On January 10, 2018, a federal judge denied Consumer Financial Protection Bureau (CFPB or Bureau) Deputy Director Leandra English's motion for a preliminary injunction to prevent (1) Mick Mulvaney from serving as CFPB Acting Director and (2) President Trump from nominating another to fill that role temporarily under the Federal Vacancies Reform Act (Vacancies Act). On January 12, English filed a notice of appeal to the DC Circuit Court of Appeals (DC Circuit). This decision, which follows Judge Kelly's November 2017 denial of a temporary restraining order (TRO) on similar grounds, preserves Mulvaney's Acting Directorship, pending review by the DC Circuit. While English's appeal plays out in court, Judge Kelly's order maintains the apparent status quo at the Bureau and reinforces Mulvaney's authority, including current reform efforts at the Bureau focused on—among other things—the review of pending rulemakings, investigations, and key policy issues.

Background

As discussed in our last alert, CFPB Leadership Dispute: Impacts and Next Steps, on November 28, 2017, DC District Court Judge Timothy Kelly denied English's request for a TRO to prevent Mulvaney from serving as Acting Director and President Trump from nominating another Acting Director under the Vacancies Act.1 On December 6, 2017, English requested a preliminary injunction on similar grounds and sought a declaration that she, rather than Mulvaney, is the rightful CFPB Acting Director under Section 1011 of the Dodd-Frank Act (Section 1011) until President Trump nominates, and the Senate confirms, a new Director.2 Judge Kelly's January 10, 2018, ruling follows substantial briefing and oral arguments from both sides as well as interested third parties, and preserves Mulvaney's Acting Directorship pending review by the DC Circuit.3 On January 12, English filed a notice of appeal seeking expedited appellate review of the January 10 decision.4 In addition, a parallel lawsuit has been filed on similar grounds.5

English's position

In her motion for preliminary injunction, English raised arguments similar to those in her TRO motion,6 supplementing them in two ways. First, she asserted that the Vacancies Act does not cover the CFPB Director because (s)he serves ex officio as a member of the Federal Deposit Insurance Corporation’s (FDIC) board of directors.7 Second, English claimed that the President violated the Appointments Clause of the US Constitution.8

Amicus briefs filed by scholars and Democratic lawmakers9 largely mirrored English’s main argument that Section 1011 controls the appointment of an Acting Director when there is a vacancy,10 while consumer advocacy groups emphasized the public’s interest in preserving the Bureau’s independent status.11

Timeline

11/28/17

Judge Kelly denies English's request for a TRO

12/05/17

Federal credit union files suit in SDNY challenging Mulvaney's appointment and relying on similar arguments that English has made

12/06/17

English files amended complaint and files motion for preliminary injunction

12/18/17

Government files response in opposition to preliminary injunction

12/22/17

Judge Kelly denies English's request for a preliminary injunction

01/12/18

English files notice of appeal of the January 10 decision to the DC Circuit and requests expedited review12

The Administration's position

The Administration maintained that the Vacancies Act supplements the Dodd-Frank Act,13 and that the President may appoint an Acting Director, even when the Vacancies Act is not the "exclusive" means to select one.14 The Administration addressed the new arguments English raised in her motion by countering that: (1) because the CFPB Director is not appointed to the FDIC board of directors, but rather serves ex officio,15 the CFPB directorship is firmly within the scope of the Vacancies Act16; (2) the Appointments Clause does not apply to temporary appointments17; (3) English does not have a valid cause of action18; and (4) even if the Vacancies Act does not allow the President to appoint the Bureau's Acting Director, the court lacks the authority to enjoin the President of the United States.19

Likewise, amicus briefs filed by certain Republican state attorneys general and industry groups outlined similar arguments,20 but those amici emphasized that insulating the appointment of the Director from the President would only exacerbate the debate concerning the constitutionality of the Bureau's leadership structure, currently under review before the DC Circuit.21

The Court's ruling

In denying English's motion, Judge Kelly explained principally that English failed to demonstrate a likelihood of success on the merits. In essence, the Court explained that "[g]ranting English an injunction would not bring about more clarity; it would only serve to muddy the waters."22 Judge Kelly reasoned that the Vacancies Act is the more specific statute, as it expressly provides for "vacanc[ies]" of federal officers.23 He also noted that the Vacancies Act's exception for multi-member bodies does not cover the CFPB Director's ex officio membership on the FDIC board of directors.24 Judge Kelly further asserted that, because the Dodd-Frank Act is silent regarding the President’s ability to appoint the Acting Director, Section 1011 does not displace, but rather supplements, the Vacancies Act.25 As a result, Section 1011 must be read "harmoniously" with the Vacancies Act.26

Although the Court did not need to reach English's constitutional arguments, Judge Kelly nevertheless observed that enjoining the President would seriously impair the President's constitutional powers under the Take Care Clause,27 as it would allow anyone to serve as the Bureau’s Acting Director, provided that such person was named Deputy Director before the Director resigned.28 Judge Kelly also determined that nothing in the Dodd-Frank Act disqualifies Mulvaney, as OMB Director, from simultaneously serving as the CFPB's Acting Director: although the Dodd-Frank Act excludes certain officials from serving as Acting Director, it does not exclude the OMB Director.29 Judge Kelly also noted that the "particular policies or priorities that English or Mulvaney might pursue as the CFPB's [A]cting Director are irrelevant to the Court’s analysis."30

Judge Kelly further explained that English would not suffer irreparable harm absent an injunction, principally because the Court concluded that English’s constitutional and statutory rights have not been violated. In addition, he also determined that the balance of equities and the public interest did not favor her.31 He did not, however, decide whether English failed to assert a valid cause of action.32

