Court Decision Jeopardizes CFPB Nominee

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On Friday, January 25, 2013, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit struck down as unconstitutional President Obama’s 2012 “recess appointments” of three members of the National Labor Relations Board (NLRB) on the grounds that the appointments were not made when the United States Senate was actually in recess: http://www.cadc.uscourts.gov/internet/opinions.nsf/D13E4C2A7B33B57A85257AFE00556B29/$file/12-1115-1417096.pdf.

This decision makes the 2012 recess appointment of Richard Cordray to head the Consumer Financial Protection Bureau (CFPB) vulnerable to challenge. Mr. Cordray was named CFPB director by President Obama on the same day as the now invalidated NLRB members, when the President claimed the Senate was in recess. Because Mr. Cordray’s appointment was not challenged in the NLRB case, technically his recess appointment stands. But most observers believe that if his recess appointment is challenged in the D.C. court, it too would be struck down.

This could create grounds for challenge to certain CFPB actions taken since Mr. Cordray’s purported appointment. Notably, the CFPB’s purported supervision of nonbanks such as consumer reporting agencies would be subject to question. Also, CFPB regulatons and certain other actions could be subject to challenge, although some courts have held that the validity of agency actions is not dependent on having an approved director in place.

On January 24, 2013, the President renominated Mr. Cordray, and the next day the White House criticized the Court of Appeals’ decision. Otherwise, the Administration and CFPB have taken no actions as yet bearing on the decision. We will report further regarding such actions, as well as court challenges to Mr Cordray’s purported appointment and actions, and possible legislative compromises.