Under a dubious statute, the CFPB head can be dismissed only for cause—but there’s plenty of it.
By David B. Rivkin Jr. and Andrew M. Grossman
April 13, 2017, in the Wall Street Journal
The greatest mystery in Washington involves not Russian spies or wiretaps but Richard Cordray’s continued employment as director of the Consumer Financial Protection Bureau. In the face of President Trump’s mandate for change, Mr. Cordray continues the Obama administration’s regulatory crusade against lenders, blocking access to the credit that supports so many small businesses and so much consumer spending.
Why would a president who made a TV show out of firing underlings now suffer a subordinate who refuses to get with the pro-growth agenda he campaigned on? If reports from the West Wing are to be believed, Mr. Trump’s unusual timidity is the result of overcautious legal and political advice.
Mr. Cordray is insulated from presidential control by a New Deal-era innovation: a statutory clause that allows the president to fire an independent agency head only “for cause,” meaning “inefficiency, neglect of duty, or malfeasance in office.” In October a three-judge panel of the U.S. Circuit Court of Appeals for the District of Columbia struck down that restriction an infringement of the president’s constitutional authority to “take care that the laws be faithfully executed.”
When Congress created the CFPB by passing the Dodd-Frank Act of 2010, Judge Brett Kavanaugh explained, it broke with decades of historical practice. Generally the power of independent agencies is diffused among multiple commissioners or directors so as to reduce the risk of abuse. Unless he can be fired, Mr. Cordray, as the sole director of the CFPB, wields more unilateral power than any government official save the president.
The panel’s decision, however, was set aside in February when the full 11-judge court voted to rehear the case. White House lawyers are reportedly waiting to see how the litigation unfolds—a process that could go well past the end of Mr. Cordray’s term in mid-2018.
But it is a mistake to regard the twists and turns of that appeal as a reason to give Mr. Cordray a reprieve. Whatever the D.C. Circuit ultimately decides, no one disputes that the president may dismiss the CFPB director for cause. And the evidence is ample to support firing Mr. Cordray, on all three grounds permitted under law:
• Inefficiency. Regulation, the Supreme Court has recognized, should seek to maximize economic efficiency through cost-benefit analysis. Yet the CFPB has pursued an agenda at odds with any clear-eyed view of economic growth and efficiency.
Its rules have made community banks and credit unions more reluctant to issue mortgages, particularly in rural areas, and accelerated consolidation of the industry, reducing competition. Its regulations have limited access to checking accounts, credit cards and other financial products, driving vulnerable Americans to depend on riskier sources of financial services and credit. The agency has even worse policies in the works, such as limits on consumer arbitration and payday lending.
Taken as a whole, the CFPB’s heavy-handed approach to regulation and enforcement has driven up the cost of borrowing, to the detriment of consumers and small businesses.
More prosaically, Mr. Cordray’s CFPB has botched basic administrative procedures meant to ensure efficiency in regulation. About a third of its rules were finalized before being published in the agency’s Unified Agenda, depriving the public of valuable notice and frustrating the regulatory review process. That haste has also led to serious errors: About a quarter of the CFPB’s rules have required correction after being finalized. Further, Mr. Cordray has specifically embraced “regulation through enforcement,” which forgoes orderly rule making entirely in favor of imposing penalties for newly contrived “violations.” This is no way to run a financial watchdog.
• Neglect of duty. Mr. Cordray allowed tens of millions of dollars in cost overruns to pile up for a lavish renovation of the CFPB’s Washington headquarters.
The agency also missed the major consumer-finance scandal of the past decade. It ignored years of complaints about an epidemic of unauthorized customer accounts at Wells Fargo . The CFPB galloped in to exact a penalty only after an investigation by California officials and other regulators was complete.
• Malfeasance. What was the CFPB doing all that time? The bureau, it turns out, had spread its resources too thin, focusing on alleged discrimination in auto-dealer lending—an area that Congress specifically excluded from its purview. Not only did the agency run roughshod over that limitation, but its statistical analysis relied on dubious methods such as guessing borrowers’ race based on their surnames.
No such guesswork was required for the Merit Systems Protection Board and Government Accountability Office to find that the CFPB itself had become a hotbed of race and sex discrimination. As early as 2013, a report by Deloitte Consulting revealed that the agency’s internal performance reviews were biased against minority employees, many of whom also reported discrimination at the agency. Years later, claims of discrimination persist, particularly among black employees. Mr. Cordray failed to resolve these issues even years after initial reports.
Any of these things would be sufficient to dismiss Mr. Cordray for cause. All of them together make it necessary to do so.
If Mr. Cordray were to challenge his firing, we have little doubt the courts would support Mr. Trump. Assuming the courts even agreed that they have the power to review a presidential finding of cause for dismissal—which is far from established—they would still grant it substantial deference. The president would prevail, so long as he has documented his findings, explained his reasoning, and satisfied any due-process concerns by affording Mr. Cordray an opportunity to respond.
As far as Mr. Cordray is concerned, no further caution is required. What the president needs is resolve, and his famous TV catchphrase.
Messrs. Rivkin and Grossman practice appellate and constitutional law in Washington.