English has promptly appealed the January 10 decision to the DC Circuit and has sought expedited review,33 which is generally available for considerations of preliminary injunctions.34

Implications

In the short term, Mulvaney is still Acting Director of the CFPB

The dispute has not prevented Mulvaney from implementing policy changes at the Bureau. In addition to his original 30-day freeze concerning hiring and rulemaking and hold on new enforcement cases pending his review—both, now expired35— as well as halting payments generated through CFPB enforcement actions,36 he has also changed the CFPB's mission statement (to include deregulation)37 and taken steps, including, but not limited to:

  • Announcing that the CFPB would amend the prepaid card rule and extend its compliance date, allowing more time for card issuers to implement the rule's new requirements.38
  • Mulvaney intends to revise the Bureau's approach to the Home Mortgage Disclosure Act (HMDA): despite increased regulatory reporting requirements for mortgage lenders that became effective on January 1, 2018, the CFPB will only bring enforcement actions for material errors in data collected in 2018 and reported in 2019.39
  • Cancelling a planned study of the debt collection market that was designed to assess consumers' understanding of debt collection disclosure forms.40
  • Signaling potential changes to the Bureau's approach to its amicus program, No-Action Letter policies, overdraft fees, and consumer complaint portal.41 In addition, the CFPB is expected to moderate its approach to enforcement actions in 2018, and reduce penalties for all but the most serious violations.42
  • Stating that he plans to appoint political staffers to work alongside existing Bureau senior staff.43

Mulvaney also is likely to re-examine and retool other Bureau policy initiatives. For instance, although the new CFPB payday lending rule was finalized in October 2017 under former CFPB Director Cordray, the payday industry sees an opportunity to delay, or possibly revamp, the new regulation.44

Independence revisited?

English v. Trump continues

Appeal expected. English has filed a notice of appeal to the DC Circuit, requesting an expedited review of her case.45 Her appeal will be reviewed by the DC Circuit under an abuse of discretion standard.46 This standard is not advantageous for English as it is highly deferential to Judge Kelly’s discretionary power to issue injunctive relief.47

Motion practice expected to continue. At the same time, parties can proceed to motion practice where jurisdiction and other issues relating to the adequacy of the amended complaint will likely be addressed. In the event that her amended complaint is dismissed, English would be entitled to a de novo review of that decision, a standard more favorable for English that does not require the DC Circuit to accord any deference to Judge Kelly's underlying ruling.48

Split ruling on appeal possible. In light of the constitutional issues English has raised, a split ruling by the DC Circuit is possible, whereby the Court would uphold the Administration’s interpretation of the Vacancies Act, while disqualifying Mulvaney as Acting Director of the CFPB in order to safeguard the Bureau's independent status.

Moot when a new CFPB Director is confirmed. As English v. Trump plays out in court, the dispute will become largely moot as soon as the President appoints, and the Senate confirms, a permanent Director. Further, even if Mulvaney's actions are held unlawful, they can easily be ratified by his successor. In contrast, English's actions, should she take any, would unlikely be ratified, even if she prevails in court. The President has not announced his nominee for CFPB Director, though a number of individuals are reportedly under consideration.49 A divide appears to have emerged over what role the CFPB should play: although Republican critics of the Bureau are pushing for new leadership that will re-evaluate and repeal certain regulations, the financial services industry seeks to decrease its regulatory burden and preserve rules that it views as necessary to ensure market stability (having already invested significant resources to comply with these regulations).50

Future of the CFPB

English v. Trump may ultimately help prompt the DC Circuit to rule on the PHH case, which will decide whether the CFPB may remain an independent agency with a single director who is removable by the President only for cause.51 Decades ago, the Supreme Court ruled that the Federal Trade Commission’s structure as an independent agency with commissioners, each only removable for cause, was constitutional.52 In the PHH case, a three-judge panel declined the CFPB's invitation to extend this precedent to the CFPB's single-director structure. An appeal of that panel's decision is currently before the DC Circuit sitting en banc. English has repeatedly underscored that an at-will White House employee cannot lead an agency that is required by statute to be independent, relying on this precedent. In doing so, she has implicitly supported the CFPB's original position in the PHH case that its current structure does not violate the US Constitution.53 Judge Kelly’s decision does not address the constitutionality of the Bureau's structure, rather, it defers to the constitutional challenge currently before the DC Circuit.54 The en banc ruling could potentially recast the CFPB as an "executive agency" subject to regulatory review by OMB's Office of Information and Regulatory Affairs.55 It could also impel Congress to reconstitute the CFPB as an independent, bipartisan, multi-member commission. In addition, the ruling could have further effects on other federal agencies with similar independent structures, such as the Federal Housing Finance Agency.

If, however, the PHH case maintains the CFPB’s current independent status, the DC Circuit could still find that Judge Kelly did not abuse his discretion in denying English's motion for preliminary injunction, even if a protracted case concerning statutory interpretation is ultimately appealed during motion practice, and even if English ultimately prevails.

Additional Impacts

Board membership. Because Mulvaney sits on the FDIC board of directors and the Financial Stability Oversight Council, and plans to be an "active participant,"56 his interim appointment may affect their agendas. As a voting member, Mulvaney’s influence may extend beyond consumer protection issues, and may impact other financial regulators.

Appointment of a permanent CFPB Director. Although the Administration is expected to select a nominee to serve as permanent Director of the Bureau, Judge Kelly’s decision may have the effect of relieving some of the immediacy behind that decision and will afford Mulvaney additional time to continue to recalibrate the Bureau.57