Seldom if ever has the resignation of a top regulator signaled such a large change in direction for a federal agency.
Under Richard Cordray, the Consumer Financial Protection Bureau earned a reputation as an aggressive regulator. But his announcement Wednesday that he is leaving by the end of the month gives President Trump a significant opening to use appointment powers to roll back Cordray's policies.
Cordray's announcement immediately touched off speculation on the extent of policy changes and his potential successors. Industry observers pointed to the prospect of new leadership reversing enforcement actions or even whole rulemakings issued under Cordray.
“To the extent that the administration believed that Mr. Cordray’s views were inconsistent with its" own views, "this is the opportunity that they have been waiting for to recalibrate the focus of the agency,” said Thomas Vartanian, a partner at Dechert.
Cordray, 58, announced in an email to the CFPB's staff that he would leave the bureau before the end of November. He has long been rumored to be planning to run for governor of Ohio, but he did not make any announcement of his plans. As the first Senate-confirmed CFPB director, he stuck loyally to the bureau's pro-consumer protection mission developed by now-Sen. Elizabeth Warren, the agency's architect.
In the short term, some suggested that once Cordray leaves, the bureau could be in somewhat of a holding pattern until the administration names an acting director — which could include Treasury Secretary Steven Mnuchin — while others said the agency's current acting No. 2, David Silberman, could still lead aggressive regulatory efforts.
“I think that the CFPB will continue to move briskly ahead until President Trump has appointed his own choice into the leadership position,” said Quyen Truong, a partner at Stroock & Stroock & Lavan and a former assistant director and deputy general counsel at the CFPB. “There is some possibility, but a limited one, that there could be a new set of proposed rules on third-party debt collection.”
But Benjamin Olson, a partner at the law firm Buckley Sandler and former deputy assistant director at the bureau, said, “It seems unlikely that the CFPB could get anything concrete and final out in the time that remains, other than possibly a guidance document.”
Olson noted that the CFPB's recent small-dollar lending rule was the last big initiative on Cordray's plate. “The deck seems to be clear now that the payday rule is out," he said.
But Republicans already have high hopes for the bureau when new leadership takes over.
"The resignation of the Bureau’s director is an excellent opportunity to enact desperately needed reforms,” House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Tex., said in a statement. (Hensarling's name has been mentioned by observers as a potential successor at the agency.) “The extreme overregulation it imposes on our economy leads to higher costs and less access to financial products and services, particularly for Americans with lower and middle incomes.”
Financial firms caught in the CFPB's crosshairs may petition a Republican appointee to reverse enforcement actions and roll back fines. But some noted that change could come more slowly. For one thing, a substantial mission adjustment would not likely take place until a permanent new director is confirmed by the Senate. President Trump has not shown much interest in the CFPB and has not moved quickly to fill vacancies at other agencies.
"For a federal agency of this size, change tends to be a process and not an event, and for some of these changes to occur, even with a new director, the actions will have to be executed within the agency," said Don Lampe, a partner at Morrison & Foerster.
Richard Gottlieb, a partner at Manatt, Phelps & Phillips, said a new CFPB director will have tremendous power to influence policy, though changes in supervision practices by agency examiners will take longer.
"We are likely to see a dramatic slowing down of rulemaking and the dismissal of certain enforcement actions," Gottlieb said. "The smart move would be to aggressively defend against enforcement actions on the theory that an industry-friendly director will ultimately be friendly to an appeal. But I don't think we will see a significant change on the supervision levels for many, many months."
Once new leadership is in place, rolling back regulations will be a top priority, many observers said.
"Access to credit and growing small business is very much what the Trump administration wants to do," said Joann Needleman, a partner at Clark Hill. "Making lending easier but putting some restrictions on it is very much in the forefront of what the Trump administration is thinking right now."
While the Trump administration tapped candidates with relatively centralist views for the Federal Reserve Board, the White House may take a different approach with the CFPB.
Republicans are urging the Trump administration to move quickly to appoint an acting director under the Federal Vacancies Reform Act of 1998. Doing so would reduce the chance that Silberman, the CFPB's acting deputy director, would spend much time in the job, lawyers said.
Before the White House nominates a new CFPB director, it could install an acting director who has already been confirmed to avoid legal challenges. The Dodd-Frank Act makes no mention of what happens if a current CFPB director resigns, and the Vacancies Act puts some limits on who the administration can appoint.
“If we can’t immediately eliminate the CFPB or bring it under congressional oversight, we need someone to take the helm who will help undo the damage that’s already been done,” said Sen. David Perdue, R-Ga.
Mnuchin or Office of Management and Budget Director Mick Mulvaney could be tapped to lead the bureau on an interim basis, and then delegate the day-to-day operations to a lieutenant who would functionally run the agency on a temporary basis.
Meanwhile, the list of potential nominees discussed in regulatory circles to run the agency on a permanent basis is longer.
President Trump had interviewed former Rep. Randy Neugebauer for the job in January. The Texas Republican was a sharp opponent of the bureau while he sat on the House Financial Services Committee. Other lawmakers mentioned for the job include Hensarling, who has announced he will not run for re-election, and Rep. French Hill, R-Ark. The administration could also turn to other vocal CFPB critics, such as Mark Calabria, the chief economist to Vice President Mike Pence.
Cordray's departure marks the end of his long-running battle with Republican lawmakers, who repeatedly called the CFPB a "rogue" agency. House Republicans voted more than 60 times to change the CFPB's structure to a five-member commission to temper regulations of the industry.
Cordray was was installed as director by a controversial 2012 recess appointment by President Barack Obama, yet he was subsequently confirmed in 2013 in a vote by the Senate of 66 to 34. Republican lawmakers had blocked his nomination for months to prevent agency policies from going into effect.
His discord with GOP lawmakers culminated in June with the House Financial Services Committee threatening to file contempt charges against him for allegedly lying about the bureau's investigation into the Wells Fargo phony-accounts scandal, among other charges. Ultimately, contempt charges were never filed.
But despite the tumult of the past five years, some bankers praised Cordray.
“Richard Cordray’s leadership of the CFPB during the critical period following the economic crisis resulted in important consumer protections that have helped rebuild trust in our financial institutions and that have greatly benefited American consumers," Keith Mestrich, CEO of Amalgamated Bank, said in a press release.
"As a bank, we believe our responsibility is to protect the wealth and financial stability of our customers, not just to enrich our bottom line," Mestrich said. "To that end, Amalgamated Bank has been proud to support the work of Mr. Cordray and the CFPB, and we will continue to be vocal supporters of the CFPB’s mission and of appropriate consumer protections.”
Others said the Trump administration now faces the challenge of appointing a successor who does not swing the pendulum too far in the other direction.
"The agency is at a turning point and all eyes in the banking and consumer finance industry are trying to discern if the president appoints an industry hack that is anti-consumer protection, or a responsible steward who will focus on enforcing non-controversial consumer protection laws that mainstream Americans believe in," said Christopher Peterson, a law professor at the University of Utah's S.J. Quinney College of Law and a former special adviser to Cordray.