Implications of Cordray Appointment as Director of Consumer Financial Protection Bureau

By: John McMickle
January 30, 2012

As reported in numerous news outlets, the President used a special procedure known as a recess appointment to name Richard Cordray, a former Ohio attorney general as the official Director of the Consumer Financial Protection Bureau. The recess appointment, if found to be valid, will allow Cordray to serve until 2013.

This action has several practical and political implications of note.

Practical Considerations

First, non-bank financial institutions (payday lenders, commercial finance companies, debt buyers and the like) are now subject to examination by the CFPB, bringing a new level of federal oversight that could affect the business plan and operations of enormous financial players.

Second, the CFPB now has the authority to the enforce prohibitions against "abusive" lending practices. The term abusive is not defined and market actors (both bank and non-banks) will need to monitor developments closely as the CFPB begins to enforce this provision, which will trump state and local law.

Political Considerations

On a political level, the recess appointment has angered Senate Republicans who used pro forma sessions to prevent a recess from occurring with the specific intention of denying the President the power to make recess appointments. On the Hill, GOP leaders accused Obama of ignoring constitutional constraints and Senate precedents. Senate Majority Leader Harry Reid, D-Nev., originated the process of holding pro forma sessions in November 2007 to block recess appointments by President George W. Bush. It is likely that Republicans will halt all Obama nominations for the near term, and perhaps for all of 2012.

Issue Background

At issue in this case is a provision in the Constitution which stipulates that the president can make special appointments when vacancies arise during a Senate recess. A 1993 Justice Department memorandum interpreted the constitutional language to mean more than three days, and recent presidents have not made appointments when the Senate has been out of session for three days or less.

Possible Court Actions

Businesses affected by the CFPB could file lawsuits to protest any actions taken by Cordray. The challengers will assert that Cordray’s appointment is invalid because the Senate was not technically in recess when the appointment was made. It is not clear that the anticipated challenge will have much success because the courts have been reluctant to become involved in disputes between the legislative and executive branches of government over constitutional prerogatives such as what constitutes a recess. If there is a court challenge, determining the validity of Cordray’s appointment will be a lengthy process and will likely begin when a company files a lawsuit alleging some CFPB action is harmful to its business.

If you have any questions regarding the scope of CFPB and the types of businesses that will be most affected by these developments, please email us at contactnow@americaninfosource.com.