On January 31, 2013, 42 Republican Senators joined in a letter to President Obama, warning that they will oppose the confirmation of any nominee to be Director of the Consumer Financial Protection Bureau (“CFPB”), until significant reforms are made to ensure “transparency and accountability” at the Bureau. In particular, the Senators said they “have serious concerns about the lack of congressional oversight of the agency and the lack of normal, democratic checks on its sole director.” The letter was authored by Senate Republican Leader Mitch McConnell (R Ky.) and Sen. Mike Crapo (R-Idaho), ranking Republican of the Senate Banking, Housing, and Urban Affairs Committee.
The letter comes on the heels of President Obama’s re-appointment of Richard Cordray as Director of the CFPB. But the validity of Cordray’s tenure as CFPB Director, as well as actions taken by the agency to date, have been called into question by the ruling last week by the U.S. Circuit Court of Appeals for the D.C. Circuit in Canning v NLRB, No. 12-1115, --- F.3d--, 2013 WL 276024 (D.C. Cir. Jan. 25, 2013). In that case, the D.C. Circuit held that certain 2012 “recess” appointments by President Obama to the National Labor Relations Board (NLRB) are unconstitutional on the basis that the Senate was not in fact in recess during the time of the appointments January 4, 2012. According to the Senators, this decision applies equally to President Obama’s “recess” appointment of Cordray, who was appointed at the same time and in a similar manner as the NLRB appointees in Canning.
Although Cordray’s appointment is being challenged in a separate legal proceeding, the Senators are wasting no time and already have introduced legislation that would not only effectively invalidate any NLRB decision or regulations made by the recess appointees, but would also cut off Federal Reserve funding to the CFPB for any actions that require a director. The Restoring the Constitutional Balance of Power Act of 2013, backed by Sens. Mike Johanns (R-Neb.), Lamar Alexander (R-Tenn.) and John Cornyn (R-Texas), is premised on the view that any actions taken or regulations promulgated by people whose appointments were invalid are not enforceable. If adopted, the legislation would prohibit the NLRB and the CFPB from enforcing or implementing decisions and regulations without a constitutionally confirmed board or director.
Echoing these concerns, on Friday, February 1, Sen. Jerry Moran (R-Kan.), reintroduced legislation to replace CFPB Director Cordray with a five-person commission. Dubbed the Responsible Consumer Financial Protection Regulations Act of 2013 (S. 205), the bill proposes a structure similar to that of the Securities and Exchange Commission, and would subject the CFPB to the annual Senate appropriations process for funding that the Bureau currently is able to obtain directly from the Federal Reserve without Senate oversight. The legislation also establishes a safety and soundness check intended to ensure that excessive regulations do not cause financial institutions to fail. Initially introduced in 2011, the legislation addresses the concerns expressed in the GOP Senators’ February 1 letter to President Obama.
These Washington developments create a great deal of uncertainty regarding the validity of CFPB actions to date. Since Cordray’s appointment, the CFPB has been very active in its regulatory and enforcement initiatives, and already has issued new rules for debt collectors, mortgage lenders, and servicers, and has levied significant penalties on a major bank in its first enforcement action. Under Dodd-Frank, the CFPB can carry on some of its business without a director; for example, the bureau may promulgate regulations and issue orders relating to the consumer protection laws it inherited from other regulators, most notably the Federal Trade Commission and the Federal Reserve. The CFPB is not, however, authorized to write new rules for or supervise nonbank financial institutions without a director. And the CFPB has stated from the beginning that it would focus in particular on such companies, which include nonbank mortgage lenders, credit bureaus, debt collection agencies, money transfer agencies, and payday lenders.
While it is unclear when the stand-off with Congress will abate, if history is any guide, Senate opposition to a nomination is not a career killer. President Obama first nominated Cordray to be CFPB Director after the Senate Republicans vehemently opposed Elizabeth Warren, the former White House advisor who first conceived of the Bureau and helped set it up. Now the freshman Democrat Senator for Massachusetts, she became the senior Senator from that state this week when the Republicans, who opposed her nomination, joined in confirming Sen. John Kerry as Secretary of State. Sen. Warren serves on the Banking Committee.