If recent media reports are accurate, the president intends to name current Office of Management and Budget (OMB) Director Mick Mulvaney as acting director of the Consumer Financial Protection Bureau (CFPB). Whether or not President Trump moves now to name an “acting” director, expect a less consumer-friendly CFPB once President Trump’s formal nominee for the position is confirmed by the Senate.

What happened

In a Nov. 15 email to his staff, CFPB Director Richard Cordray announced he would resign his post by the end of the month. President Trump’s likely announcement regarding Mulvaney creates the potential for a major fight because, under Dodd-Frank, the deputy director (presently David Silberman) shall “serve as acting Director in the absence or unavailability of the Director,” and CFPB and consumer advocates are likely to assert that Silberman is entitled to hold the position until a formal nominee is confirmed by the Senate. If this occurs, the CFPB could—in the short term at least—face the same questions of legitimacy that existed when Cordray was serving as acting director prior to his Senate confirmation in 2013. If the Dodd-Frank provision is deemed inapplicable, the Federal Vacancies Reform Act would allow the president to bypass senior CFPB officials and appoint someone entirely new who has already been approved by the Senate for another position. That would include Mr. Mulvaney, who was confirmed (albeit narrowly) as head of the OMB back in February 2017.

If a President Trump-named acting director escapes scrutiny of this type, the immediate impact to most regulated entities may not be as significant as some might assume. Examination procedures won’t change immediately, and neither will the manual that guides their practices. In short, a new director is not going to change supervision overnight. That said, an acting director could significantly impact the CFPB’s vaunted, aggressive enforcement policies—the enforcement staff will still be in place, but companies will have a more sympathetic director to hear appeals. Under the CFPB appeals policy, regulated entities may take appeals of various types of CFPB actions to more senior CFPB officials. For example, in the recent PHH litigation, PHH appealed an administrative law judge’s enforcement ruling to Director Cordray, who not only affirmed the ruling but also enhanced it, increasing a $6.4 million penalty by an astounding $103 million.

Will the CFPB drop some of its more controversial initiatives? It is very hard to say, but it is probably a decent bet. One immediate area of interest will be the pending D.C. Circuit en banc ruling in PHH Mortgage v. CFPB, a ruling that may deem parts of the CFPB structure unconstitutional. Now that the Trump administration controls the levers of power, how will the new director view the CFPB position in that case? And how will the new director impact current and future litigation in which an activist CFPB has pursued (or intends to file) amicus briefs? As our readers know, the CFPB “amicus program” has generated a systematic effort to influence courts across the United States on a number of what are, at best, gray issues, including (this year alone) three cases that seek to stretch the bounds of the Fair Debt Collection Practices Act. Expect the post-Cordray CFPB eventually to reverse course, pursuing more bank-friendly positions on key consumer statutes.

Why this matters

The CFPB director has incredible power, and it is that extraordinary authority that caused multiple industry challenges and threats of litigation to reduce the CFPB’s role and autonomy. Now that President Trump can name a new CFPB director, Congress may very well retain that authority to shift the pendulum to a more pragmatic CFPB. Stay tuned.