Both Sides Are Wrong in CFPB Power Struggle

(Bloomberg View) -- President Donald Trump says he has the legal right to put his budget director in charge of the agency that enforces consumer protection rules for banks. Democrats say that the outgoing director gets to make the choice.

The dispute has turned into a messy partisan fight that's now being waged in federal court. So we'll find out shortly whether the judges can figure out why both sides are wrong.

Even if federal law turns out to favor Trump's claim that the president has the authority to pick a temporary director of the bank-regulation agency, the Consumer Financial Protection Bureau, it doesn't let him pick just anybody. It's Trump's particular choice of Mick Mulvaney, the White House budget director, that should hit a legal brick wall.

The bureau lost its director on Nov. 25 when the Obama-era chief, Richard Cordray, left to run for governor of Ohio. There's no dispute that Cordray's permanent successor is Trump’s to choose. The question before the court is who can pick an interim director to run the agency before the Senate confirms a permanent White House nominee.

Trump named Mulvaney to the interim post, citing presidential authority under a 1998 federal law that governs the filling of temporary vacancies. Democrats say that a different law, the Dodd-Frank legislation that created the consumer board after the 2008 financial crisis, puts the deputy director in charge automatically. She's Leandra English, and she's the one who dragged Trump and Mulvaney into court.

The problem with the case is that both the combatants and the judges are focused on the wrong question. Even if Trump is right that the interim authority is his, he shouldn't be allowed to select a sitting member of his administration. (I've made this argument in much more legal detail in a friend-of-the-court brief filed on Dec. 8 in the federal district court in Washington.)

The reason is that Congress specifically created the consumer agency to be what it called “an independent bureau.” That's an ambiguous term but still a legally meaningful one.

Courts and legal scholars have said that independence revolves around the relationship between a president and an agency’s leader. If the president has direct control of a public official, that person can't run an independent government body like the U.S. Federal Reserve, the Office of Special Counsel, or the Federal Trade Commission.

As budget director, Mulvaney reports directly to Trump, who has sole authority to fire him. That's not independence by any definition.

And Trump has already made it clear that he intends to control Mulvaney's actions at the CFPB. Responding to reports that Mulvaney was considering revisiting penalties that the agency had imposed on Wells Fargo & Co. for defrauding customers, Trump tweeted this:

Donald J. Trump @realDonaldTrump
Fines and penalties against Wells Fargo Bank for their bad acts against their customers and others will not be drop…
Twitter: Donald J. Trump on Twitter

That's not independence, either. And it creates a legal problem for Trump. Congress gave the authority to investigate Wells Fargo to the CFPB and other independent banking regulators, not to the president. It’s up to them, not him, to determine whether banks have committed “bad acts against their customers” and the extent of the “fines and penalties” that should be imposed.

Trump remains free to pick somebody who shares his hostility to bank regulation; he just can't pick a direct report. He'd be safe, for example, selecting Republicans like Jerome Powell or Randal Quarles, two Federal Reserve governors who are probably sympathetic to the GOP critique of overregulation. Under them, the CFPB could still continue as an independent entity, even with significantly altered policy priorities.

If Congress wants to redesign or abolish the CFPB, it can do it and face the political consequences. If Trump wants to nominate someone he hopes will radically change the agency’s priorities, he can do that, too, and face the political consequences. What the law forbids Trump from doing is precisely what he has done.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Peter Conti-Brown is an assistant professor at the Wharton School of the University of Pennsylvania. He is a financial historian and legal scholar and the author of "The Power and Independence of the Federal Reserve."

To contact the author of this story: Peter Conti-Brown at

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