Legality of CFPB Director Nomination in Question


Mhi housing alert

Late last week, the legality of recess appointments made by the Obama administration to the National Labor Relations Board (NLRB) was called into question. Specifically, the U.S. Court of Appeals for the D.C. Circuit ruled that Obama did not have the authority on January 4, 2012 when he filled three recess appointments to the NLRB. On that same day last year, Obama appointed Richard Cordray to the Consumer Financial Protection Bureau (CFPB), even though the Senate was still in what is called a ‘pro forma’ session.

A lawsuit challenging the constitutionality of Cordray’s appointment has already been filed by The State National Bank of Big Spring (TX). The federal appellate court ruling in the NLRB suit is expected to have an impact on the Cordray matter.

It is unclear what impact, if any, a ruling against the administration would have in the Cordray matter, which would ultimately have to be settled by the Supreme Court. A certain amount of the CFPB Director’s authority – such as the ability to examine non-bank lenders – is only realized upon a successful Senate confirmation. The effect on other authorities, such as the ability to write rules governing housing finance transactions, is still unclear.

However, it is important to note that the Dodd-Frank Act contains within it legislative language that would make promulgation of housing finance rules self-effectuating even absent a Senate-confirmed CFPB Director. Meaning, the verbatim legislative language contained in the Dodd-Frank law would have automatically become a final rule if no CFPB Director was in place.

Below is a recent article from The Hill detailing the potential political impact of Cordray’s appointment.

Obama Readies for Next Fight with GOP over Consumer Bureau
By Peter Schroeder – 01/27/13 05:15 PM ET

President Obama is getting in the ring for another knockdown battle with congressional Republicans over the Consumer Financial Protection Bureau (CFPB).

On Thursday, Obama again nominated Richard Cordray to serve as director of the CFPB. Cordray already serves as director of the agency, having been installed in the job through a controversial recess appointment last year.

“Over the last year, Richard has proved to be a champion of American consumers,” Obama said. “There’s absolutely no excuse for the Senate to wait any longer to confirm him.”

But Cordray’s days as director could be numbered, following an appeals court decision on Friday that found Obama’s recess appointments to the NLRB – made in tandem with the CFPB move – were unconstitutional.

If a separate legal challenge finds that Cordray’s appointment was also illegal, his future at the agency would be left in the hands of Senate Republicans, who have refused to confirm a CFPB director before.

Cordray originally came to the consumer bureau after serving as Ohio’s attorney general. He was a top lieutenant to Elizabeth Warren as she worked to set up the agency, but was largely an unknown to the financial industry and Washington before being appointed director.

Financial industry players who have long been wary of the CFPB still have gripes about it, but are generally pleased with Cordray’s tenure.

“He and his team are accessible, they’re open, they listen to all stakeholders clearly,” said David Stevens, president and CEO of the Mortgage Bankers Association. “Our sense is that keeping Richard Cordray in the job is without question the better outcome, as opposed to dealing with a new set of unknowns.”

Stevens, who previously headed the Federal Housing Administration under President Obama, said the mortgage industry is undergoing a massive regulatory change in the wake of the subprime crisis. While some may have their concerns about the CFPB or how it functions, he argued that his industry would benefit most from keeping Cordray in place.

“The guy’s done a good job so far, and that’s recognizing we don’t agree with everything they put out,” he said.

Richard Hunt, president and CEO of the Consumer Bankers Association, said Cordray has always been willing to listen to industry concerns, even if he doesn’t always agree with them.

“I’ve enjoyed working with him,” he said, adding that he still favors structural changes to the bureau.

Consumer advocates who are firmly behind the CFPB are hopeful that Cordray’s record will improve his odds of being confirmed.

“I hope that both supporters and critics look at what the CFPB has accomplished over the last year … the way that they’ve engaged both consumer and industry stakeholders,” said Tom Feltner, director of financial services for the Consumer Federation of America. “The bureau has proven to be an effective regulator.”

Despite winning over some in the industry, there are few signs that Senate Republicans have softened their opposition to approving a CFPB director.

Before Cordray was recess-appointed, nearly all Senate Republicans announced that they would block any nominee to head the new bureau, citing major concerns with its structure. They demanded that a bipartisan commission be put in place instead of a lone director, and appear to be sticking with that position.

Some hope that Cordray’s nomination could reopen the door to renewed debate over the bureau and how it should be governed. In addition to establishing a commission, Republicans want to bring the CFPB’s budget under the control of appropriators.

Sen. Mike Crapo (R-Idaho), who will serve as the next ranking member on the Senate Banking Committee, said Thursday he was holding firm on his demand for those changes. If Republicans don’t budge, Cordray will likely be stuck in limbo again, with his recess appointment set to run out at the end of 2013.

But that assumes he will be able to stick around for the duration. Republicans said Friday’s court ruling casts serious doubt on Cordray’s position at the bureau.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said the ruling ‘makes clear’ that Cordray’s appointment was ‘unlawful or unconstitutional or both.’

The President made the recess appointments while Congress was holding brief “pro forma” sessions over longer breaks in an effort to avoid a recess and the possibility of appointments. But the White House argued that those sessions, which can last less than a minute, do not constitute legitimate work and can be ignored.

A separate lawsuit is challenging the Dodd-Frank financial reform law, including the constitutionality of Cordray’s appointment, but the NLRB decision looks like it could set the precedent to toss Cordray out the door.

The White House said it strongly disagrees with the ruling, and a CFPB spokesperson said it has “no direct effect on the bureau.”

“Going forward, we will continue our essential work to protect American consumers.”

To read more, visit

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