« Trump Post Office Mechanic's Liens | Main | Bankruptcy Rate Rises in December . . . A Blip and Not a Blip »

The Real Reason Behind the Calls for Firing Richard Corday (and the Costs of Doing So)

posted by Adam Levitin

The calls for Donald Trump to fire CFPB Director Richard Cordray are getting louder (see here and here). It's worthwhile understanding what's really afoot here. Cordray's term as CFPB Director expires in July 2018, so firing him in January 2017 doesn't seem to accomplish a lot.  If Cordray is fired, the Deputy Director automatically becomes the Acting Director and is fully empowered to do everything that the Director would otherwise do, until and unless a replacement Director is confirmed by the Senate (or recess appointed), a process that will take a while.  So we're probably talking about speeding up Republican control of the CFPB by less than a year.  Does that really matter?

Actually yes. It is hugely important to the financial services industry in general and to the payday lending industry in particular. The CFPB has two major rule makings pending, one restricting binding mandatory pre-dispute arbitration clauses that are used to prevent class actions and a second imposing an ability-to-repay requirement on payday and auto title loans. It is not clear when the CFPB will publish final rules on the topics; there is some speculation that the arbitration rule might be out before Inauguration Day. But the thinking is that a change in CFPB leadership might come in time to stave off these rule makings.  (Note that both rulemakings would be subject to Congressional override under the Congressional Review Act, but it's quite possible that a few Republicans in the Senate defect on both rulemakings.) In other words the calls to remove Cordray aren't about real outrage over dated employment discrimination allegations at the CFPB, but just shilling for the financial services industry, which is trying to head off the payday and arbitration rulemakings. 

One can see the appeal to a Trump administration of firing Corday. It's a chance for Donald to parade out his trademarked "you're fired" line and to quickly claim a victory and please part of its base. I would hope, however that the Trump administration has good enough counsel to recognize that there is real risk from attempting to fire Cordray, such that the cost of firing Corday is likely to outweigh any benefits. Put in Trump terms, it's a bad deal. 

"The President may remove the Director for inefficiency, neglect of duty, or malfeasance in office." In other words, it's not quite as simple as just saying "You're fired."  To remove Cordray from office "for cause", Trump would need to be able to articulate the cause, and Cordray could contest such a removal. 

Given the opinion pieces that are popping up urging the removal of Corday, the putative cause for his removal is likely to be past employment discrimination allegations at the CFPB. As an initial matter, let me just quote Eric Levitz in NY Magazine, who pithily observed that "no one can doubt the sincerity of the Republican Party’s commitment to equity in the workplace". 

Still, if the employment discrimination allegations are supposed to be the basis for removal, there are a pair of pretty glaring problems. First, these are just allegations (just like the housing discrimination claims against the President-elect). The truth of the matter has not been determined. The GAO report on the matter did not reach any conclusions on the ultimate merits of the discrimination claims. Indeed, it states, "It is important to note that our survey collected employees’ subjective perceptions of whether or not they had experienced discrimination or observed favoritism and we did not take steps to substantiate individual claims of discrimination or favoritism," much less attempt to determine on any statistical basis whether there were pay differences driven by race or gender. (GAO Report, p.23, n.30). The GAO's criticism of the CFPB was that it did not implement "mandatory diversity training and the creation of employee diversity groups" until 2015. (For more, see also my previous post on this.) If that's all there is, then it hardly seems like "inefficiency, neglect of duty, or malfeasance in office."

Now I don't know the truth of the matter regarding the employment discrimination claims, but neither would the Trump administration, which wouldn't have any further information on the truth of the matter as of Inauguration Day (this isn't the type of information that is likely to be covered in the transition). If the Trump administration wanted to investigate the matter further, it presumably could do so in some fashion, although it's not clear to me what that channel would be.  In any case, it isn't a process that could start until after the inauguration. That means that the employment discrimination allegations as they currently stand really don't provide any basis for removal. 

Second, even if the employment discrimination allegations were sufficient grounds for removal, they pre-date Cordray's confirmation by the Senate in July 2013. I don't know of any law explicating the issue, but it seems pretty obvious to me that the for cause removal provisions apply only to cause that arose while in the current office. The phrase "in office" refers to the current term of office. In other words, Cordray's Senate confirmation wiped the slate clean in terms of "for cause". 

Now you might well say, "so what?" The Trump administration isn't likely to care if the allegations are true or not. Cordray might litigate, but Trump can still claim victory immediately no matter the ultimate resolution. 

If that's the view the Trump administration takes, it is being very short-cited. As noted above, removing Cordray does not cripple the CFPB, and it doesn't result in a GOP-appointed Director substantially sooner. 

