The defanging of a federal consumer watchdog agency began last week in a federal courthouse in San Francisco.
After a nearly three-year legal skirmish, the Consumer Financial Protection Bureau appeared to have been victorious. A judge agreed in September with the bureau that a financial company had misled more than 100,000 mortgage customers. As punishment, the judge ordered the Ohio company, Nationwide Biweekly Administration, to pay nearly $8 million in penalties.
All that was left was to collect the cash. Last week, lawyers from the consumer bureau filed an 11-page brief asking the judge to force Nationwide to post an $8 million bond while the proceedings wrapped up.
Then Mick Mulvaney was named the consumer bureau's acting director.
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Barely 48 hours later, the same lawyers filed a new two-sentence brief. Their request: to withdraw their earlier submission and no longer take a position on whether Nationwide should put up the cash.
It was a subtle but unmistakable sign that the consumer bureau under Mr. Mulvaney is headed in a new direction — one that takes a lighter touch to regulating the financial industry. The reversal is part of a broad push by the Trump administration to unfetter companies from Obama-era regulations.
Inside the agency, change has been swift. Mr. Mulvaney briefly stopped approval of payments to some victims of financial crime, halted hiring, froze all new rule-making and ordered a review of active investigations and lawsuits. Some, he has indicated, will be abandoned.
"This place will be different, under my leadership and under whoever follows me," Mr. Mulvaney said Monday about an agency that he previously denounced as a "sad, sick" example of bureaucracy gone amok.
Mr. Mulvaney took over leadership of the bureau, created in the aftermath of the global financial crisis, less than two weeks ago. The abrupt resignation of Richard Cordray, the bureau's longtime director, who had been appointed by President Barack Obama, set off an extraordinary public fight for control of the agency. The battle pitted Mr. Mulvaney, who was named acting director by President Trump, against Leandra English, the bureau's deputy director under Mr. Cordray. While Mr. Trump can appoint his own director, confirmation could take months. Until then, the acting director is in charge.
Last week, a federal judge ruled in Mr. Mulvaney's favor, denying an emergency motion that Ms. English had filed to stop the White House from selecting a temporary director. The lawsuit is continuing.
The bureau has been investigating Santander, the giant Spanish bank, for overcharging auto loan customers. Given the tenor of recent conversations inside the bureau, agency lawyers suspect the investigation could be shelved under Mr. Mulvaney, according to four people with knowledge of the case who requested anonymity to discuss an investigation.
Raschelle Burton, a spokeswoman for Santander, said the company was not aware of any planned lawsuit from the C.F.P.B.
Agency employees said they were scrutinizing every comment and memo from their new leader for hints about their future.
Some employees, including a few of the bureau's top officials, have welcomed their new leader. Others, pointing to Mr. Mulvaney's earlier hostility toward the agency and its mission, are quietly resisting. One small group calls itself "Dumbledore's Army," according to two of the people who were familiar with their discussions. The name is a reference to a secret resistance force in the "Harry Potter" books.
An atmosphere of intense anxiety has taken hold, several employees said. In some cases, conversations between staff that used to take place by phone or text now happen almost exclusively in person or through encrypted messaging apps.
Mr. Mulvaney has begun examining lawsuits filed by the agency and its process of gathering information from companies under investigation. The bureau's so-called demand letters — an investigative tool used in the early stages of investigations — are "fairly broad and fairly burdensome," he told reporters on Monday.
That same day, the bureau suspended an inquiry into a company that had objected to the regulator's demands for information.
In that case, the bureau sent an information request in August to Nexus Services, a Verona, Va., company that provides bail bonds for detained immigrants. Nexus objected to the agency's "overly broad and unduly burdensome" request and refused to comply. In October, the company sued the bureau in Federal District Court in Washington, seeking to stop the bureau's investigators from contacting its customers and business partners.
At a court appearance on Monday, the bureau's lawyers agreed to halt the investigation until Nexus' lawsuit is resolved, according to court records. A senior adviser to Mr. Mulvaney, who was not authorized to speak publicly, said the decision had been made after discussions with Nexus and the judge.
Remaking the agency, which has unusual authority and independence, has been a priority for Republicans since it was created in 2010. Until Mr. Cordray left, they had gotten very little traction.
The agency often took an aggressive stance toward regulating and punishing businesses. It extracted nearly $12 billion in refunds and canceled debts for 29 million consumers.
After Mr. Trump took office, Mr. Cordray seemed to double down on the aggressive approach. He unleashed a fusillade of rules and enforcement actions, including new restrictions on the payday lending industry.
Mr. Mulvaney said he thought Congress should strike down those rules, just as they recently did with a rule that would have allowed borrowers to band together in class action lawsuits against financial institutions over unfair and deceptive business practices.
But as the Nationwide case shows, congressional action isn't the only way to change the consumer bureau's strategy.
Nationwide described itself as a provider of services to help customers reduce interest payments on their mortgages.
Two years ago, shortly after it was sued by the consumer bureau, the company suspended its operations. Now, it wants to get back into business — but it cannot afford to do so if it must immediately pay the $8 million fine. It is too broke to even afford a bond, the company's owner, Daniel S. Lipsky, said in a court filing.
If the court doesn't require the bond, Nationwide Biweekly can begin operating again, Mr. Lipsky said.
Early last week, Mr. Lipsky's lawyer overnighted a personal appeal to Mr. Mulvaney, pleading her client's case.
Mr. Mulvaney said he was aware of the letter but had not read it. He was so far only holding internal meetings with bureau employees, he said at the meeting with reporters, and has not yet responded to the messages he has received from consumer groups, bankers and lobbyists.
"I don't want anybody to say Mulvaney was swayed one way or another by somebody who sent him a FedEx package," he said.
The bureau's withdraw of its request for Nationwide to post a bond had come at Mr. Mulvaney's direction, according to two of the people.
The adviser to Mr. Mulvaney disputed the idea that the decision represented a significant change in the bureau's stance. The agency was simply taking a more agnostic role in the case, Mr. Mulvaney's adviser said.
Nationwide's lawyer, Helen Mac Murray, said the shift was a promising sign. Her client is eager to resume operations. This week, a judge granted the company's request to proceed without a bond.
"As we've said for years, this is a law-abiding business that helps consumers save money," Ms. Mac Murray said. "We're hopeful that the new leadership at C.F.P.B. will follow the law and stop using unchecked and unreasonable bureaucratic tyranny to shut down a business that helps consumers."