CFPB Refutes Leadership is Unconstitutional, Will Richard Cordray Stay?

The Consumer Financial Protection Bureau officially challenged a federal court ruling Friday, which declared the agency’s leadership structure unconstitutional, setting up a political fight for the future of one of the auto finance industry’s most prominent regulatory bodies.

In October the U.S. Court of Appeals for the District of Columbia ruled the Obama administration’s structuring of the CFPB unconstitutional. Without an appeal, the bureau’s single director, Richard Cordray, could be removed by incoming President-Elect Donald Trump and replaced by a Republican appointee, who would presumably be more favorable to lenders based on rhetoric and promises made by Trump and his team during the campaign, John C. Redding, partner at BuckleySandler LLP, previously told AFN.

With this appeal, Cordray will continue to serve his five-year term as the district court’s ruling is put aside until a the Supreme Court rules on the matter. But, there are still a lot of political hurdles that could drastically reshape the CFPB under the new administration.

Despite this appeal from the democratic leadership of the CFPB, democrats in Congress may be more willing to move to an independent committee structure, said Kenneth J. Rojc, managing partner of Nisen & Elliott, LLC’s Automotive Finance Group.

“If on an appeal it was determined that the structure was acceptable, come 2018 you would have a Trump administration able to appoint a director who would then be in place until 2023,” Rojc told AFN. Democrats are looking to retake the White House in 2020 and Rojc said the democrats are weighing the benefits of a single director against the possibility of that leader being a republican for “the majority of the next president’s administration.”

While Rojc believes democrats may have softened on the subject following the election, the CFPB’s architect and principal defender, Massachusetts Senator Elizabeth Warren (D), has been vocal about maintaining the original structure of the bureau.

“The CFPB has been, and will remain, highly accountable to both Congress and the President,” she said in a statement following the court’s ruling in October. “Continued Republican efforts to transform the agency’s structure or funding should be seen for what they are: attempts fostered by big banks to cripple an agency that has already forced them to return over $11 billion to customers who have been cheated.”

The American Financial Services Association was notified that the CFPB would challenge the ruling last week, said President and Chief Executive Chris Steinbert, during a presentation at last week’s Used Car Week’s Subprime Forum. However, he believes there’s another political calculus at play.

“Does Cordray stay until July 2018?” Steinbert asked. “You have a person whose life is not going to be great after January 20th. He’s going to have a difficult time implementing his plan.”

Cordray is already mounting a campaign to run as Governor of Ohio in 2018 according to rumors echoed by Steinbert and Shaun Petersen, senior vice president of legal and government affairs at NIADA.

“I grew up in the state of Ohio and was a resident for all of the last 20 years up until six months ago, and I have friends in town calling me to say ‘hey, Cordray was in town. He was here to give the grand opening speech at the local library,” Petersen said during a compliance panel at the conference. “So the rumor mill is that the campaign has unofficially started.”

Barring changes from the legislature or judiciary, Cordray would still have time to campaign for the November 2016 election, but Steinbert predicts he’ll step down before then.

“I always look at it, your job comes first. You idealism and falling on the sword is a nice expression and there are people who will do that,” Steinbert said. “But generally, if you are politically ambitious, you’re going to take the route that will be most advantageous to your political career and your political future. I don’t see that hanging around until July 2018 is going to be the best choice that director Cordray could take going forward.”

Of course, it may not be Cordray’s choice to make if Republicans are successful in reforming the CFPB into a committee structure, as most analyst agree is the most likely outcome, including Hudson Cook LLP Partner Allen Denson.

“They have a big political decision to make,” Denson told audiences at Subprime Forum. “You could see legislation change things before the D.C. circuit does.”