(Bloomberg Businessweek) -- One of the first things Mick Mulvaney did last year after President Trump asked him to be acting director of the Consumer Financial Protection Bureau was to read the statute dictating the agency’s powers. Created by the landmark Dodd-Frank Act of 2010, the CFPB was designed to protect consumers from the abuses of the financial industry and is one of the Democratic Party’s proudest recent achievements.
Mulvaney was no fan of the agency, having repeatedly attacked its very premise during his three terms as a Tea Party Republican in Congress. But he’d apparently never taken the time to study the statute governing it: Title X of Dodd-Frank. When he finally did, he was astonished by what was missing, namely a federal agency known as the CFPB.
“In the first section, it will jump out at you,” he says, bolting from his chair during a recent interview in his glass-walled office at the CFPB headquarters. An impish, energetic 50-year-old with a round face, oval glasses, and a steely wit, Mulvaney gives the impression of a man who revels in being the embodiment of liberals’ worst nightmare. Grabbing a copy of Title X of Dodd-Frank that he keeps handy, he points out that the law actually called for the creation of the Bureau of Consumer Financial Protection. “That’s it!” he cries. “This is what Title X says! You go, ‘Well, wait a second? Where’s the Consumer Financial Protection Bureau?’ It’s not in the statute.”
This bit of gotcha may not seem like a big deal, but to Mulvaney, who’s also Trump’s budget director, it calls into question the very legitimacy of the seven-year-old bureau and the way it was set up by Elizabeth Warren, now a U.S. senator from Massachusetts and the liberal star credited with conceiving the agency, and run by her successor, Richard Cordray. If his predecessors ignored the statute when they named the agency, he asks, what else didn’t they adhere to?
Six months into his tenure, Mulvaney is doing everything he can to transform the CFPB from a regulatory crown jewel of liberals into one that he says follows the law, at least according to his interpretation. Along with reshuffling its initials, he’s reviewing its enforcement, supervisory, and rule-making functions. He’s frozen data collection in the name of security, dropped enforcement cases, and directed staff to slash next year’s budget. He also wants to curb the agency’s independence by giving Congress—rather than the Federal Reserve—control of its spending, and replace the powerful director position he fills with a five-person commission.
The ultimate goal, he says, is to move the CFPB beyond the realm of partisan bickering and turn it into what he calls one of the “gold-standard” regulators, like the U.S. Securities and Exchange Commission. To do that, he says he’ll have to disassociate the CFPB from its origins. “We are still Elizabeth Warren’s child,” he laments. “As long as we’re identified with that one person, we’ll never be taken as seriously as a regulator as we should.”
To the financial industry, Mulvaney’s a hero. Even if he’s not moving to destroy the CFPB, bankers hope he’s doing enough to leave it permanently changed. “It’s ironic that it’s Mick Mulvaney who has become the biggest cheerleader for the continuity of the bureau,” says Richard Hunt, president of the Consumer Bankers Association, which lobbies for the nation’s biggest banks. To Democrats, especially progressives like Warren, having Mulvaney at the helm of the CFPB is akin to giving your worst enemy the keys to your house. Prentiss Cox, a former member of the CFPB’s Consumer Advisory Board and now an associate professor of law at the University of Minnesota, isn’t surprised by what Mulvaney’s done. “He’s pretty transparent,” says Cox. “You’ve got to give him that. He worked for years to destroy the agency while he was in Congress. Now he’s running it, and he’s fulfilling his long-stated position.”
If Mulvaney has tried to remove the CFPB from partisan knife fights, he hasn’t exactly succeeded. His first day on the job was itself a political controversy. His predecessor, Cordray, having announced his resignation a few weeks earlier to run for governor of Ohio, and knowing that Trump had been pondering ways to remove him, appointed his chief of staff, Leandra English, as acting director, insisting he had the legal authority to do so. On Nov. 27, 2017, English and Mulvaney showed up for work for the same job. They settled into their offices, English’s a few blocks away in a different building, and sent out dueling emails declaring themselves in charge.
That sparked a legal battle over whether the president or the outgoing director had the authority to appoint the new director. English sued, accusing Trump of violating Dodd-Frank by installing Mulvaney. Although English remains at the CFPB, Mulvaney has essentially sidelined her, leaving her out of meetings and key projects, according to former and current staffers. Mulvaney has said publicly that he’s never met English and has no idea what she does all day, though she continues to collect her $212,000 salary. A CFPB official says English doesn’t respond to Mulvaney’s emails. Asked why he doesn’t just fire her, Mulvaney says he can’t comment on ongoing litigation—her lawsuit is still pending. English’s lawyer declined to make her available for an interview.
While Cordray was a constant, visible presence in the office, Mulvaney is not. That’s partly because he’s doing two jobs at once, spending three days a week at the Office of Management and Budget and three at the CFPB. He often works Saturdays at his OMB office, where he has a TV. He likes to watch baseball. The long, crowded staff meetings that Cordray used to preside over have disappeared, staffers say. A CFPB spokesman says Mulvaney has an “open door policy” and plans to resume bigger, Cordray-style meetings.
