Directors duel over control of U.S. consumer protection agency

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Office of Management and Budget Director Mulvaney leaves the Consumer Financial Protection Bureau building after a meeting in downtown Washington D.C.
Office of Management and Budget Director Mick Mulvaney leaves the Consumer Financial Protection Bureau (CFPB) building after a meeting in downtown Washington D.C., U.S. November 27, 2017. REUTERS/Carlos Barria

November 27, 2017

By Patrick Rucker and Richard Cowan

WASHINGTON (Reuters) – Mick Mulvaney brought a sweetener to the Trump administration’s takeover of the consumer watchdog agency on Monday, offering doughnuts as he challenged the Obama-era acting appointee in a partisan showdown over how to regulate the U.S. financial system.

Mulvaney arrived at the offices of the Consumer Financial Protection Bureau (CFPB), an agency he tried to dismantle when he was a congressman, with the support of President Donald Trump and a gift to staff who may be uncertain about its future.

A day earlier, Mulvaney was sued by Leandra English, a senior CFPB official who claims that she is the agency’s rightful leader. Richard Cordray, the former director, pushed English to the top of the agency late last week in a final move before he stepped aside.

A federal court is due to weigh in on the issue as soon as Monday.

Trump has a right to name a permanent chief of the CFPB, officials agree. However, there are dueling claims about who gets to lead the agency in the meantime.

The fight to control the 1,600-employee agency lays bare deep divisions between Republicans and Democrats over how to regulate Wall Street and protect consumers, less than a decade after a financial crisis cost taxpayers $700 billion in a bank bailout.

In a morning email, English welcomed staff back from the Thanksgiving holiday and signed off as “acting director.” Around the same time, Mulvaney installed himself into Cordray’s former office and stood his ground.

“Please disregard any instructions you receive from Ms. English in her presumed capacity as Acting Director,” he wrote in an all-staff email seen by Reuters. “If you receive additional communications from her today … please inform the General Counsel.”

Mulvaney signed off as “acting director” and invited staff to pop by his office on the fourth floor to “grab a donut.”

Trump, a Republican, campaigned for president saying Wall Street “gets away with murder,” but at the same time promised to defang or abolish the CFPB, the brainchild of progressive U.S. Senator Elizabeth Warren that was championed by President Barack Obama.

Since taking office, Trump has tried to undo a number of his Democratic predecessor’s initiatives, mostly famously the 2010 Affordable Care Act that the Republican-controlled Congress has been unable to repeal and replace.

HARD AT WORK

Mulvaney’s communications director tweeted a picture of him “hard at work as acting director” with the bureau’s transition briefing handbook on his desk.

English planned to meet later on Monday with senior Senate Democrats, including Minority Leader Chuck Schumer and Warren, her office said.

As Mulvaney was getting settled in, a source told Reuters, CFPB general counsel Mary McLeod sent a memo to the CFPB’s legal division agreeing with the U.S. Justice Department that Trump had the power to appoint Mulvaney as temporary leader of the watchdog.

Late on Sunday, English sued the Trump administration, seeking to block Mulvaney’s appointment. The move means a federal court will decide which law applies when filling a temporary leadership vacancy at the relatively new agency.

The U.S. District Court in Washington was due to hear arguments on the case, which is being presided over by Trump appointee Timothy Kelly, at 4:30 p.m. on Monday.

The CFPB conflict began when Cordray, a Democrat appointed by Obama as the agency’s first director, formally resigned and named English, his chief of staff, as temporary director.

Hours later, Trump sought to overrule that move by naming Mulvaney acting director until he can get a permanent successor confirmed by the U.S. Senate, a process that could take months.

The CFPB is hated by Republicans, who think it wields too much power and burdens banks and other lenders with unnecessary red tape.

The agency was established in 2011 in the wake of the 2007-2009 financial crisis to protect consumers from predatory and deceptive mortgage and lending practices.

Cordray developed a reputation for drafting aggressive rules curbing products such as payday loans while issuing multimillion-dollar fines against large financial institutions such as Wells Fargo & Co <WFC.N>.

As acting director, Mulvaney would have the power to make far-reaching decisions on enforcement and supervision of financial firms.

In a weekend tweet, Trump, who has pledged to roll back many Obama-era financial regulations, called the agency a “total disaster” that had “devastated” financial institutions, though he offered no evidence to support the claim.

Stock prices of major U.S. banks are trading near all-time highs; the KBW Bank Index <.BKX> has more than doubled since July 2011, when the CFPB opened for business.

Mulvaney once described the CFPB as a “sad, sick joke” and tried to get rid of it when he was a Republican congressman.

Former U.S. Representative Barney Frank, co-author of the 2010 Wall Street banking industry law that created the CFPB, said in a telephone interview that if Mulvaney is installed as acting director, “then the agency stops functioning.”

Frank, a Democrat, said that when Dodd-Frank was written he and other lawmakers deliberately made it hard for the president and Congress to put political pressure on the agency.

In hindsight, he said he now wishes Dodd-Frank had explicitly stated that its appointment process would supersede the Federal Vacancies Reform Act, which gives the president the power to make government appointments.

Trump administration officials say the president has the power to appoint an acting director under that 1998 vacancies law, and McLeod’s Saturday memo agreed.

English has argued that Dodd-Frank stipulated the agency’s deputy director would take over on an interim basis when a director departs.

The drama came as the Senate was preparing to consider a bill that would significantly ease rules on some banks for the first time since the financial crisis.

Moderate Democrats and Republicans have come out in support of the package, aimed primarily at smaller and mid-sized banks, but analysts warned the drama playing out at CFPB could imperil that compromise. The Senate Banking Committee is supposed to take up the bill next week.

(Reporting by Patrick Rucker; Additional reporting by Richard Cowan Pete Schroeder, Michele Price; Writing by Doina Chiacu; Editing by Bill Trott and Jonathan Oatis)

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