Are the CFPB and Richard Cordray’s appointment Constitutional?

by Ballard Spahr LLP
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The programming at the ABA Consumer Financial Services Committee meeting included an excellent panel discussion addressing whether the creation of the CFPB and the appointment of Director Richard Cordray were Constitutional. Currently pending in federal district court, a lawsuit filed by State National Bank of Big Spring against the CFPB, the Department of Treasury, Richard Cordray, and a number of other federal officials alleges that the formation and operation of the CFPB violate the Separation of Powers Doctrine. Panelist C. Boyden Gray, counsel for the plaintiff, asserted that the combined effect of the CFPB’s extraordinary powers and freedom from legislative, presidential and judicial oversight violate the Constitution.

The recess appointment of Richard Cordray ultimately dominated the panel discussion. Deepak Gupta, formerly of the CFPB but now in private practice, opined that the case would likely be dismissed for lack of standing, pointing out, among other things, that the plaintiff is a small bank exempt from supervision by the CFPB and arguing that the creation of the CFPB has not harmed the bank in any appreciable manner. Mr. Gupta also asserted that the appointment of Director Cordray will likely survive challenge because the President is in fact authorized to make recess appointments under the Constitution. He explained that senators were holding “pro forma” sessions that lasted just a few minutes in order to thwart any recess appointments by the President. The President made the appointment between sessions and it has been the subject of much criticism and debate. Mr. Gupta also stated that even if the court were to hold that Director Cordray’s appointment is invalid, it would likely not invalidate every action already taken by the CFPB under the Director.

We note that, contrary to Mr. Gupta’s position, the Senate in fact took important legislative action during its purported recess. On December 23, 2011, during one of the “pro forma” sessions, Harry Reid arranged for passage of a payroll tax bill and communicated with both the House and the President on that legislation. For what it’s worth, we also note that the use of a recess appointment to circumvent Senate objections to a nominee departs from Mr. Deepak’s description of the original purpose of recess appointments—to keep the Government running when a vacancy in an important position arises during an extended Senate recess.

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