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June 29, 2020

Stroock Commentary

By: Quyen T. Truong, Stephen J. Newman, Julia B. Strickland

The Supreme Court has preserved the Consumer Financial Protection Bureau while invalidating the Dodd-Frank Act provision that its Director is removable by the President only “for cause.”  Although speculation has jumped to the possibility that a Democratic President would replace Director Kathy Kraninger, that path toward renewing CFPB activism is potentially complicated.  The requirement for Senate confirmation of the appointment of a new Director would put the brakes on these plans, unless Democrats are successful in capturing both the Presidency and the Senate.  If they succeed in electing a Democratic President but don’t convert the Senate, then we likely would see Director Kraninger removed and her Deputy heading the agency until the confirmation stalemate is resolved.  Current Acting Deputy Director Leonard Chanin, a CFPB veteran who had served under Elizabeth Warren and Richard Cordray, would be disinclined to pursue a deregulatory course during the long interim period.  Even if Director Kraninger replaces him with a different Deputy Director, that individual and other Mulvaney-Kraninger political appointees remaining at the CFPB would wield limited power over Bureau activities having major industry impact.

The industry could expect a prompt shift from the CFPB’s current deregulatory course, followed by a (potentially significantly delayed) return to aggressive activism.  The CFPB’s activities, from enforcement to rulemaking, generally have extended gestation periods, and the agency today remains filled with personnel from Warren-Cordray days who have chafed under Mulvaney-Kraninger leadership and have built a bank of data and analysis to support a quick return to activism.  For activities that don’t require formal approval from the top – e.g., ongoing dealings with supervisory and enforcement personnel, versus rulemakings and public enforcement actions – the shift toward activism could come fairly rapidly.  

Moreover, the industry should not count on favorable results in major pending rulemakings such as the debt collection and mortgages proceedings.  Even if Director Kraninger could push to issue new rules, those high-profile regulations could be undone by new CFPB leadership or by Congress under the Congressional Review Act (as had occurred with the arbitration rule and payday rule) if Democrats capture both the Presidency and Congress.

Finally, in the immediate term, the Supreme Court’s unconstitutionality ruling is unlikely to undo past actions of the CFPB.  Director Kraninger will validate any past actions, and the courts generally are unlikely to issue any ruling that could bring all the agency’s past activities into question, recognizing that chaos could ensue.  In the long term, Congress may change the CFPB to a commission structure.  We should not anticipate such a structural change anytime soon, however, given the inclination of every party to maximize its control of the CFPB while it is in political power.