Loyola University: Loyola University Chicago



Who is in Charge at the Consumer Financial Protection Bureau?Jacob MorseStudent Fellow Institute for Consumer Antitrust Studies Loyola University Chicago School of LawIntroductionMore than ten years later, many are still reeling from the effects of the 2008 financial crisis. Of course, the “many” mentioned in the previous sentence does not refer to financial institutions, most of which have recovered to pre-recession levels. Despite the recent worries of an impending recession, what is different today is that there is now one centralized agency tasked with the supervision, rule-making, education, and enforcement of the consumer financial laws—the Consumer Financial Protection Bureau (“CFPB” or “Bureau”). Despite the Bureau’s noble purpose, however, many have questioned if the CFPB has actually been doing its job since the departure of its first Director, Richard Cordray. Indeed, in 2018, the number of public enforcement cases declined about 80% from the Bureau’s peak productivity in 2015. More specifically, there were only 11 public enforcement cases in 2018 compared to 55 in 2015. Likewise, the average amount of monetary relief per case that was awarded to victims of illegal consumer financial practices declined by approximately 96% in 2018 compared to 2015. In addition, the Bureau filed no fair-lending enforcement actions in 2018, nor did it refer any Equal Credit Opportunity Act cases to the Department of Justice.While it may be impossible to definitively say who is to blame for this change in enforcement, one possibility may be a group of new officials at the Bureau—Policy Associate Directors. Policy Associate Directors are political appointees whose role was created by then-Director of the Bureau, Mick Mulvaney, in 2018. Policy Associate Directors do not face senate confirmation, and Mr. Mulvaney created their role while he was simultaneously holding two jobs in the administration. Before Mr. Mulvaney appointed these Policy Associate Directors, many offices in the Bureau, including the Office of Supervision, Enforcement, and Fair Lending, were led by Associate Directors, who are career civil service employees. Now, according to the Bureau Structure chart on the CFPB’s website, Policy Associate Directors appear to lead the offices they are assigned to (including enforcement), and, indeed, appear to be organizationally superior to the Associate Directors who formerly led these offices. In addition, even after Mulvaney left the Bureau, the Policy Associate Directors have stayed on under the current Director, Kathy Kraninger.Unfortunately, the Bureau has released very little information regarding the authority enjoyed by Policy Associate Directors, or even what their duties are at the Bureau. While the Bureau’s cursory description of Policy Associate Directors ostensibly shows that they serve in advisory roles at the CFPB, the reality of their roles may be more complicated. The Dodd-Frank Act did not contemplate a role for these political appointees at the Bureau and there is accordingly no statutory provision that limits the amount of time Policy Associate Directors may remain at the agency. Moreover, the CFPB is required under Dodd-Frank to send semi-annual reports to Congress detailing “significant initiatives” the Bureau has undertaken during that semi-annual period. No semi-annual report has included a mention of Policy Associate Directors, which raises questions of why the Bureau seems to be keeping Congress in the dark about them. In light of the Bureau’s complete opaqueness regarding Policy Associate Directors, the enforcement statistics must speak for themselves. While enforcement has increased to 21 public cases to date in 2019, a closer look at new actions suggests that the uptick did not occur immediately after the new Director, Kathy Kraninger, took office in December 2018. The Policy Associate Director for enforcement remained at the Bureau through April 2019, and, following a lengthy investigation, his departure was announced in May 2019. Between January and April of 2019, the Bureau brought only six enforcement actions—averaging 1.5 per month—no actions in March or April, and no fair lending actions. In contrast, from May through October, the Bureau has brought 15 enforcement actions—averaging 2.5 per month—with at least one every month, and a fair lending action in June. This recent increase in enforcement occurred after the Policy Associate Director left and while this position remained unfilled. As such, it is fair to assume that the Policy Associate Director may have been responsible for the continued low rate of enforcement actions in early 2019.These numbers suggest that Policy Associate Directors may be acting without proper oversight or supervision from the Director. That is to say, there appears to be a risk of an improper delegation of authority from the Director to the Policy Associate Directors, who might be making Director-level decisions without any meaningful supervision from the Director herself. If this is the case, it raises a question: would Policy Associate Directors act as “Officers of the United States” under the Appointments Clause, without having been properly appointed?Legal RequirementsArticle IIArticle II, Section 2, Clause 2 of the United States Constitution states: [A]nd [the President] shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.The heart of the Appointments Clause is accountability in our government. Conscious that the blame of a bad nomination would fall squarely on the President if s/he had the sole appointments power, Alexander Hamilton observed that bifurcating the appointments power prevents the public from losing faith in the executive should an appointee become a bad one. Hamilton similarly explained that vesting the appointments power in both the President and the Senate creates a system that encourages