Let the political posturing begin!

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Predictably, political posturing in reaction to the D.C. Circuit’s Canning decision has already begun. According to media reports, South Dakota Senator Tim Johnson, a Democrat who heads the Senate Banking Committee, is calling upon the Senate to confirm Richard Cordray as CFPB Director without delay. On the other side of the aisle, Nebraska Senator Mike Johanns, a Republican, on January 25 (the same day the Canning decision was issued) sent a letter to Mr. Cordray asking him to resign. He also sent a letter on January 25 to the Government Accountability Office asking the GAO to examine what CFPB actions would be implicated by the decision and, for all affected actions, provide an estimate of the associated negative economic impacts. 

Senator Johanns, together with two other Republican Senators (Lamar Alexander and John Cornyn), has also introduced a bill to block funding to the CFPB for use of the authority that, under the Dodd-Frank Act, the CFPB can only exercise if it has a confirmed director. 

Unless a settlement is reached, the validity of Director Cordray’s recess appointment could be tested in a case filed by the CFPB in July 2012 in federal court in California against the Gordon Law Firm and various other defendants. The complaint alleged that the law firm and various individuals and companies duped consumers by falsely promising loan modifications in exchange for advance fees and, in reality, did little or nothing to help consumers. The defendants were charged with violations of the Consumer Financial Protection Act of 2010 (CFPA) (meaning Title X of Dodd-Frank) and Regulation O, the Mortgage Assistance Relief Services Rule.

When the complaint was filed, we speculated that because the charges included making false and misleading representations that constituted “deceptive” acts or practices prohibited by Title X of Dodd-Frank, the case might provide a vehicle for a challenge to Director Cordray’s appointment. Under Title X, it was necessary for the CFPB to have a director before it could exercise its authority to enforce the prohibition of  ”unfair, deceptive or abusive” acts or practices (or bring any type of enforcement action against a non-bank). Subsequently, in their answer to the CFPB’s complaint, the defendants did include a challenge to President Obama’s recess appointment of Director Cordray as part of their affirmative defenses.