Trump Choice to Head Consumer Watchdog Is Backed by Judge

(Bloomberg) -- President Donald Trump won a legal fight over who gets to run the Consumer Financial Protection Bureau -- at least for now.

His budget director Mick Mulvaney can remain as acting head of the agency, a federal judge ruled in rejecting a request to temporarily block the move from Leandra English, who was named to the role by the departing director. U.S. District Judge Timothy Kelly in Washington rebuffed English, who sued on Nov. 26, contending she is entitled to the provisional post. 

That outcome cast a shadow over her claim the 2010 Dodd-Frank Wall Street reform legislation controls the line of temporary succession at the agency and not the broader federal statute relied upon by the president to designate Mulvaney. Kelly said they were both applicable, but the measure used by the president was more apt.

English’s attorney, Deepak Gupta, told reporters that the case isn’t finished. Options include seeking a preliminary or permanent injunction, either of which would result in a ruling that could be brought to the U.S. Court of Appeals in Washington, he said.

"This court is not the final stop," he said after the hearing. "This judge does not have the final word on what happens in this controversy."

Kelly, who has been on the bench since only September, is a Trump nominee who previously worked for Senate Judiciary Committee Chairman Chuck Grassley, an Iowa Republican, and also served as a federal prosecutor.

Turnover Process

Whoever ultimately prevails will gain the power to guide the bureau while the process of selecting and confirming a permanent director plays out. Under Obama appointee Richard Cordray, the agency drew fire for its aggressiveness, even as it laid claim to providing almost $12 billion in relief to consumers. Among those critics was Mulvaney, a former Republican Congressman from South Carolina who had called the agency a "sad, sick joke."

Cordray stepped down on Nov. 24, more than eight months before his term was scheduled to expire, designating English as his provisional successor. The president responded by naming Mulvaney, citing his power to do so under the alternate statute.

The White House cheered the outcome.

“The administration applauds the court’s decision, which provides further support for the president’s rightful authority to designate director Mulvaney as acting director," Deputy Press Secretary Raj Shah said in a statement.

Judge Rules

The judge’s ruling came after listening to lawyers from both sides Tuesday. A day earlier, Gupta and Justice Department lawyer Brett Shumate spent about 40 minutes laying out their positions for him, but came away empty handed as Kelly said he would await the government’s written response, filed just before midnight Monday.

Joining the fight on English’s behalf were about two dozen current and former members of Congress who told Kelly the president’s choice of his White House budget director to temporarily helm the CFPB threatened the agency’s ability to operate independently as designed. Among those siding with English was former U.S. Representative Barney Frank, a Massachusetts Democrat who co-authored the Dodd-Frank legislation with former Connecticut Senator Christopher Dodd.

CFPB Political Circus Hits Day Two With More Memos, Protests

The CFPB leadership fight comes as the appeals court in Washington has before it a case where the fate of the agency is at stake. A New Jersey mortgage company sued the bureau two years ago after being hit with $109 million in penalties. Attorneys for PHH Corp. claimed the CFPB and Cordray wielded so much unchecked power it actually violated the U.S. Constitution.

While a three-judge panel agreed the bureau was unconstitutionally structured, it stopped short of ordering its dismantling. Instead it made Cordray fireable for any reason, whereas he could previously only be dismissed for cause. The CFPB won the right to reargue the case before an 11-judge panel and did so in May. The court hasn’t issued a ruling.

Mulvaney arrived at the bureau Monday bearing doughnuts for staffers and a message that they should disregard any instructions received from English.

She sent a message, telling its employees she was honored to be working with them and identified herself as acting director.

"Mulvaney is in office as the acting director," Shumate said.

Gupta told Kelly at Tuesday’s hearing that his client received an emailed reprimand for her actions from Mulvaney. That message was chilling her ability to function even as deputy director, he told the court. She hasn’t been threatened with dismissal, the attorney said.

The case is English v. Trump, 17-cv-2534, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Andrew Harris in Washington at aharris16@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Paul Cox, Joe Schneider

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