The Rocky Road Ahead for the CFPB in 2017

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The Consumer Financial Protection Bureau faces a precarious and uncertain future in 2017 with all eyes focused on two questions: whether President-elect Donald Trump will attempt to fire agency director Richard Cordray and if Congress can successfully restructure the agency by changing its leadership and funding.

Those issues, in addition to a critical legal case that is still pending, are liable to cast a shadow over the agency's ambitious agenda as it attempts to move forward on regulations concerning payday lending, mandatory arbitration, overdraft fees, debt collection and more.

"We don't know whether Trump will seek to remove Cordray, whether Rich Cordray will voluntarily resign and what will happen in Congress," said Lucy Morris, a partner at Hudson Cook and a former deputy enforcement director at the CFPB.

"I've never experienced a situation where we had such an important case at the same time that we have a change in administration and a nontraditional president-elect."

In the short term, the agency's future under Cordray hinges on whether the D.C. Circuit agrees before inauguration day to hear an appeal of a contentious court ruling, PHH Corp. v. CFPB.

A three-judge panel of the D.C. Circuit found in October that the CFPB's single-director structure is unconstitutional. If the case is taken on appeal, the panel's ruling would be vacated and Cordray could not be removed at will by the president.

Some lawyers have suggested that Trump could still remove Cordray for cause, another issue that is being hotly debated.

"Does the president have the authority to remove the CFPB director at will even though the law says otherwise?" Brianne Gorod, chief counsel at the Constitutional Accountability Center, wrote Dec. 15 in the Yale Journal on Regulation. "Assuming the full D.C. Circuit agrees to rehear the pending case and restores the CFPB director's for-cause removal protection, it would be unlawful for President Trump to remove the current CFPB director."

Gorod cited three recent past examples in which officers resisted a removal order by a president until a court decided whether the removal was proper.

In 1981, President Reagan sought to remove a member of the District of Columbia Judicial Nomination Commission and in 1983, he tried to remove certain members of the Commission on Civil Rights. In 1993, President George H.W. Bush sought to remove members of the board of governors of the Postal Service Board. In all three cases, the members stayed in office.

"But if Trump were to try it anyway, one other thing is also clear: The director would be able to resist his removal by seeking redress in the courts, and the courts could prevent the president from removing him," wrote Gorod, a former law clerk to Justice Stephen Breyer and a former attorney-adviser in the Office of Legal Counsel at the Justice Department.

Brian Simmons Marshall, a policy counsel at Americans for Financial Reform, said it would be "an unprecedented and outrageous act to try to fire Director Cordray for cause."

Marshall said he expects that Cordray will serve out his term until July 2018 and that the bureau will issue final arbitration and payday rules in 2017.

That debate comes at a time when Congress is poised to move forward with a bill that would restructure the agency, replacing its single director with a five-member board and putting the CFPB on the appropriations process. That bill is part of a larger effort to revamp the Dodd-Frank Act, which is likely to be taken up soon in the new year.

Yet efforts to restructure the bureau are certain to meet fierce resistance from Senate Democrats, who may be able to filibuster any reform bill. That leaves the outlook for legislative change unclear.

Neither the pending cases nor the fight over Cordray are likely to stop any pending enforcement cases, but the uncertainty might have an impact in other ways.

For example, observers said the agency is likely to file more cases in district court, rather than administratively, after the three-judge panel in the PHH case rejected the bureau's argument that it could bring charges with no statute of limitations.

Many companies were concerned that the CFPB would challenge an array of practices going back many years, which would have increased the potential liability for civil or criminal penalties. That issue is now moot.

"The big advantage [the CFPB had] of no statute of limitations is gone," Morris said.

The CFPB was also rebuked by the three-judge panel for a novel interpretation of the Real Estate Settlement Procedures Act, and ignoring past guidance by other agencies, notably the Department of Housing and Urban Development.

Ethan Levisohn, a lawyer at Covington & Burling and a former CFPB enforcement attorney, said the PHH case may have clipped the bureau's efforts to regulate through enforcement actions.

"This does constrain the bureau in some ways," Levisohn said during an American Bar Association web seminar. "They are now much more sensitive to all that prior guidance. It will create a little bit of circumspection on the bureau's part."

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