To help run things, Mulvaney has also brought in a handful of political appointees. The most prominent is Brian Johnson, formerly a top aide to Texas Republican Jeb Hensarling, chairman of the House Financial Services Committee and no friend of the agency. Johnson drafted key parts of Hensarling’s Financial Choice Act, which called for dismantling the CFPB, according to a copy of his résumé obtained through a Freedom of Information Act request by American Oversight, a government-ethics advocacy group. Hensarling himself has called the CFPB “the most powerful and unaccountable agency in the history of the republic.”
Johnson was part of the Trump transition team that studied the CFPB and, according to several sources, had begun working to declaw it before the president took office. Although he’s Mulvaney’s clear No. 2, staffers say they rarely see him, except when he leaves his office for a drink of water or to use the men’s room. (CFPB officials say he’s very accessible.) Staffers also can’t see what Johnson does behind the doors of his office. After Mulvaney and his team arrived, the bureau put frosted plastic covers on the glass doors of their offices to make them opaque. Mulvaney has said the covers were part of Cordray’s plan and that he has a document from last September showing this. A source close to Cordray disputes Mulvaney’s account. Either way, the opacity made an impression among staffers. “It was both trivial and totally meaningful,” says a bureau official.
The same could be said for Mulvaney’s decision to freeze the collection of data that contained people’s personal information. Mulvaney says he’s worried the agency could be hacked, yet critics say the freeze is a pretext to hamstring the agency’s investigative work. Bank examiners, who’d previously reviewed financial records in advance, now have to read them on-site when they visit a bank, which people at the bureau say is more time-consuming and less effective. “It’s gumming up the works,” says a bureau employee who, like several others, spoke on the condition of anonymity for fear of being fired.
In a series of letters, Warren, who declined to comment, asked Mulvaney to explain the freeze, his political hires, and his other changes. Mulvaney was less than forthcoming in his responses, but he argues he’s giving her the same treatment that he and his GOP colleagues endured from Cordray. “I think she’s kind of a professional letter-writer now,” Mulvaney says. “She said she was frustrated with my responses to some of her letters. And I’m like, ‘Get in line.’ ” He says he hopes to lift the data freeze shortly.
Mulvaney has also stripped a CFPB operation dedicated to preventing discriminatory lending of its enforcement powers, moving it into an office promoting diversity inside the bureau. In January the CFPB dropped a case against four payday lenders that were associated with an Indian tribe and charged interest rates of 950 percent. “He’s kind of put the bureau in a vegetative state,” says Makada Henry-Nickie, a former CFPB senior analyst who’s now a fellow at the Brookings Institution. Mulvaney says the restructuring will make the bureau more efficient, and that he doesn’t think the agency should interfere with the sovereignty of Indian tribes.
The CFPB’s long-held practice of circulating important documents long before their release has also stopped. In March the bureau’s semi-annual report to Congress appeared in people’s inboxes, and they had just 24 hours to look it over. What career employees didn’t see, according to two of them, was the accompanying director’s letter, in which Mulvaney quoted James Madison’s warning in the Federalist Papers about governmental tyranny and argued that “the structure and powers of this agency are not something the Founders and Framers would recognize.”
Asked about the withholding of the director’s letter, a CFPB spokesman said, “The fact that these employees are leaking this to you may be why they didn’t get to see the report sooner.”
Mulvaney used congressional hearings on the report in April to argue that the CFPB needs to be reined in. He told members of the House Financial Services Committee that he would answer their questions, but only as a courtesy because he didn’t think Dodd-Frank required him to do anything more than “appear.” It didn’t specifically order him to “testify.” That’s not the way former Democratic Representative Barney Frank sees it. “Most of us assumed that ‘appear’ meant ‘testify,’ ” says Frank, who’s one of Dodd-Frank’s namesakes. “But to be honest, I don’t think he has anything useful to say in this anyway. So if he just wants to sit there and look stupid, that’s his right.”
The midterm elections were approaching, and the hearings were a display of hyperpartisanship. GOP members flattered their former colleague. “Director Cordray often acted unlawfully,” said Hensarling, the committee’s chairman. “Acting Director Mulvaney acts lawfully. What a welcome change.” Democrats, on the other hand, sought to antagonize Mulvaney, raising issues large and small, just as Republicans had done with Cordray.
Representative Keith Ellison, a Democrat from Minnesota, seized on the frosted plastic on the glass doors of Mulvaney’s office. “So when somebody walks by your office, they are obscured from seeing what you are doing?” Ellison inquired. Rather than rise above the sniping, Mulvaney eagerly engaged. “I’ve been to your office,” he told Ellison. “I can’t see into it.”
