On Wednesday, November 15, 2017, Richard Cordray, the confirmed Director of the Consumer Financial Protection Bureau ("CFPB" or "Bureau") as of July 16, 2013, revealed that he will leave that position by the end of the month. During the past four years, Cordray has become one of the most powerful regulators ever of financial service entities in Washington, D.C. The CFPB is not subject to Congressional appropriations and is not governed by a board, making it unique among independent agencies. The structure of the CFPB has been determined to be unconstitutional by a panel of the D.C. Circuit Court of Appeals, but the decision is under review by the full court sitting en banc. Since 2012, the CFPB has brought numerous enforcement actions against banks and non-depository financial entities, recovering more than $12 billion. Cordray's methods of enforcing consumer financial service laws have been criticized by the financial industry, for what some see as hardline approaches, including the use of enforcement actions to regulate compliance, as opposed to rulemaking with prospective application.
So, what does Cordray's resignation mean for the Bureau? The White House has stated that President Trump "will select an interim CFPB head and then nominate someone later." This means that the Administration will exercise its authority under the Federal Vacancies Reform Act of 1998 and appoint its own choice of Acting Director, turning to someone who has already been confirmed by the Senate. Much speculation points to Treasury Secretary, Steven Mnuchin, who then would delegate duties to a subordinate. Indications are that the Administration would want to act quickly, as otherwise the current Acting Deputy Director, David Silberman, would assume the role of Acting Director upon Cordray's departure, as dictated by provisions of the Dodd-Frank Act. Republican lawmakers have made their desire for change known, and it is clear that the Administration wants to steer the Bureau in the direction of its own agenda.
That being said, Cordray's departure will not otherwise change the current mission of the Bureau to enforce federal consumer financial laws and to protect consumers in the financial marketplace. That mission has evolved over the last several years with a developing body of precedent, but the CFPB will continue to emphasize efforts to ensure that the financial marketplace continues to work fairly and effectively for all consumers. Certainly, a new Director will change the implementation of that mission, much like any new change in leadership brings new priorities and new ways of doing things. Cordray was an extremely effective executive who was highly respected internally. His departure will undoubtedly result in significant turnover with a new Director bringing in his or her own choice of managers, directors and staff, which will change the course and focus of Bureau operations.
In terms of impacts on high-profile pending matters such as the small dollar rule, which the Bureau issued in final form on October 5, 2017, a new Acting Director or confirmed Director may well have in mind a different approach to regulating this industry. However, the chances that the Bureau could stay the rule while reconsidering the existing one are not good. The experience of the Environmental Protection Agency ("EPA"), whose new Administrator has sought to suspend Obama-era rules while the agency develops new ones, suggests that the courts are not receptive to this type of move.
In July 2017, the D.C. Circuit Court held, in a 2-to-1 decision, that EPA could not delay the effective date of a rule adopted at the end of the Obama Administration that restricted methane emissions from new oil and gas wells, while the agency developed a replacement rule. Instead, the court ruled, EPA will have to promulgate a new regulation that supports revocation of the previous rule and establishes a legal basis for a new one, a process that typically takes 18 months. In October, EPA declined to seek a stay of another Obama Administration final rule regulating ozone emissions, after sixteen state attorneys general filed lawsuits opposing any delay in the rule's effective date.
These experiences suggest that any new Director of CFPB would face obstacles if there was an attempt to hold the small dollar rule in abeyance while pursuing a new regulatory approach. Although the small dollar rule has not yet been published in the Federal Register, which starts the clock ticking for implementation of its effective date, it is difficult to believe Cordray will leave the Bureau before publication occurs. If it is not published before his departure, the new Acting Director could pull it back, but this is unlikely. Assuming publication occurs, the rule would go into effect in 21 months, since the rule established a lengthy phase-in period. This time lag would make it challenging for parties to demonstrate that they would suffer prejudice during the time the rule is not yet technically in force. Rather than trying to stay the rule, affected parties would be better off seeking an expedited rulemaking that includes a legally sufficient justification for modifying the current rule in a way that is less draconian yet protective of consumers. As noted, while a rulemaking generally takes 18 months, it may be possible to develop and finalize a new and alternative rule before the current final rule goes into effect.
For the debt collection industry, Cordray's departure prior to issuing a Notice of Proposed Rulemaking ("NPR") may present important opportunities. The industry has been waiting for third-party debt collection rules since the enactment of the Fair Debt Collection Practices Act ("FDCPA") in 1977. Additionally, there has been concern that many of the proposals provided in the Outline of Proposal that the CFPB issued in June 2016 were unclear and in some instances unworkable. However, a change in leadership at the Bureau brings the chance for a fresh look and a new way of approaching issues in the debt collection market, including the integration of technology into the process which was not contemplated under the FDCPA.
Now is the time for any industry subject to CFPB jurisdiction to develop a smart post-Cordray strategy and actively engage the Bureau on important priorities to ensure that oversight of the financial services marketplace stays within the confines of the CFPB's mission. The industry now has the opportunity to press for rules and policies that are effective, consistent, protective and workable in the long term.