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Five big questions about Mulvaney-led CFPB

With leadership of the Consumer Financial Protection Bureau resolved by a federal court, the banking industry is eager to find out what interim head Mick Mulvaney plans to do once he gets a handle on the agency.

Mulvaney, who is also the director of the Office of Management and Budget, has pledged to change direction at the CFPB, focusing less on new rules and more on easing access to credit.

He has already instituted a 30-day hiring and policymaking freeze and is reviewing all rules and guidance, as well as pending enforcement actions and investigations. Though he has acknowledged that some final rules like the small-dollar payday lending rule are beyond his authority to change in the short-term, many in the industry believe otherwise and are gearing up to encourage him to change effective dates and reopen old rulemakings.

The task ahead for Mulvaney will not be easy or quick, however.

"An administrative agency can't just repeal rules that are in effect by fiat, and it can't ignore what Congress has instructed it to do," said Warren Traiger, senior counsel at Buckley Sander. "An agency can't just declare rules void; it needs to go through the same rulemaking process to amend or negate what's out there, and that process has to withstand the standard of not being arbitrary or capricious."

The mortgage industry in particular wants clearer guidance from the CFPB on a host of mortgage regulations mandated by the Dodd-Frank Act. The bureau is required to review some of its rules within five years after they take effect, which presents Mulvaney and the industry with an opportunity to change course.

"There will be tweaks to the rules overall, and opportunities for modifications to adjust issues of concern for the industry," said Quyen Truong, a partner at Stroock & Stroock & Lavan, and a former CFPB assistant director and deputy general counsel. "Overall it would take some time before any major changes are made to the existing rules or new rules or guidelines are adopted. I don't think that there will be major actions right away; there will be gradual modifications."

Following are five key questions now that Mulvaney is solidly in charge:

Mick Mulvaney, acting CFPB director.
With leadership of the Consumer Financial Protection Bureau resolved by a federal court, the banking industry is eager to find out what interim head Mick Mulvaney plans to do once he gets his arms around the controversial agency.

Mulvaney, who is also the director of the Office of Management and Budget, has pledged to change direction at the CFPB, focusing less on new rules and more on easing access to credit.

He has already instituted a 30-day hiring and policymaking freeze and is reviewing all rules and guidance, as well as pending enforcement actions and investigations. Though he has acknowledged that some final rules like the small-dollar payday lending rule are beyond his authority to change in the short-term, many in the industry believe otherwise and are gearing up to encourage him to change effective dates and reopen old rulemakings.

The task ahead for Mulvaney will not be easy or quick, however.

"An administrative agency can't just repeal rules that are in effect by fiat, and it can't ignore what Congress has instructed it to do," said Warren Traiger, senior counsel at Buckley Sander. "An agency can't just declare rules void; it needs to go through the same rulemaking process to amend or negate what's out there, and that process has to withstand the standard of not being arbitrary or capricious."

The mortgage industry in particular wants clearer guidance from the CFPB on a host of mortgage regulations mandated by the Dodd-Frank Act. The bureau is required to review some of its rules within five years after they take effect, which presents Mulvaney and the industry with an opportunity to change course.

"There will be tweaks to the rules overall, and opportunities for modifications to adjust issues of concern for the industry," said Quyen Truong, a partner at Stroock & Stroock & Lavan, and a former CFPB assistant director and deputy general counsel. "Overall it would take some time before any major changes are made to the existing rules or new rules or guidelines are adopted. I don't think that there will be major actions right away; there will be gradual modifications."

Following are five key questions now that Mulvaney is solidly in charge:
President Trump at a meeting where Nancy Pelosi and Chuck Schumer canceled their appearance
Is Mulvaney going to be a figurehead and leave the day-to-day operations to someone else?
Mulvaney told reporters this week that he would split his time between CFPB and OMB, working six days a week until President Trump can nominate a permanent successor who is confirmed by the Senate.

But many observers believe he will hand the reins of day-to-day operations to a trusted lieutenant, given the fact that the Trump administration is facing a looming potential government shutdown. Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi canceled a planned meeting with President Trump on Tuesday after the president said on Twitter that a budget deal was unlikely to happen. The two sides have until Dec. 9 to agree to a plan.