a “judicious choice of men for filling the offices of the Union.” Likewise, Thomas Jefferson wrote soon after his inauguration, “[t]here is nothing I am so anxious about as good nominations, conscious that the merit as well as the reputation of an administration depends as much upon that as on its measures.”The purpose and importance of the Appointments Clause has not been ignored by our Supreme Court either. In the Court’s most recent decision in the Appointments Clause arena, Lucia v. S.E.C., the Court considered the appointments scheme of Administrative Law Judges, whom the Court deemed to be inferior officers. In Lucia, Justice Thomas’ concurring opinion succinctly explained, “[t]he Appointments Clause maintains clear lines of accountability—encouraging good appointments and giving the public someone to blame for bad ones.” Further, Thomas went on to explain that the Clause strikes a balance between accountability and efficiency by allowing for the alternative appointments process of inferior officers, as it would be impractical for the President and Senate to jointly participate in the appointments process of every officer. Likewise, it is important to remember the comparatively few officers within the federal government. The Appointments Clause only applies to officers, not employees, who are “lesser functionaries subordinate to officers of the United States.” As explained in Lucia, officers are “a class of government officials distinct from mere employees.” Employees have less discretion than officers, so it less important that they go through Article II procedures in order to work for the United States. As such, a government official is either an officer or an employee.Dodd-FrankAs an initial matter, there is a question of whether Dodd-Frank actually vested the Director with the authority to appoint officers. To reiterate, the Appointments Clause mandates that principal officers must be appointed by the President and confirmed by the Senate—no exceptions. Inferior officers, however, may be appointed by President, courts of law, or heads of departments without senate confirmation if Congress vests the authority to do so in one of these three bodies. Dodd-Frank created an office of the Director of the Bureau (a principal officer), a Deputy Director (an inferior officer), and the Act gives the Director the authority to, “fix the number of, and appoint and direct, all employees of the Bureau” (emphasis added). That is to say, Dodd-frank does not give the Director the authority to appoint any officer of the United States besides the Deputy Director, and, thus, Congress never vested this authority in the Director of the CFPB. While Dodd-Frank does generally allow the Director to delegate her duties to subordinates such as “employees” or “agents,” it does not contemplate a Director unilaterally creating politically appointed offices, nor does it anticipate additional officials making officer-level decisions with respect to enforcement. This is what appears to be happening with Policy Associate Directors.As such, because Congress never vested the power to appoint officers in the Director, the Director does not have the authority to appoint Policy Associate Directors who are making officer-level decisions without meaningful supervision. Accordingly, even if these political appointees qualify as inferior officers, Policy Associate Directors lack the statutory and constitutional authority to perform the work of an officer. This idea could foreseeably face a counterargument attacking the interpretation of the word “employee” in Dodd-Frank, arguing instead that Congress intended to vest the Director of the CFPB with plenary power to shape the Bureau to her likeness, subject to the comparatively few mandates of the Bureau established by Congress in the Act. Any argument, however, that attacks the meaning of the word “employee” in Dodd-Frank overlooks the basic rule of statutory interpretation that courts must first look to the ordinary meaning of disputed words. Dodd-Frank’s grant of authority to the Director is straightforward; even looking at the word “employee” in context does not cure the defect in this counterargument. An employee is an employee, and, by definition, not an Officer of the United States.This argument is consistent with the original intent of the Framers’ in adopting the Appointments Clause. By separating the appointments power into two branches of government and compelling senate confirmation of officers, citizens would be able to hold the government accountable. With the Framers’ intent in mind, it is clear that Policy Associate Directors are exactly the type of government official that should be subject to the mandates of the Appointments Clause, and, by extension, the type of government official for whom the administration must be held accountable. AnalysisThe question then, of course, is whether Policy Associate Directors qualify as Officers of the United States. The stark drop in enforcement actions in 2018 continued beyond Mick Mulvaney’s tenure and did not bounce back until after the Policy Associate Director in charge of enforcement resigned earlier this year. This pattern strongly suggests that the Policy Associate Director was the one making enforcement decisions. In other words, the Director of the Bureau seemingly was not the one making enforcement decisions, and instead delegated these decisions to Policy Associate Directors without performing any meaningful supervision. The Director of the Bureau has the authority to delegate her decision-making power, which is a necessary function of any executive agency; however, this is premised on the idea that heads of departments will ultimately make high-level decisions, such as those that may bind the government. Heads of departments cannot unilaterally delegate their principal-officer-level decisions wholesale to subordinate officials without