CFPB Politics Update

Time for a CFPB politics update:  FSOC veto, Congressional Review Act override of the arbitration rulemaking, Director succession line, and contempt of Congress all discussed below the break.

What happened to that FSOC Veto Threat?

The OCC chickened out of its implied threat to raise an FSOC veto challenge to the CFPB's arbitration rule (probably its single most important rulemaking), and with good reason too, as the challenge lacked any plausible legal grounds. It was just some posturing: the acting Comptroller wrote that he didn't have enough time to analyze the issue to determine if there should be an FSOC challenge.  At the same time, however, he apparently had done enough analysis to recommend that Congress overturn the rule under the Congressional Review Act. That’s laughably chickenshit behavior, and it undermines the Comptroller’s credibility in a way that helps no one.

Congressional Review Act Veto?

A CRA veto remains a real possibility for the CFPB's arbitration rule. The House has passed a Joint Resolution on partisan lines, and one has been introduced in the Senate, which has 60 session days to act, running from, but not counting, I think, July 19th. The White House has indicated its support for the CRA override.  I’m a little unsure of the counting, but I believe 60 session days should lapse in early November, and that we're at day 11 in the count.

Note, that it’s entirely possible that there will never be a CRA vote in the Senate. There wasn’t one on the CFPB's prepaid rule, and there won’t be if the GOP doesn’t have the votes. It’s not clear if they do. Assuming that all 48 Dems and Independents vote to uphold the rule, it will take only 3 GOP Senators to join them (or just not show up to vote) for the rule to survive. Senator Graham has indicated that he will not vote to overturn the rule, and it’s unclear if Senator McCain will be present for the vote. So that means that with one GOP Senator voting to uphold the rule or just not voting the rule will survive. It’s unclear to me how the voting dynamic will evolve here, especially if the CFPB also puts out its nearly finished payday rule. My own gut sense is that the payday rule will actually provide cover for the arbitration rule as they will become symbolically linked, but that’s just a guess.

What Happens If Director Cordray Resigns?

The latest development is a bunch of speculation about what will happen if/when Director Cordray leaves the CFBP (such as to run for Governor in Ohio). The American Banker has a (paywalled) piece that, based on interviews solely with financial services lawyers (none of them admin law experts)m concludes that President Trump can put in his own Director under the Federal Vacancies Act. That's simply wrong. It’s just wishful thinking by some financial services industry attorneys. The Federal Vacancies Act is a law of general applicability providing for three methods of filing vacant agency head positions: (1) the deputy head steps in as head, (2) the President can appoint another Senate-confirmed individual as acting head, or (3) the President can appoint someone who has been at the agency for at least 90 days in the past year and is paid at least at the GS-15 rate as head. But the Federal Vacancies Act also provides that these are the exclusive methods of temporarily filing the head of an agency, “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.”

As it happens, there is such an express statutory provision. The Consumer Financial Protection Act specifies that “in the absence or unavailability of the Director”, the Deputy Director serves as acting Director. Thus, the CFPA provision, not the FVA governs here. Moreover, even without the Federal Vacancies Act’s exception, the CFPA is a later and more specific statute that the FVA, so it should control. The idea put forward by Alan Kaplinsky, the so-called “father of forced arbitration,” that the FVA controls because the CFPA uses the words “in the absence” rather than “vacant” is baseless. “In the absence” here clearly means that the position is not filled, because anything less is covered by “unavailable” (e.g, sick, out of the country, imprisoned); “in the absence” does not mean “absent” as in “the Director decided to stay home today because he was under the weather.” (To be fair to those peddling the FVA-controls story, I mistakenly thought the FVA applied before I looked at the issue more closely because I hadn’t noticed the separate exclusivity provision in the FVA.).

So it's pretty clear that if Director Cordray leaves, then his deputy, David Silberman, becomes acting Director, fully empowered to do everything the Director can do. The only possible wrinkle is that Silberman is the acting deputy. But I can't know how, if at all, that would affect the application of the CFPA to him. In any event, the Director line of succession doesn’t matter for the arbitration rulemaking (or for the payday rulemaking if it is completed on Cordray’s watch) because there's no realistic way the CFPB can recall the rule. To do so would require a whole notice and comment rulemaking under the Administrative Procedures Act, and there's no basis on which to do such a rulemaking. Any attempt would get thrown out in court in a second, as happened with the Pruitt EPA's attempt to do the same sort of move. At best, the rule's effective date could be delayed by a reasonable time length, but even that would require some reasonable basis, and it's hard to see why financial services firms would need a particularly lengthy time period to adjust their prospective contracts.

Contempt of Congress?

The House Financial Services Committee is threatening to hold Director Cordray in contempt of Congress for failure to produce certain documents about the CFPB's rulemaking process with the arbitration rulemaking. I’m not going to address the specifics of the accusations in this post other than to say that it is a baseless, vindictive, partisan move that represents the culmination of the House Financial Services Committee’s incessant harassment of the CFPB and of Director Cordray personally.

I see four possible non-exclusive motives for this action. First, it might just be an expression of the HFS GOP’s frustration at failing to stymie the CFPB, much like ACA-induced berserker rage. (Truth be told, I’d be pretty mad if I were the Wile E. Coyote of financial regulation.) Second, if Cordray is held in contempt, it might enable President Trump to fire him “for cause” as permitted by the CFPA, although that just doubles back to the succession question. Third, a contempt finding could be used to tar Cordray if he enters the Ohio governor’s race or any other political race. And fourth, the whole episode is based on the HFS's attempt to do pre-litigation discovery for a financial services industry court challenge to the arbitration rulemaking. (Note the hypocrisy, given how consumers aren't guarantied any discovery in arbitration.)  I don’t have a good understanding yet of how contempt charges work procedurally; in any case we’ll see where, if anywhere, this issue goes.