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CFPB's Precarious Future Under Trump

Image: Bloomberg News
Image: Bloomberg News
During the campaign, President-elect Trump did not directly address the future of the CFPB, but made no secret of his contempt for its founder, Sen. Elizabeth Warren, D-Mass.

WASHINGTON — The Consumer Financial Protection Bureau faces an uncertain and precarious future under President-elect Donald Trump, who some say might seek to oust Director Richard Cordray and boost legislation to significantly weaken the agency.

During the campaign, Trump did not specifically endorse any plan to alter the CFPB, though he repeatedly sparred with its founder, Sen. Elizabeth Warren, D-Mass.

While Republican lawmakers are likely to focus on efforts to replace the agency's single director with a bipartisan five-member commission, as well as subject it to the Congressional appropriations process, Trump may seek to take more immediate action once he takes office in January. Some said he could either pressure Cordray to leave or seek to do so directly given a recent appeals court ruling that allows a president to remove a CFPB director without cause.

"Even if the CFPB does appeal, Trump could remove [CFPB Director] Cordray and appoint a new director who would drop the appeal," said Justin Schardin, director of the Bipartisan Policy Center.

Whether Trump could succeed is unclear, and is likely to turn on whether the CFPB can convince a higher court to delay a decision in the case of PHH Corp v. CFPB.

"As long as the PHH decision is stayed pending further appeals, the director can only be removed for 'inefficiency, neglect of duty, or malfeasance in office,'" said Benjamin K. Olson, a partner at BuckleySandler and a former CFPB deputy assistant director for the Office of Regulations. "That is a high standard."

At issue is an October ruling by the U.S. Court of Appeals for the D.C. Circuit that said the agency's single director structure is unconstitutional and the CFPB's director serves at the pleasure of the president. The agency has until Nov. 25 to appeal that decision, either to the entire D.C. Circuit or the Supreme Court. It is widely expected to do so.

To be sure, Cordray might also offer to leave of his own accord. That kind of move is relatively common at the start of a new administration, even for independent agencies. For example, it was widely reported in 2009 that then Federal Deposit Insurance Corp. Sheila Bair offered to step aside if President Obama wished to put his own person in the job, but he opted to keep her in the post.

But most observers said Cordray, whose term runs through July 2018, is unlikely to voluntarily leave.

"Rich Cordray has shown himself to be a dedicated and zealous CFPB director, and I would not expect him to give up that position lightly," said Olson.

Others argued that Trump could begin preparing a dossier on reasons why Cordray should be removed "for cause." That would allow him to act regardless of the outcome of the court case.

Still, Trump is unlikely to seek a complete elimination of the CFPB, observers said.

"Anybody who says the CFPB will be abolished is overstating the case," said one lawyer, who spoke anonymously because he has cases pending before the agency.

What's more likely is that Trump will add momentum to legislative efforts to rein the CFPB. The banking industry has been pushing a bill that would create a five-person board for the agency and subject it to Congressional appropriations.

With Republicans controlling the House, Senate and White House, the chances for a bill are higher, though by no means certain given Democrats close edge in the Senate.

"There is a great opportunity for the Republicans on the Senate Banking Committee to join forces with the moderate Democrats on the committee, and vice versa, to craft bipartisan commonsensical solutions," said Richard Hunt, the chairman of the Consumer Bankers Association.

Hunt called a bipartisan commission structure for the CFPB "a no brainer," and chided Democrats for not earlier agreeing to create a commission structure, which would have ensured "the CFPB would be in existence for as far as the eye can see."

"Now [the CFPB] is in jeopardy," Hunt said. "It is ironic that here we are at the [Consumer Bankers Association] as defenders of the CFPB because the last thing we want is a whipsaw effect every two years."

In addition to restructuring its funding and leadership, many in the industry would like to see the agency's arbitration plan scrapped and an expansion of the examination threshold to $50 billion of assets from $10 billion.

"The scope of the CFPB's regulatory authority could be scaled back," said Tim Jenkins, a partner at the law firm Nossaman.

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