As head of OMB, Mulvaney is expected to be actively involved in those talks, making it unlikely he will be able to devote much time to CFPB issues in the near term. But if he plans to appoint a lieutenant, it is not clear yet who that will be.
Is the top management at the CFPB now working on borrowed time?
Though Mulvaney instituted a hiring freeze, the Trump administration's goal is to reduce the size of government agencies and eliminate regulations.

Just as Secretary of State Rex Tillerson has announced plans to cut his agency by at least 30% and Scott Pruitt, the head of the Environmental Protection Agency, has reassigned scientists and academics at the EPA, so too is Mulvaney expected to take the ax to what he considers a bloated bureaucracy.

Since most CFPB senior managers are not part of the agency's union, that makes them vulnerable to being ousted. Moreover, if they are suspected of being loyal to former director Richard Cordray, Mulvaney will have extra incentive to get rid of them.

There are three ways to get rid of employees at the CFPB: firing individuals for cause, instituting a reduction in the workforce or reassigning senior managers to different jobs.

No one is expected to be fired on the spot, said one former top CFPB official. More likely, Mulvaney or his lieutenants will sit down with managers and explain that they can keep their jobs if they are on board with the new regime, or be reassigned and stripped of their portfolio of duties.
Keith Noreika, acting Comptroller of the Currency
Will the CFPB reopen the payday rule?
Though Mulvaney has said he cannot change rules that have already been finalized, he could change the effective date of a rule or reopen it for public comment. Some expect that will happen with the recently finished small-dollar lending rule, which has a 20-month lead time before it goes into effect.

Mulvaney may also urge lawmakers to repeal the rule, which is expected to upend the payday lending business.

In October, the Senate repealed the CFPB arbitration rule after Keith Noreika, then the acting head of the Office of the Comptroller of the Currency, released data claiming it would be harmful to consumers. The arbitration rule was repealed with a tie vote cast by Vice President Mike Pence.

The politics of overturning the payday lending rule are trickier, however. Republicans were barely able to manage the votes to overturn the rule banning mandatory arbitration clauses in financial clauses for fear of appearing to be too close to the financial services industry. Many GOP lawmakers are expected to be reluctant to publicly support payday lenders, which have a bad reputation among much of the public.

A public appeal from the acting CFPB director could give them some cover, but it may not be enough. Ultimately, Mulvaney could give Congress time to take his own action if lawmakers don't move forward.
Real estate-home for sale
Will the CFPB delay implementation of the Home Mortgage Disclosure Act rules?
The Dodd-Frank Act required the mortgage industry to collect and report certain data on every mortgage including the ethnicity, race and sex of potential borrowers. The mortgage industry has spent years modernizing systems to meet a January 2018 deadline for new Home Mortgage Disclosure Act reporting.

That is unlikely to change.

"I would be very surprised if there were any changes or delays to implementation of the new HMDA collection and reporting requirements," Traiger of Buckley Sander said. "Especially for the many lenders who have invested millions in implementing the new rule, it would create a lot of operational headaches."

But lenders are also concerned about the CFPB's plans to make the vast majority of HMDA data public, beginning in 2019 (aggregate data is already public, but this would go further). That is one area ripe for change.

In September, the CFPB proposed excluding 11 data points, such as property addresses and credit scores, from being publicly disclosed, primarily to protect consumers' privacy and to make sure consumers cannot be individually identified.

Financial institutions are concerned that consumer advocates or media outlets would use the data to look at mortgage approval rates to allege discrimination against banks and lenders.

"It's certainly possible that the change in leadership at the CFPB could impact what is ultimately released to the public in 2019," Traiger said.
What's the plan for the CFPB's proposals on debt collection?
The CFPB began work in 2013 to fix abuses in the debt collection market after widespread complaints by consumers.

Due to issues in the governing statutes, the CFPB split its plan into two parts: one governing first-party and the other handling third-party debt collectors.

Of the two plans, only the latter has made the light of day. That plan drew criticism because it would have made third-party debt collectors responsible for the accuracy of information on consumer debts. In June, the CFPB announced it would drop that provision, leaving the originators of debt on the hook for the accuracy of information.

But the agency has been mum since. Moreover, it is no longer clear if it intends to move forward with either the third-party or first-party proposals, and it may ultimately choose to drop the matter entirely.