White House Memo Justifying CFPB Takeover Was Written By Payday Lender Attorney

The lawyer who wrote the Office of Legal Counsel memo supporting the Trump administration’s viewpoint that the president can appoint Mick Mulvaney as acting director of the Consumer Financial Protection Bureau represented a payday lender in front of the CFPB last year.

Steven A. Engel wrote the memo for OLC, which has been criticized by academics for seeking a conclusion and working backward to justify it. “Let’s be honest, this is an argument where you get the answer, and then you go to the other side of the equation,” said former Rep. Barney Frank, D-Mass., a lead author of the Dodd-Frank Act, which created the CFPB. Engel was confirmed as an assistant attorney general earlier this month by a voice vote in the Senate.

But in July 2015, Engel was one of two lead counsels for NDG Financial Corp., a Canadian payday lender that CFPB cited for running a nine-year scheme to use its foreign status to offer U.S. customers high-cost loans that were at odds with state and federal law. “We are taking action against the NDG Enterprise for collecting money it had no right to take from consumers,” said CFPB Director Richard Cordray at the time. Engel was active in the case up until August of this year.

The revelation underscores the extent of industry infiltration of the structure designed by Congress — a single permanent director who can only take office upon appointment by the president and confirmation by the Senate — to keep the consumer watchdog independent of the industry it is set up to regulate and buttresses the original intent of the lawmakers who established the agency.

CFPB alleged that NDG, which issues and collects payday loans online, made “false threats” to consumers that non-payment would result in wage garnishment, arrest, or imprisonment. The web of companies in the enterprise, situated in Canada and Malta, did not have the legal right to debit accounts to collect payday loans in the U.S., but they hid behind their foreign status to claim that they were exempt from various limitations and statutes. The case is still active in federal court in New York.

Engel represented the defendants in the case against CFPB as recently as this August, when U.S. District Judge Colleen McMahon asked judges in Canada to compel testimony from Canadian banks. At the time, Engel was a partner at the law firm Dechert. He was nominated to become an assistant attorney general for OLC in February of this year.

Having a former adversary to CFPB weigh in on who is the legal acting director of the agency raises questions over Engel’s independence and potential conflict of interest.

In the OLC memo, Engel argued that the Federal Vacancies Reform Act allows President Donald Trump to name Mulvaney as acting director of CFPB, instead of the current deputy director, Leandra English. In response, English has sued the president and Mulvaney, seeking an injunction to prevent the appointment.

The situation has caused chaos within the agency, which has the mission of safeguarding consumers against unscrupulous financial products. The CFPB’s general counsel, Mary McLeod, issued a three-page memo over the weekend agreeing with OLC’s take and saying that personnel should “act consistently with the understanding that Director Mulvaney is the Acting Director of the CFPB.” McLeod leaned heavily on the OLC memo in her analysis, which was bitterly contested by several legal scholars.

Some have suggested that internal politics played a role in the CFPB general counsel memo, with a split between those who want to play nice with the new regime and those who want to retain the agency’s independence. There is additional talk of unhappiness inside the building with the English selection over former acting deputy director, David Silberman.

Advocates of English as the proper director argue the House specifically made allowance for the Federal Vacancies Reform Act to govern succession in its version, while the Senate did not. In the conference committee, negotiators opted for the Senate version, which suggests Congress knew how to make the FVRA apply, but actively chose not to. McLeod called the argument “unpersuasive,” reasoning that the Senate language was chosen simply because its version of the directorship won out.

Frank told The Intercept that the Senate language was his preferred approach to begin with, but he never had the votes in the House due to turf issues with then-Energy and Commerce Chair Henry Waxman, D-Calif.:

The House version did not reflect what I wanted. Waxman was chair of the Energy and Commerce Committee, he was being turf conscious. He was concerned because the consumer bureau was being given more power than FTC, which was under his jurisdiction. He was worried that the CFPB would somehow overpower the FTC. I wanted to give them that power. Waxman wanted a five-member commission. I got a compromise of a single director to start, and then the commission. The Senate went with a single director. When we went to conference committee, I sort of gave in without a fight. So the Senate language is more relevant. I didn’t have the votes in the House for a single director. I did have them in the conference committee. The Senate language was a reflection of what Senator Dodd and I preferred.

The succession provision was part of Congress’s intent to keep the agency independent of the president, Frank said. “We gave the director unusual independence from the president, including a five-year term. This [provision] makes that effectual,” Frank said. “Our intention was to give a full five years of independence. This was part of it.”

Former Rep. Brad Miller, D-N.C., the lead champion of the CFPB provision in the House, also said it was the intent of the bill’s authors to keep the acting director independent of the president. “We were very much about the task of trying to create an independent agency that would not be captured by its opponents,” he said. “The statute’s pretty clear. What happens if there’s a vacancy in the director’s spot, the deputy director steps up and serves until the Senate confirms a replacement.”

Democrats, in the past, have respected the process for other agencies that have similar succession plans, including the Federal Housing Finance Agency. “We did the same thing with the FHFA. There was a desire to get rid of [then-FHFA Acting Director Edward] DeMarco,” Miller recalled in an interview with The Intercept. “We couldn’t find a way around it because the statute was really clear. It said if there was a vacancy, the statute requires Senate confirmation. The president just can’t appoint someone to serve. It’s the same thing here, there’s a clear statutory succession.”

The OLC, in the memo filed [over the weekend], to its credit, admits that the references to unavailability and absence encompass vacancy. They’re not trying to argue that the statute doesn’t cover this. They’re trying to have it both ways. They’re arguing that the president retains an option under the Federal Vacancies Reform Act to override subsequent legislation. They’re trying to have half a loaf and make it a whole loaf. It’s an interesting position but it collapses on itself. It’s completely incoherent. Laws are not typically written that way.

Senate Minority Leader Chuck Schumer, D-N.Y., pushed back against the Mulvaney pick. “The process for succession laid out in Dodd Frank is clear: Leandra English, not Mick Mulvaney, is the acting director of the CFPB. By attempting to install Mr. Mulvaney as director, the Trump administration is ignoring the established, proper, legal order of succession that we purposefully put in place, in order to put a fox in charge of a hen house,” he said in a statement.

The Justice Department did not respond to a request for comment about Engel and whether he should have recused himself from matters involving the CFPB.

For Miller, the fight over the CFPB bleeds into a broader effort by the business community to shore regulatory agencies of their independence. “It is a bigger fight. It’s sort of been gathering. The right wing has been trying to chip away at independence for a long time. This is one part of that battle. Do I think Trump is deeply studious about specific vacancy issues? No. People he staffed his administration with reflexively supports whatever the Business Roundtable wants. They want easily captured agencies,” he said. “The stuff CFPB does is wildly popular with the American people. The idea that Americans are chafing at their lack of freedom to get predatory financial products is laughable.”

Update: Nov. 27, 11:09 a.m. 
This story was updated to include interviews with Barney Frank, Brad Miller, and Lawrence Tribe, and a statement from Sen. Chuck Schumer.

Top photo: Former Consumer Financial Protection Bureau Director Richard Cordray testifies during a hearing before the TARP, Financial Services and Bailouts of Public and Private Programs Subcommittee of the House Oversight and Government Reform Committee on Jan. 24, 2012 on Capitol Hill in Washington, D.C. The hearing was to focus on the Consumer Financial Protection Bureau.