trade Commission or Securities and Exchange Commission, because he has none. He need not consult with Congress, because it does not exercise meaningful oversight, and he has independent litigating authority (not that he would actively cross swords with the administration).

Those chickens have now come home to roost. The former CFPB director, Richard Cordray, was able to act independently of both Presidents Obama and Trump, grow the agency to more than 1,600 employees without a single appropriations hearing, and issue rules that impact the way the financial services industry operates in this country. Now, his temporary successor may dismantle some or all of that, although some of this may take a significant and lengthy effort.

In the meantime, nothing is ever certain. The US District Court for the District of Columbia has denied a temporary restraining order sought by the individual Mr. Cordray had picked as his successor, who could still seek a preliminary or permanent injunction and could prevail either in the district court or on appeal. As we have previously reported, an existential challenge to the constitutionality of the formation of the CFPB remains pending in the US Court of Appeals for the District of Columbia Circuit, and at some point the president must at least nominate a permanent director who will be subject to Senate confirmation.

The key takeaway is that businesses regulated by the CFPB need to remain vigilant since they could be swept up by intended or unintended actions, and they need to pay particular attention to any uptick in legal actions by state attorneys general.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VII, Number 335

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.

Charles Horn, financial services attorney, Morgan Lewis

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.

David Monteiro, Morgan Lewis, litigation attorney

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.

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...

Timothy Shea, Morgan Lewis, Litigation Attorney
Principal, Of Counsel

Timothy J. Shea counsels clients on the impact of state and federal law enforcement actions on business, advising corporate clients about how to manage the risks of state government action, particularly when it occurs in the context of complex civil litigation, class action law suits, federal criminal inquiries, federal regulatory reviews, and Congressional oversight. He provides counsel to companies facing litigation, regulation, inquiries, and other activities by the states, particularly multistate investigations by State Attorneys General.