Their sparring continued in an exchange of letters. Ellison demanded more information from Mulvaney about the frosted glass. “I am concerned that these changes limit the transparency of senior officials at the bureau and create an appearance of impropriety,” Ellison wrote. Mulvaney responded with a letter of his own, explaining that there was no plastic on two of his office walls, the ones with street views. “By your formulation, I estimate that my work at the bureau is 62.4 percent transparent,” Mulvaney wrote. “However, because I previously announced an ‘open door’ policy with the bureau’s staff, I believe it is fair to categorize the square footage of my two office doors as transparent rather than opaque. Accordingly my true work transparency percentage is 69.2.”
“Let me note,” Mulvaney added, “that this is perhaps the most bizarre use of time in my seven and a half years of federal service. The bar on that is pretty high.”
Mulvaney still shakes his head over it. “I’m like, Dude, are we really having this conversation?” he says.
Ellison also hasn’t forgotten. In a statement, he writes: “Whether he’s obscuring the offices of his political appointees, planning to move dozens of civil servants to the basement, or proposing that the employees share desks, Mr. Mulvaney has made one thing clear: He will stop at nothing to undermine the effectiveness and morale of the men and women at the CFPB who work tirelessly day in and day out to protect consumers from financial scams and predatory loans.”
The CFPB didn’t make its first enforcement action under Mulvaney until mid-April, when it fined Wells Fargo & Co. a record $1 billion for deceptive auto loan practices. Former CFPB staffers were quick to point out that Mulvaney had little to do with the case, which was opened by Cordray and in the works long before Mulvaney arrived.
If anything, Mulvaney seems more zealous about cracking down on the CFPB’s spending. He talks about the bureau’s “outrageously expensive” headquarters, which is in the midst of a $145 million renovation. “The kitchen cost more than my first car,” says Mulvaney, who once was a part-owner of a restaurant chain. “That turbo oven is several thousand dollars. We have the coolest shredded-ice machine in the world.” Recently, he told division heads to look for ways to slash their budgets in the next fiscal year, which, according to current and former staffers, in some cases has resulted in proposed cuts of more than 20 percent. In an April 30 email seen by Bloomberg, Mulvaney instructed some of his top advisers that the official process of cutting next year’s budget would begin in May and that he wants resources to be used only for activities that are explicitly mandated by Dodd-Frank. His directions to staff didn’t specify how much money exactly he hopes to cut. For now, Mulvaney says in the interview in his office, he’s only looking to cut back on nonpersonnel items, such as travel, and has asked his deputies to make suggestions that don’t include eliminating jobs.
That’s not to say his employees won’t feel any pain. In May, Bloomberg obtained an internal cost-savings document exploring the possibility of moving 70 employees to the newly renovated basement and relocating others to cheaper space in Dallas. Mulvaney says these ideas are part of a bigger plan to find ways to fit as many people as possible into the agency’s headquarters and to possibly find a new location for its Southeast operations. “Would you be better off by having an office in Washington and in Dallas?” Mulvaney asks. “Or should the Chicago office branch be in sub-offices and stuff like that to reduce travel?”
Mulvaney recently outraged consumer groups by moving a unit that had assisted the enforcement division in its investigations of predatory student lenders into an office dealing with financial education. He dismisses the furor, saying the change is another of his ongoing streamlining efforts. “It’s a paper reorganization,” he said at a recent public appearance. “It’s not changing the functions of any of our folks.”
Some see a larger plan behind such changes. People at the CFPB say morale is already bad. Republicans and Democrats agree that Mulvaney is trying to get employees, most of whom are union members and can’t be easily fired, to leave voluntarily. “Smaller is better,” says Dan Berger, president of the National Association of Federally Insured Credit Unions. “It’ll be good to have new eyes take a fresh look at how things are done.”
Privately, Democratic leaders are urging staffers to stay and fight. They’re still hopeful that much of what Mulvaney has done could be undone by his successor, whom Trump has to nominate by June. The leading candidate is Mark McWatters, a Republican who leads the National Credit Union Administration, say people familiar with the process. He’s more moderate than Mulvaney but amenable to Republicans and their finance industry allies. Warren has indicated she wouldn’t object to McWatters, though he’s hardly her first choice, people close to her say.
Mulvaney says Trump has told him he’s doing a “nice job.” Although his time as acting director is technically scheduled to end in June, it’ll likely be months before his replacement is confirmed, an outcome he sounds like he wouldn’t mind. He seems comfortable in his office with its view of the Washington Monument and a podium where he parks his three cell phones. “It’s fantastic,” Mulvaney says of his job. “I know the press portrays it as some, you know, hateful battle between the forces of evil and the forces of good, and it’s not. It’s actually been a really good place to work.”
He says his days of trying to abolish the bureau are over, at least for now. “It’s not really appropriate for someone running the bureau to say the bureau shouldn’t exist,” Mulvaney says. “That would be the equivalent of having a general say the Army’s unconstitutional. The system breaks down when you do that. If the president thinks it’s unconstitutional, then that’s something that we’d have to consider.”
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