Cordray and Trump – Round 2

Consumer Financial Protection Bureau Director, Richard Cordray, has evaded termination at the hands of President Trump-at least for now.

On January 12, 2017, the Trump administration gave a clear sign that it intended to dismiss Mr. Cordray.  Although Mr. Cordray technically has a term that stretches until July 2018, President Trump has already interviewed former Texas Representative Randy Neugebauer for Mr. Cordray’s position.  President Trump’s spokesman, Sean Spicer, announced that the interview had occurred during a January 2017 conference call with reporters, showing that the President Trump wasn’t exactly keeping his plan to replace Mr. Cordray “under wraps.”

Under the Dodd-Frank Act, Mr. Cordray can only be fired “for cause.”  However, In October 2016, the United States Court of Appeals for the District of Columbia Circuit ruled that it was unconstitutional for the CFPB Director to be removable by the President of the United States only for cause, such as “inefficiency, neglect of duty or malfeasance.”   12 U.S.C. § 5491(c)(3). This leadership structure, according to the D.C. Circuit panel decision, conferred power on the agency that was “massive in scope” and made the CFPB “unaccountable to the President.”  Circuit Judge Brett Kavanaugh, and Judge A. Raymond Randolph, wrote that the law was “a threat to individual liberty” and instead found that the President could remove the CFPB director at will. This paved the way for President Trump to potentially fire Mr. Cordray for no reason whatsoever.

Fortunately for Mr. Cordray, on February 16, 2017, the D.C. Circuit granted the CFPB’s petition to rehear, en banc, the same court’s October 2016 decision.  An en banc session is a session in which a case is heard before all the judges of a court rather than by a smaller panel of judges from that same court.  This February 16, 2017 ruling effectively stays the October 2016 decision which would have given the President cart blanche to terminate Cordray.  Because of this latest ruling, the procedure governing the removal of the director reverts to the original framework under Dodd-Frank, which provides that the director can only be removed “for cause,” meaning for “inefficiency, neglect of duty, or malfeasance in office.” 12 U.S.C. § 5491(c)(3).  For the time being, then, President Trump will need a significant justification to lawfully fire Mr. Cordray.

The case underlying the potential shake-up at the CFPB began in 2014, when the CFPB commenced an administrative enforcement action against PHH, accusing it of violating Section 8 of the Real Estate Settlement Procedures Act (RESPA).  Director Cordray levied an enormous, $109 million fine against PHH.  Not surprisingly, PHH appealed the decision.   PHH raised several statutory arguments with the D.C. Circuit on appeal, one of them being a challenge to the constitutionality of the CFPB’s single-director structure.

Oral argument with the en banc court is scheduled to be heard on May 24, 2017.  However, a final decision is unlikely to come for many months.  In the meantime, some commentators have noted that President Trump is already building a case against Mr. Cordray.  Mr. Cordray, for his part, has indicated that he does not plan on stepping out of his role.  Ultimately, however, Mr. Cordray does not have much choice in the matter if the en banc group of judges agree with the prior ruling issued by the smaller panel.