Once again, Mick Mulvaney dropped a bomb on the agency he oversees, and once again it drew strong reactions.

Critics of the Consumer Financial Protection Bureau have supported the acting director's efforts to restructure the agency, but Mulvaney's latest salvo — proposing in the agency's semiannual report that all CFPB rules be subject to congressional approval, among other recommendations — left many observers stumped if not outraged.

"The bureau would be a very strange administrative body if its every rule is subject to direct congressional approval," said Jim Hawkins, a law professor at the University of Houston Law Center.

Mick Mulvaney, director of the Office of Management and Budget and acting-director of the Consumer Financial Protection Bureau.
In the CFPB's semi-annual report to Congress, acting Director Mick Mulvaney also called for the CFPB to be funded through congressional appropriations, for the CFPB director to answer to the president, and for the creation of a dedicated inspector general for the agency. Bloomberg News

In the CFPB's semiannual report to Congress, released Monday, Mulvaney also called for the CFPB to be funded through congressional appropriations, for the CFPB director to answer to the president, and for the creation of a dedicated inspector general for the agency.

Some attorneys questioned Mulvaney's call for congressional reviews in light of the fact that Congress already has veto power over bank regulations through the Congressional Review Act. Lawmakers used that law — which only requires a simple majority to block regulations — last year to rescind the CFPB's arbitration rule, and another pending resolution before Congress would eliminate the agency's the payday lending rule.

Some suggested that Mulvaney's proposal could require a filibuster-proof majority to roll back rules, which is a higher hurdle.

"I wonder if he considered that a requirement for getting legislative approval for all rules would mean that he would not be able to change the payday lending rule without gaining 60 votes in the Senate to do so — a rather Herculean task," said Alan Kaplinsky, the co-practice leader at Ballard Spahr's consumer financial services group.

Many said that requiring legislative approval for all CFPB rules would be tantamount to not permitting the CFPB to promulgate any major rules.

"If Congress had to approve rules before they were issued, that would halt most if not all substantive CFPB rulemaking," said Richard Horn, a former CFPB senior counsel and special adviser, and principal at Richard Horn Legal in Tucson, Ariz.

Kaplinsky said such a restriction would have unintended consequences for financial institutions.

"While the consumer financial services industry has often opposed prior rules adopted by the bureau, two perfect examples being the arbitration and payday lending rules, the industry sometimes needs the bureau to issue rules in order to create more certainty in what is lawful and what is not lawful," Kaplinsky said.

But others said some of Mulvaney's recommendations had merit.

Robert Jaworski, of counsel at Reed Smith, said "the CFPB is largely accountable to no one, which goes against the grain of the system of checks and balances established in the Constitution."

"We need to be careful in giving investigative, prosecutorial and adjudicative powers to an administrative agency headed by a single individual," said Jaworski, who agreed that the CFPB's budget should be tied to appropriations and that the director should be accountable to the president. He also said having an independent Inspector General was "a worthwhile idea."

In a two-page introduction to the semiannual report, Mulvaney called the CFPB "far too powerful," and quoted James Madison from the Federalist Papers in alleging that the agency met "the very definition of tyranny."

With Mulvaney set to testify before the Senate Banking Committee next week, critics of his leadership said his four "recommendations to Congress" could be intended as a distraction from other more pressing issues facing the agency. Those include his alleged ties to companies under the agency's watch.

"Mulvaney is trying to detract attention from ethics questions that have been raised about his personal connections to certain payday lenders," said Adam Levitin, the Agnes N. Williams Research Professor at Georgetown Law School.

Levitin said Democrats would balk at the proposals, which are highly unlikely to be added to the current bipartisan regulatory relief package moving through Congress.

"None of Mulvaney's proposals have any chance of moving legislatively. If they tried to load any of these ideas onto regulatory relief, the bill would sink," he said.

Meanwhile, other aspects of the reports gave clues of how the CFPB plans to regulate under the Trump administration.

The first topic featured in the 56-page report addressed so-called credit invisibles, who are consumers with little or no access to credit and are considered subprime borrowers.

Jenny Lee, a partner at Dorsey & Whitney and a former CFPB enforcement attorney, said such borrowers have overlap with consumers who use payday and installment loans.

"This to me is a harbinger for future regulation of products and services for consumers without access to credit or consumers with subprime or deep subprime credit histories," said Lee. She called it "a signal" that the bureau will make it easier for consumers to access credit markets.

Many of Mulvaney's supporters were surprised that he dropped any suggestion that the CFPB should be remade into a bipartisan commission. Until that happens, some said, the agency will be operating like a seesaw, moving back and forth between two political ideologies.

"Unless and until there are structural changes at the CFPB, there will continue to be drastic swings in the priority and mission of the agency," said Allen Denson, a partner at Hudson Cook.

Denson cited the CFPB's payday lending rule as an example, noting that the semiannual report touted the publication of the rule under former CFPB Director Richard Cordray, and then, just pages later, touted the reconsideration of the rule under Mulvaney.

House Republicans, led by Financial Services Committee Chairman Jeb Hensarling, R-Texas, had spent years demanding that the CFPB be remade into a commission, but they have largely abandoned that idea now that a Republican president has the chance to appoint a CFPB director to a five-year term.

"The bureau needs a solid structure which provides more consistency rather than it succumbing to vast swings in policy with every new director," said Joann Needleman, a member at Clark Hill.

Consumer advocates said Mulvaney's proposals, if enacted, would gut the bureau.

"Acting Director Mulvaney’s proposed changes would stab a knife through the heart of the CFPB’s mandate to protect consumers from financial industry abuses," said Lisa Gilbert, vice president of legislative affairs at Public Citizen. "The CFPB’s report drives home all the obvious reasons that it is a terrible idea to have someone who disagrees with an agency’s mission in charge of that agency. Mulvaney’s goal here is clear: to block, defund and politicize the protections Dodd-Frank finally gave Main Street Americans."

Kate Berry

Kate Berry

Kate Berry covers the Consumer Financial Protection Bureau for American Banker.