2013 began with a bang for the Consumer Financial Protection Bureau. In January, the Bureau released several mortgage-related final rules as
mandated by the Dodd-Frank Act. The mortgage industry has been in a mad rush to
put together webinars to detail ability-to-repay, appraisal reform and
high-cost mortgage requirements. It is not an exaggeration to note these
mortgage rules consumed much of the Bureau’s bandwidth in its brief existence.
So, just as the Bureau comes up for air, it gets rocked by
an somewhat related court case concerning another federal agency, the National Labor Relations Board. How are the two agencies connected by this court case?
Let’s hit the rewind button.
It’s no deep Washington secret that current presidents are
having a more difficult time getting various federal nominees through the US
Senate. It’s also no secret that modern presidents have utilized “recess”
appointments more and more (as permitted by the U.S. Constitution). Enter the
controversial CFPB and the quest to have the Senate confirm a Director as
required by Dodd-Frank. The Bureau existed for almost 18 months without a
confirmed Director. Elizabeth Warren ran the CFPB during its incubation period as
a special advisor to the President. Having a director in place was important to
the Bureau because it would assume certain authority (such as the authority to
supervise non-bank entities like debt collectors and credit bureaus) only with
a confirmed Director.
It became very apparent to President Obama and others the
Senate would not have 60 votes necessary to bring the nomination of Elizabeth
Warren to the Floor for a vote. In 2011, President Obama nominated former Ohio
Attorney General Rich Cordray to be the CFPB Director. The Senate Banking
Committee approved Cordray’s nomination out of committee, but many Republican senators wanted to consider structural changes to the CFPB before moving on
Cordray’s nomination. For example, altering the Bureau from control by a single
Director to a five-member commission. And making the Bureau subject to annual Congressional appropriations versus receiving its funding from the Federal
Reserve. Senate Democrats believe the Bureau is just fine as Dodd-Frank created
it, so Cordray’s nomination was at a stalemate in the late stages of 2011.
On January 4, 2012, President
Obama rolled the dice. Believing the Senate was in “recess,” the President
appointed Cordray as the director of the CFPB. At the same time he made recess
appointments of three nominees to the NLRB. The legal community hit an uproar
shortly thereafter on both sides of the issue. In April 2012, a Washington
state-based company, Noel Canning, was the lead plaintiff in the case against
the Administration’s NLRB recess appointments. In January of this year the U.S.
Circuit Court of Appeals (DC) unanimously ruled against President’s Obama recess appointments to the NLRB.
The three-judge panel declared
the Senate remained in “pro forma” sessions when the appointments occurred and
was not technically in recess. The Obama Administration announced its intention
to appeal the ruling to the U.S. Supreme Court. The NLRB decision called into
question the validity of Richard Cordray’s recess appointment to be the CFPB
Director. The Cordray question is being addressed in a separate lawsuit still
pending before another court. On January 24, 2013, President Obama announced
his decision to re-nominate Cordray as CFPB Director subject to Senate
confirmation. Congress will consider legislation again in 2013 to alter the
Bureau’s structure (five-member commission as opposed to a single director) and
subject the Bureau to annual Congressional appropriations.
So, where does this leave the
CFPB in 2013? I doubt the Bureau will be affected much at all in the short
term. It will continue on with its examination of banks and non-banks. It will
take some high-profile enforcement actions. It will put forth some challenging
proposed rules on overdraft protection and general purpose prepaid cards. Even
if the district court decides Cordray’s appointment was unconstitutional
sometime in 2013, the appeals process could take years. Will the court strike
down all the Bureau actions and rules taken while Cordray served as Director?
And, what of the fate of Cordray? This is the biggest unknown. Will the Senate
confirm him without any changes to the Bureau itself? Does he leave at the end
of 2013 as his recess appointment expires and Obama puts forth another nominee?
If you have answers to these
questions, go buy a lottery ticket quickly.
