The Consumer Financial Protection Bureau has been targeting rich predators, even under Donald Trump. Now the White House is mounting a legally flimsy takeover that could directly affect your quality of life.
Image via Shutterstock/by Louise Matsakis
Despite all the bluster and drain the swamp rhetoric, the first year of Donald Trump's presidency has laid waste to the very pretense of good government. Billionaires with flagrant conflicts of interest dictate economic policy. The president and his immediate family constantly draw cameras and bodies to commercial properties they own, and along the way get richer. The Trump Hotel in DC is a cesspool of lobbying by nebulous interests none of us can really understand. The legal system is apparently incapable of convicting anyone of corruption who is not caught on camera saying. "I am being bribed and I like it." The Republican Congress has been relentlessly pro–Wall Street, last month voting to roll back a not-yet-effective regulation from the Consumer Financial Protection Bureau (CFPB) that would have made it easier to sue banks.
But until this week, the CFPB represented a lone brick in the vast federal bureaucracy that, at least when Congress didn't get in the way, was holding it down for the little guy. Now the Trump administration is using a bureaucrat's resignation to set the stage for the destruction of the agency. And they might get away with it.
After a financial crisis precipitated in no small part by a toxic mortgage boom gone bust, legislators—at least on the Democratic side—were determined to set up a watchdog with some real muscle behind it. The brainchild of Elizabeth Warren, who before she was a senator and the butt of Trump's racist jokes was a consumer advocate and Harvard law professor, the CFPB was empowered by the 2010 Dodd-Frank financial reform law with issuing rules (a.k.a. regulations) governing a wide variety of financial products. The CFPB can impose legally-binding restrictions on everything from mortgages to payday loans to debit cards; it can also fine offenders, ban bad practices, and dish out relief to wronged consumers.
Thanks in part to a five-year term for the agency's director, its work was relatively apolitical, its staff insulated from the whims of lobbyists or political fundraisers. So even after Trump took office and worked to dismantle agencies hated by small-government conservatives like the EPA, the president couldn't fire CFPB Director Richard Cordray. The bureau kept on trucking—last month, it finalized a rule designed to help to protect low-income people from predatory payday lenders.
Then, last Friday, Cordray stepped down, probably to run for governor of Ohio next year. On his way out the door, he named his chief of staff Leandra English, a longtime civil servant who by all accounts is deeply committed to the agency's mission, as deputy director, with the expectation she would fill in as acting director. Not long after*, Trump named Mick Mulvaney, the director of the Office and Management and Budget—who as a congressman called the CFPB a sick joke—to be its acting director. That gave both English and Mulvaney a plausible claim that they should run the place.
Neither is backing down. English filed a lawsuit over the weekend seeking a restraining order to prevent Mulvaney from taking over, but that process didn't play out it in time to prevent the Republican (with donuts in tow) from setting up camp at the CFPB offices Monday. Mulvaney sent out a memo telling staff to disregard any instructions from English (she sent out her own email), and promptly ordered a 30-day freeze on rule-making and hiring so he could dig into the agency's business.
It's safe to say this strange showdown in what might seem like a far-flung corner of the American regulatory apparatus is still playing out—Mulvaney's staff went so far as to tweet images of him posting up at the office to assert control. But the stakes are high, and couldn't be more clear: How much predatory behavior will we tolerate by businesses in modern society?
"We live in the financial system all of the time, and we are incredibly dependent on it—and incredibly vulnerable to abuses and unfair practices," said Lisa Donner, executive director of the pro-regulation group Americans for Financial Reform. "Whether that's Wells Fargo opening two million fake accounts or debt collectors chasing after people for debts they don't owe or a student loan servicer servicing loans that leave people paying millions of dollars more than they should be... there is a huge amount of money and a huge amount of financial security at stake."
Experts and advocates of reining in financial products generally see this fight as pitting vast monied interests against regular people—exactly the kinds of Americans Trump vowed to protect from banks and other nefarious evildoers during his faux-populist campaign.
"Trump promised he wasn't going to let Wall Street keep getting away with ripping people off," said Donner. "Here we really have a very concrete example of an agency that is hated by a portion of the industry it regulates because it's doing its job—because it's willing to take on powerful interests in order to make things work for the rest of us."
But as president, Trump hasn't moved to support the CFPB's mission. Instead he's joined other big business-loving Republicans in denouncing it, echoing financial industry trade groups that say they are choked with regulation and need more leeway to do what they like to consumers.
In that tweet, Trump is apparently referring to the work of Cordray, who was installed in 2012 by President Barack Obama. The then Ohio attorney general was seen as a less polarizing alternative to Warren, but he nevertheless waged war on predatory lenders and other shady financial players, winning almost $12 billion in relief for consumers over-charged or scammed by financial companies. (A relatively small amount, when considering the size of the players in that game, but still.)
"Most of the debate about income inequality has been focused on what people get paid. But really bad things happen to lower-income Americans after they get paid," said Brad Miller, the former North Carolina congressman who was an architect of the CFPB in the House of Representatives in 2010. "It's better than it was, but it's still there, and Americans know it, and they think somebody should be on their side. Public opinion is overwhelmingly in favor of the Consumer Financial Protection Bureau."
Now out of Congress and watching his work face destruction from afar, Miller was especially concerned about Mulvaney's past donors, which, as he noted, included "check-cashers, payday lenders—all of the most odious bottom-feeders in the American economy."
But goodies for his new staff aside, Mulvaney has another thing going for him: the support of the CFPB's in-house counsel, which seemed to endorse the Trump administration view of who gets to appoint Cordray's temporary replacement. (That White House legal memo was reportedly authored by a guy who used to shill for payday lenders.) For now, that means Mulvaney may be effectively in position to run the show. Even so, some experts (like Miller, who helped write the law in question) suggested there might be teeth to English's case—the order of succession was very clearly laid out in the original law, and seemed to line up in her favor.
"On the merits, English has a strong claim," said Kathleen Clark, a law professor at the Washington University in St Louis, who noted that the more recent and specific statute tends to have a stronger standing in court when it comes to disputes over appointments. In this case, she's referring to the Dodd-Frank law that passed just seven years ago. The Federal Vacancies Reform Act being cited by the White House gives the president authority to install replacement department heads, but it passed back in 1998. The latter was also clearly intended to rein in federal appointments, not green-light them.
"On the other hand," Clark continued, ominously, "it's been assigned to a Trump judge." She was referring to Timothy Kelly, who started on the federal bench in September. The case had an initial hearing late Monday afternoon, but no immediate ruling came down. And some observers expected Trump to get a long-term replacement for Cordray confirmed by the Senate before the case was fully decided, effectively rendering the legal (and likability via donuts) fight moot.
Meanwhile, Americans of all stripes could pay a serious price in their daily lives as businesses find new ways to screw them over.
"When someone on Wall Street says the word 'innovation,' rest your hand on your wallet," Miller, the former congressman, told me. "Those new practices will go unchallenged now."
*Correction 11/28/2017: An earlier version of this story suggested the dueling appointments took place simultaneously when in fact Trump's appointment of Mulvaney took place a few hours later. We regret the error.
Follow Matt Taylor on Twitter.