The Consumer Financial Protection Bureau and its director Richard Cordray are on a collision course with President-elect Donald Trump in what may become a nasty legal and political showdown over the limits to executive power.
A key question is whether Trump will attempt to fire Cordray soon after assuming the presidency next month even though there is a pending court appeal challenging his authority to do just that.
"We're dealing with a situation where there is a lot of legal uncertainty about how this administration will act, so how this will unfold is unpredictable," said Scott Nelson, an attorney with Public Citizen Litigation Group, who has argued several cases before the Supreme Court.
Following are four legal and political issues that could affect how long Cordray holds on to his job at the CFPB.
Can Trump Fire Cordray?
Many legal experts said there's sufficient legal wiggle room for Trump to fire Cordray, who has been a thorn in the side of congressional Republicans and the financial industry since he was confirmed for a five-year term on July 16, 2013. Up until recently, the prevailing analysis was that Cordray couldn't be removed until his term expired in 2018 unless he was fired "for cause."
That changed in October, when a federal court said that the president did not need a reason to remove the CFPB director, arguing the language in the Dodd-Frank Act that created the agency was unconstitutional.
That has fueled talk that Trump will move quickly once in office.
"The transition team has been promising from day one that a lot of stuff will happen, and why not please a bunch of people on the right and in the business community?" said Daniel A. Crane, a senior professor at the University of Michigan Law School.
Some legal scholars have written that once in office, Trump could fire Cordray outright by asserting that he does not believe there is a limit to a president's removal authority.
Or Trump could hedge his bets and seek to remove Cordray "for cause," by listing various reasons he should be removed.
J.W. Verret, an associate law professor at George Mason University School of Law, listed some reasons why he thinks Cordray could be removed for cause: allegations of employee discrimination and retaliation at the CFPB, and a settlement with auto lender Ally Financial that some allege was a false claim.
Others see that as a stretch.
"I don't think there is anything that Director Cordray has done that would constitute cause," Nelson said. "Cause doesn't mean you disagree with a person's policies; cause is considered to mean malfeasance."
A Risky Move
If Trump chooses to attempt to fire Cordray, it's a risky maneuver for both him and the CFPB chief.
Cordray could try to fight the president in court, but doing so would carry risks for the agency.
"If Cordray did stay on at the agency, every action the entire agency takes could potentially be undermined later and he would put everything at the agency at risk," Verret said.
That said, some also see risks to the president in trying to fire Cordray outright, particularly given Trump's reputation as a populist. (The CFPB remains popular with the public despite GOP opposition.)
"It would be a pretty stunning move [to fire Cordray], not only because there's no recent example of someone being removed for cause, but also because there's no basis," said Brianne Gorod, chief counsel at the Constitutional Accountability Center. "Richard Cordray has clearly been effective at helping the people that Trump said during the campaign that he wanted to help."
If Cordray is fired, he could seek a declaratory judgment stating that he is lawfully in his job, and a preliminary injunction requiring that the president permit him to stay, lawyers said. A court battle over the job raises another set of questions, including what relief a court would offer and whether doing so could include a reinstatement as the CFPB's director.
The firing would also give Sen. Elizabeth Warren, the Massachusetts Democrat who founded the CFPB, and others a chance to rally sentiment against the new president.
"If Trump loses the legal battle, it's an immediate setback," said Crane. "So maybe [Trump] wants to save that fight. But my guess is there's enough feeling on the right against the CFPB, and it plays into the desire for a strongman executive that [Trump] has run on. I can imagine [the administration] saying let's not turn this down, let's have this fight."
Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, signed an amicus brief last week in support of the CFPB's appeal of the October court ruling. She said the three-judge panel's decision "flatly contradicts" the text of the Constitution and Supreme Court precedent.
Some consumer advocates even think Trump's populist rhetoric has legs.
"It's important for people who are fighting for consumers to clearly draw the lines that Trump has said he sides with regular Americans against special interests," said Paul Bland, the executive director at the public interest law firm Public Justice.
The Other Court Fight
To be sure, the potential legal battle over Cordray's fight takes place in the shadow of a court fight already underway.
Cordray filed an appeal of a contentious district court ruling in PHH Corp. v. CFPB that raised important constitutional issues about the separation-of-powers doctrine.
A three-judge panel of the D.C. Circuit ruled in a split decision in October that the CFPB's single-director structure was unconstitutional because it limited the president's authority to remove the head of an agency.
The panel's solution was to rule that the president can dismiss a CFPB director for any reason — not just "for cause," the term that the then-Democratically controlled Congress used in the Dodd-Frank Act to shield the bureau's director from being fired at will.
Until the D.C. Circuit accepts Cordray's appeal, the panel's decision that the bureau's structure is unconstitutional is not in effect, lawyers said.
But it is important to note that the CFPB's appeal was filed 10 days before the deadline, a factor that could help Cordray, a former Ohio attorney general, keep his job in the short term, assuming the court accepts the appeal before inauguration day.
It takes an average of about 40 days for the D.C. Circuit to decide whether to take a case "en banc" to the court's full panel, said Don Lampe, an attorney at Morrison & Foerster.
By filing early, Cordray strategized that if the D.C. Circuit accepted the appeal, the three-judge panel's ruling could be vacated before Trump got into office.
The En Banc Review
Many think the D.C. Circuit will take the CFPB's case on appeal based on the constitutional issues raised and because of a 1930s-era case that raised similar issues.
President Franklin Delano Roosevelt asked William Humphrey, a Republican member of the Federal Trade Commission, to resign. Humphrey refused twice and then was fired. He then filed a lawsuit that established precedent.
"This is a well-established principle that Congress can shield the heads of independent agencies from removal at the will of the president," Gorod said.
But there are clear differences between the cases, namely that Cordray is the single director of an agency while Humphrey was a member of a commission.
The Supreme Court reaffirmed the Humphrey decision six years ago in Free Enterprise Fund v. Public Company Accounting Oversight Board.
There also is the question of who would hear the en banc review.
It is unclear when Merrick Garland, chief judge of the U.S. Court of Appeals for the D.C. Circuit, would start hearing cases again. Garland's long-shot chance at being confirmed as a Supreme Court justice has vanished under a Trump administration.
The PHH case could potentially be decided by 11 judges: four appointed by President Obama, four by former President George W. Bush and three by former President Bill Clinton.
Still, some say that despite industry and GOP pressure on Trump to fire Cordray, predicting what the New York businessman will do is difficult.
"The banks are convinced Trump is totally in their pocket, but I think Trump has surprised many of us and is not as predictable a figure as George W. Bush," said Deepak Gupta, the founding principal of Gupta Wessler and a former CFPB senior litigation counsel. "I hold out optimism that legislation does not go through and there is a realistic path for the D.C. Circuit to act just in time for Cordray to leave just before his term expires in 2018."