supervising or directing them, as such delegation would run afoul of the mandates of the Appointments Clause. Here, it appears that the Director may be doing just that: if CFPB enforcement drastically decreased during the tenure of the Policy Associate Director in charge of enforcement, and enforcement subsequently increased following the departure of that Policy Associate Director, while that office has been vacant, no less, then it at least appears that there has been an improper delegation of authority from the Director to Policy Associate Directors. In fact, on October 17th, 2019, when being questioned about certain decisions made by the Bureau to settle enforcement actions for comparatively little amounts of money, Director Kraninger in her congressional testimony actually stated that the “opening decision” and “closing decision” of cases is made by staff within the Bureau. Taking the Director’s testimony at face value, it appears that there is no real oversight of Policy Associate Directors in their capacity as heads of the offices they oversee, and therefore they are the ones making officer-level decisions.It is equally important to reiterate the CFPB’s abject opaqueness regarding the role of Policy Associate Directors at the Bureau. First, there was not so much as an announcement of the role of Policy Associate Directors at the CFPB; the closest the Bureau has come to discussing the role came in the form of off-hand comments made by Mick Mulvaney in his capacity as acting-director of the Bureau. Calls to the Bureau to inquire about the duties of Policy Associate Directors have not been returned. Moreover, the CFPB is required by Dodd-Frank to submit semi-annual reports to Congress disclosing “significant initiatives.” Since the creation of Policy Associate Directors at the Bureau, no report has made any mention of their existence, much less their duties, responsibilities, and authority. This in itself appears to be unlawful, but it is not the topic of this article. It does, however, illuminate the steps that the Bureau has taken under recent and current leadership to keep Policy Associate Directors in the shadows. Failing to provide meaningful descriptions of their role to the public is one matter, but affirmatively choosing not to report their creation to Congress raises even more questions about Policy Associate Directors.The CFPB is a particularly interesting agency in that its activities affect nearly all Americans. Because the Bureau has authority over any person or entity that provides some sort of consumer financial product or service, and because a vast number of Americans have some sort of credit, then, by extension, the CFPB’s actions—and inactions—affect vast numbers of Americans. Unfortunately, the current CFPB appears to be acting antithetically to its statutory purpose. Dodd-Frank mandates that the CFPB “regulate the offering and provision of consumer financial laws,” partially through enforcement, and yet, the Bureau simply isn’t enforcing the law anywhere near as much as it did just a few years ago. Given the Bureau’s unique position in our government, and given that the Bureau is simply not doing its job, it is crucial that officials making enforcement decisions be held accountable to citizens. Without any transparency from the CFPB, it is impossible for citizens to hold the government accountable, which is why it is equally crucial that Congress take action on this issue. Indeed, Congress should insist upon transparency. Congress can use its investigative powers to find out who exactly is making the officer-level decisions at the CFPB, thereby eliminating any doubt surrounding the role of Policy Associate Directors. Especially in light of Director Kraninger’s recent testimony before Congress, it is imperative that Congress figure out what officials at the agency are making enforcement decisions.Moreover, while the Bureau has excluded Policy Associate Directors from its semi-annual reports, Congress can also amend Dodd-Frank to mandate more specific disclosures of new positions created at the Bureau—even though this arguably should be included under the current statute. Congress can further amend Dodd-Frank to altogether prevent Directors from creating new politically appointed positions in the Bureau. With these pressing questions concerning an agency that affects vast numbers of Americans, the abject lack of transparency at the CFPB is unacceptable. A system without accountability is antithetical to the Framers’ reasons for including the Appointments Clause in the Constitution.ConclusionGiven the historical foundations of the Appointment Clause and its requirements of accountability in our government, and given the drastic drop in enforcement actions by the CFPB, the existence of Policy Associate Directors at the agency is no small issue. Congress should care about the decisions delegated to unappointed officers such as Policy Associate Directors in order to hold the agency and its Director accountable. Our government and its officers must be accountable in order to uphold the integrity of our democracy. Thus, the risk that Policy Associate Directors make officer-level decisions and yet took office without submitting to Article II’s appointments process portends the weakening of our constitutional democracy. While it is not certain that Policy Associate Directors at the CFPB are acting without oversight, the Bureau has failed to disclose the role of these political appointees at the agency. It is now incumbent upon Congress to insist on transparency from the CFPB. Since the Policy Associate Directors were implemented at the Bureau, the considerable decline in enforcement and consumer relief alone provides reason to question their role at the CFPB. A good starting point would be to question how they got there in the first place. ................
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