In 2017 we saw the first significant resistance to and change in what had been uniformly aggressive action by the Bureau of Consumer Financial Protection to enforce consumer financial protection laws, with resistance and change accelerated at the end of the year following the resignation of Director Richard Cordray. However, we also saw signals from attorneys general in several states that—to the extent CFPB enforcement becomes less aggressive—they are more than willing to fill that gap.

Notwithstanding the election of Donald Trump as the President of the United States, activities at the CFPB until late in the year continued business as usual. For example, in July the CFPB issued its much-anticipated rule that generally would have prohibited pre-dispute mandatory arbitration clauses in contracts for consumer financial products and services, including clauses providing for class action waivers. The CFPB in October adopted its rule with respect to payday and certain other high-cost loans, and also in October announced principles with respect to sharing and security of consumer financial data.

However, for the first time we began to see persons subject to CFPB civil and administrative actions fight back in a significant way rather than automatically settling. And we also saw courts begin to rule in favor of these persons. For example, an accrediting group for for-profit schools resisted a CFPB investigative demand, and in April the D.C. Circuit Court of Appeals agreed with the district court that the statement of purpose of the demand was too vague, and questioned the CFPB’s authority over an accreditation body. Also, the PHH litigation was argued to the en banc D.C. Circuit Court of Appeals in May, and we continue to await a decision.

The election of Donald Trump and the retention of majorities in the House and Senate by the Republican party (albeit a narrow margin in the Senate) also resulted in the first meaningful attempts to modify the Dodd-Frank Act and roll back CFPB regulatory activity. For example, Rep. Hensarling (R.-Tx.) introduced a revamped version of his Financial Choice Act, which would significantly eviscerate the CFPB’s powers, although its chances in the Senate are slim.

Congress also applied the Congressional Review Act to void the CFPB’s arbitration rule. It is possible that the CRA may also be applied to the payday rule, although there appears to be less support for that action in the Senate (and the action with respect to the arbitration rule in the Senate required the tie-breaking vote of Vice President Pence).

Director Cordray’s resignation in November has resulted in the most significant changes at the CFPB, which will play out through 2018. Director Cordray prior to departing appointed Leandra English as deputy director, with a view to her taking control of the CFPB following Cordray’s resignation; but President Trump promptly appointed Mick Mulvaney as acting director, and litigation ensued. President Trump has prevailed in the early going, and based on reporting, the judge appeared to favor the President’s position during a hearing held on Dec. 22 on a preliminary injunction motion by Ms. English.

Mr. Mulvaney has taken swift action to assert his authority over the CFPB notwithstanding the pending litigation, demonstrating an arguable flaw in the Dodd-Frank Act—that a change in the single director can result in a dramatic change in the direction of the bureau. Mr. Mulvaney immediately placed freezes on hiring, enforcement actions and other matters, although some were later lifted in part. In addition, he selected an ex-aide to Rep. Hensarling as a chief aide, and has also proposed to add political appointees to effectively “shadow” senior officials at the CFPB. We expect that CFPB actions in the pipeline will continue for the moment, but some may be rolled back as Mr. Mulvaney and his appointees take a closer look at the pending actions. We also expect that the CFPB will continue to take aggressive action against true “bad actors,” consistent with the Republican view that the CFPB should simply enforce laws that are in place rather than adopting new regulations. In this regard, we further expect that new regulatory efforts will significantly slow under Mr. Mulvaney (subject again to the pending court challenge) and certainly under any permanent director eventually appointed by President Trump.

However, it is important to keep in mind that many of the powers provided to the CFPB under the Dodd-Frank Act may also be used by state regulators, including the UDAAP authority, subject to certain limitations set forth in the act. State law also provides various enforcement tools to state regulators, including UDAAP equivalents. A group of some 17 attorneys general, including from California, Illinois, Massachusetts and New York, have submitted amicus briefs in the English litigation, supporting the positions that Ms. English has taken. In addition, the same 17 state attorneys general authored a letter to President Trump backing past CFPB actions, expressing concerns regarding the direction that the CFPB may be taking under Mr. Mulvaney, and asserting that, to the extent the CFPB does not continue to vigorously protect consumers from financial fraud and harm, the state attorneys general will do so. Accordingly, the change in direction at the CFPB may create a 17-headed state regulator hydra that consumer financial product service providers will now need to deal with.