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Second lawsuit filed challenging Mulvaney’s appointment as CFPB Acting Director

Yesterday, the Lower East Side People’s Federal Credit Union filed a complaint in U.S. District Court for the Southern District of New York seeking a declaration that Mick Mulvaney’s appointment as CFPB Acting Director is unconstitutional and in violation of the Consumer Financial Protection Act (CFPA).  The complaint also seeks a declaration that Leandra English has the legal right to serve as Acting Director.

As an initial matter, it is likely the lawsuit will be transferred to Judge Timothy Kelly, the D.C. federal district court judge before whom Ms. English’s lawsuit challenging Mr. Mulvaney’s appointment is pending.  Pursuant to 28 U.S.C. § 1404, a federal judge can transfer a related action to another district where the action might have been brought “for the convenience of parties and witnesses, in the interest of justice.”  While the credit union and its attorney are located in New York City, the defendants are located in the District of Columbia, the new lawsuit involves no disputed factual issues, and practically all of the legal issues have already been briefed and argued in front of Judge Kelly.  It would seem to be a waste of judicial resources for the new lawsuit to be heard by a new judge in a different district court and circuit.

With one exception, the credit union’s arguments generally track those made by Ms. English.  Like Ms. English, the credit union argues that the President’s authority under the Federal Vacancies Reform Act (FVRA) to temporarily fill executive agency leadership vacancies is  superseded by the CFPA provision that states the CFPB Deputy Director “shall…serve as Acting Director in the absence or unavailability of the Director.”  The credit union also adopts Ms. English’s argument that Mr. Mulvaney’s appointment is inconsistent with the CFPB’s status as an “independent agency” because he can be dismissed by the President as OMB Director without cause.

The new argument advanced by the credit union, while clever, is based on an incorrect reading of the FVRA.  The FVRA provides that the President’s authority to use the FVRA to fill vacancies does not apply to positions held by “any member who is appointed by the President, by and with the advice and consent of the Senate to any board, commission, or similar entity that… (A) is composed of multiple members; and (B) governs an independent establishment or Government corporation.” 5 U.S.C. § 3349c(1).  The Dodd-Frank Act amended the Federal Deposit Insurance Act (FDIA) to provide that the CFPB Director, or the Acting CFPB Director in the event of a vacancy in the Director’s position, shall serve as a member of the FDIC Board.  According to the credit union, because this provision would make the CFPB Acting Director a member of the FDIC Board, the President cannot use his FVRA authority to appoint a CFPB Acting Director.

The credit union’s argument ignores that neither the CFPB Director nor the Acting Director “are appointed by the President, by and with the advice and consent of the Senate to any board….”  Rather, the FDIA designates the CFPB Director and Acting Director members of the FDIC Board by virtue of their CFPB positions.  (A person serving on a board by virtue of another position that he or she holds is often referred to as an “ex officio” member.)  In fact, the FDIA recognizes this distinction by referring to the three FDIC Board members who are appointed by the President as the “appointed members.”  Thus, since the President did not appoint Mr. Mulvaney to the FDIC Board, and has only appointed him CFPB Acting Director (as well as Director of the Office of Management and Budget), the President can properly use his FVRA authority to appoint Mr. Mulvaney Acting CFPB Director.

Copyright © by Ballard Spahr LLP

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About this Author

Kaplinksy, partner, New York, finance
Partner

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

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