There's also a real cost to trying to remove Cordray for cause. It comes in four possible forms.

  • First, it will poison Trump's relations with Democrats on the Senate Banking Committee and with Democrats more broadly.
  • Second, Cordray could contest his removal (and I would expect that he would). I would think there's a decent chance Cordray could get his removal temporarily enjoined, and while there's pending litigation I can't see the Senate moving on confirming a nominee to a position that might not be open. (Indeed, I wonder such a process is enjoyable--there might be separation of powers concerns.) But most critically, if Corday were to litigate his removal, he would be able to get discovery on the Trump administration, including on the President (because after all it is the President who makes the ultimate removal decision). That means his attorneys would get to depose the President and everyone else involved in the removal decision, as well as see the entire associated paper trail. That could be incredibly embarrassing for the President and his advisors. Indeed, I would expect one of two things to emerge:  either there would be a very clear paper trail running from a set of law firms and financial institutions preparing a dossier on Cordray that would have been accepted hook-line-and-sinker, or there will be no paper trail at all, which will make it very hard for the administration to justify the removal. And I wouldn't count on being able to successfully make any sort of Presidential privilege claims about documents from the transition. 
  • Third, we might find out if the CFPB has been investigating any of the President's businesses. Remember Trump University and the President-elect's $25 million consumer fraud settlement? That was a private settlement. It didn't cover any liability to the government for violation of federal statutes. CFPB has jurisdiction over private student loans, including not only lenders, but "service providers" and "related parties" and critically, parties that provide "substantial assistance" to the commission of unfair, deceptive, and abusive acts and practices. Similarly, Trump has done condo developments--those are subject to the Interstate Land Sales Act, which is also under CFPB jurisdiction. CFPB investigations aren't public, so I have no idea if any of these issues are on the CFPB's radar, but if the CFPB had been investigating any sort of Trump enterprise when Cordray was removed, well, then we're in Richard Nixon territory, and that doesn't end well.   
  • Fourth, there is a very good chance Cordray would prevail in contesting his removal. That results in an ugly headline about the President having abused his power and acted arbitrarily to remove a good public servant in favor of the financial services industry. 

All told, then, the question is whether the Trump administration is willing to incur these costs for a rather limited political benefit that might not actually make any difference in terms of CFPB regulations?  I guess we'll see, but it will get very ugly if Trump goes down the removal route. 

Update: corrected date of Corday's confirmation (which was 2013, not 2014). 


Trump doesn't care if something is a bad deal. He cares if it's a bad deal for him personally in the near term (i.e. before he's had a chance to dump the liability on somebody else, his MO for over 40 years now). On point one, he doesn't care. He knows all those DLC/DNC prostitutes will ultimately do what the financial sector tells them to do. He's probably hoping points two and four happen because they will give him a chance to thump his chest for his constituency and claim that judicial activism is preventing him from "making America great again." Point three is a risk whether he moves against Cordray or not, and if the information remains buttoned up while Cordray remains untouched, then it's Cordray who looks bad, not Trump.

I suspect Trump isn't worried about any possibility that CFPB is investigating any of his business activities. If info about such an investigation were to come out after the administration takes some action against Cordray, Trump will simply charge that the investigation, or at least the timing of the release of info about it, is retaliatory and politically motivated, etc., and he will probably get enough people to believe him that it will work. Sadly, he has learned that people's experience with real lies and dirty tricks can be used to support fake claims of lies and dirty tricks. Look at how he has used the Iraq War WMD misinformation to undermine the intelligence community on Russia.

As you know, the DC Circuit has determined that the provision requiring cause for the President to remove the CFPB Director is unconstitutional.

While the CFPB has requested en banc review of the decision, and the ruling is stayed pending such review, it seems that the eventual outcome of that case is highly relevant in determining whether (from a political point of view) firing Cordray makes sense for Trump.

The court invited the Solicitor General to take a position on the issue and it is an interesting question what the SG has done in response and whether a new SG would have a different response.

Quill--you're right that there are two separate tracks at play. The DC Circuit litigation is likely to play out more slowly than any sort of for-cause dismissal attempt. It will likely take a while before the DC Circuit both agrees to hear en banc, hears the case, and then any subsequent appeal is addressed.

There's a question about whether there'll be a change in position by the SG's office, but also if there is a SCOTUS appeal, whether the Trump DOJ will allow the CFPB to appear. The CFPB has independent litigation authority up to, but not including SCOTUS. It's possible that if the CFPB isn't allowed to appear that the Supreme Court would appoint an amicus to argue the case.

Also, fwiw, other courts have previously dismissed claims about the CFPB's constitutionality.

The comments to this entry are closed.


Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.



  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless ([email protected]) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.