by Jeff Sovern
I have now listened to the Senate Banking Committee hearing at which Mr. Mulvaney testified about the CFPB (I still haven't heard the House Financial Services Committee hearing). I'm still trying to make sense of Mulvaney's claims about enforcement, which strike me as hard to reconcile. On the one hand, Mulvaney complained about what he called the "regulation by enforcement" he accused his predecessor, Richard Cordray, of engaging in. On the other hand, he has dismissed only one of Cordray's cases. So does that mean that in that case, Cordray attempted to create regulations through enforcement? [UPDATE: Ted Frank argues in a comment below that the dismissed Golden Valley case was an example of enforcement by regulation; I have revised this paragraph accordingly] But is that the only pending case exemplifying regulation by enforcement? If not, why make such a big deal about it and why not say so during the hearing?
At times, Mulvaney seemed to claim he is enforcing consumer financial protection laws. While he acknowledged not having brought any enforcement actions and dismissing another, Mulvaney stated that the Bureau continues to litigate many cases, and that others are in a stage in which the Bureau attempts to negotiate a settlement, and failing that, can bring an action. That sounded like Mulvaney was claiming things are business as usual when it comes to enforcement.
Mr. Mulvaney also responded to complaints that he had not brought an enforcement action by claiming that the previous director, Richard Cordray, had not brought any cases in his first six months at the Bureau, which also sounds like Mulvaney argues nothing unusual is going on in enforcement. As best I can tell, it did indeed take Cordray six months to file his first case. President Obama named Cordray in a recess appointment in January, 2012. The first Bureau enforcement actions I can find were filed on July 18, 2012, one against Capitol One and the other against Chance Edward Gordon. AP reporter Ken Sweet disputes the timing, but I'm not sure when he thinks an earlier enforcement action had been brought. In any event, during the hearing, Senator Sherrod Brown pointed out that Cordray was setting up the Bureau at that time and so needed time to bring his first case. Mulvaney retorted that others had already gotten the Bureau up and running. While it is true that the Bureau officially opened its doors on July 21, 2011, it's unrealistic to compare the paucity of cases in its first year to the failure to bring cases when the Bureau's enforcement apparatus was humming along, spitting out cases at a rate of better than forty a year, when Mulvaney took over. The Capitol One case, in particular, stemmed from a CFPB examination, meaning that the Bureau could not have known about the issue until it conducted the examination.
Here is my theory: Mr. Mulvaeny is reluctant to dismiss cases the Bureau has already brought because doing that generates bad publicity, as happened with the lone exception, the Golden Mountain case. But if he closes a case before it ripens into an actual litigation, he gets very little bad publicity because the CFPB doesn't publicly discuss investigations and often the companies involved don't make the investigation public either. So he is continuing to litigate most already-filed cases, allowing him to claim he is enforcing consumer laws, while blocking new cases. If that's true, there is no principle involved; only political expediency. But that's just my suspicion. I don't know if it's true. [UPDATE: Ted Frank offers a different theory in a comment below.]
Mulvaney also argued that the Bureau was unnecessary in response to Senator Warren's questioning. Senator Warren identified various CFPB cases that had resulted in protecting specific people and argued that if the Bureau had not existed, as Mulvaney wished, those people would not have received relief. When Mulvaney replied that other agencies, such as the OCC, could have brought the same actions, Warren pointed out that the other agencies had not brought those actions, just as with the subprime lending that led to the Great Recession. Mulvaney never responded to that point and I don't see how he could. Warren could also have noted that the OCC had actually declared some state anti-predatory laws preempted as to national banks and that, after it received hundreds of whistleblower complaints about Wells Fargo's unauthorized accounts in 2010, the OCC abandoned the matter for years after complaining to Wells. The CFPB was established precisely because other agencies, like the OCC, had dropped the ball, and saying that other agencies could take over ignores that point.
My sad conclusion: Cordray continues to protect consumers to the extent that he filed cases that are still in litigation, but don't expect the Bureau to do much else for consumers under Mulvaney.
I disagree with the statement in the above comment that “More likely is that Mulvaney is taking inventory and avoiding any dramatic moves in one direction or another until either there’s an appointment or at the very least a ruling in the pending English case.” Certainly some acting officials see themselves as constrained from taking any dramatic steps, but I don’t think that describes Mulvaney. For one thing, he hasn’t stated that he sees his role that way. He also doesn’t seem to be acting that way. In addition to dismissing the Golden Valley case, he has announced that the Bureau will conduct a new payday lending rulemaking, has issued a series of RFIs on all aspects of the Bureau’s activities, has terminated investigations, and has hired the Bureau’s first political appointees (other than the director). That seems like more than keeping the chair warm to me, though some of those actions could be reversed later by a new director. I also think that the administration wants dramatic moves made by the CFPB, judging by its public statements. That being so, why would they wait so long to name a new director unless Mulvaney is expected to take at least some of them? The president reportedly interviewed a potential director in January of 2016 and knew when he took office that Cordray’s tenure would expire no later than this summer, and most likely, would end sooner than that. In other words, I think Mulvaney’s charge is to take some dramatic moves and I suspect that one way he is doing so is by terminating some investigations. But I would be happy to be wrong.
Hi, Jeff. Without getting into the ethicality of a 950% interest rate, the Golden Mountain case was a good example of regulation by enforcement, because Golden Mountain wasn’t breaking any laws. It was in compliance with the Indian sovereign nation laws where it was located, and the CFPB theory was that was not enough, but it as a matter of federal law also had to comply with state laws that Golden Mountain was not subject to. That might or might not be a good policy, but it wasn’t one implemented by Congress or CFPB regulation. After the DC Circuit en banc ruling, it was pretty clear that it wasn’t going to withstand court scrutiny, either. Not that anyone has reported on this accurately.
More likely is that Mulvaney is taking inventory and avoiding any dramatic moves in one direction or another until either there’s an appointment or at the very least a ruling in the pending English case. Of course, it’s very hard for the Bureau to do anything when the deputy director is spending all her time litigating her personal crusade and refusing to report to the office. But she is spending a per diem, relocating to San Francisco on the taxpayer dime!