Those that anticipated a dramatic Supreme Court confrontation over the legitimacy of Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB), and perhaps a nullification of all of the nascent agency's rules and actions to date, are disappointed this week. Those who expected a political solution, along with some certainty in consumer finance regulation, can finally exhale. The Senate has confirmed Mr. Cordray's January 2012 recess appointment, despite the legal questions about such appointments raised by the D.C. Circuit's recent opinion in Noel Canning v. NLRB.

As part of a larger deal between Senate Democrats and Republicans concerning confirmation of President Obama's executive branch appointments, the full Senate on Tuesday night voted 66-34 to confirm Mr. Cordray as CFPB director. Tuesday's vote removed questions that had surrounded the legitimacy of President Obama's recess appointment of Mr. Cordray, a former Ohio Attorney General. In January of this year, the D.C. Circuit Court of Appeals in Noel Canning v. NLRB invalidated three of President Obama's recess appointments to the National Labor Relations Board, ruling that intrasession -- as opposed to intersession -- appointments are invalid under the Recess Appointments Clause. Noel Canning's logic extended to Mr. Cordray's appointment, which occurred on the same day as those at issue in Noel Canning. Indeed, the questionable recess timing of Cordray's appointment isn't the only factor that had suggested its invalidity. Some have argued that, as the directorship of the CFPB was a new position and thus had never been occupied to begin with, there could be no vacancy and thus could not be filled via recess appointment even if the Senate had actually been in recess. The Senate's confirmation of Mr. Cordray has obviated many of these questions, establishing his legitimacy through political, rather than judicial, action.

In a video statement posted on the CFPB website, Mr. Cordray stated that his confirmation brings "added certainty to the industries we oversee and reinforces our responsibility to stand on the side of consumers and see that they are treated fairly in the financial marketplace." His confirmation also brings legitimacy to the CFPB, and with it an increased ability to execute its enforcement priorities. These priorities include the following:

  • fast-track enforcement actions, with a target of two years from opening of investigation to resolution of enforcement;
  • a focus on fair lending, including enforcement of the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act; and
  • an increase in consumer protection regulations.

In particular, we anticipate a near term focus on mortgage regulation and debt collection oversight.

The unusually-long confirmation process has ended happily for Mr. Cordray but may also have raised some thorny legal questions. Going forward, the CFPB has the option to re-authorize the rules and regulations it passed prior to Mr. Cordray's appointment, thereby removing any doubt as to their legitimacy. But there remain lingering questions concerning the validity of actions taken by the CFPB prior to Mr. Cordray's confirmation. If President Obama's recess appointment of Mr. Cordray was in fact invalid, then the CFPB may have lacked the authority to take some action against regulated entities. Indeed, information gathered pursuant to the CFPB's reporting requirements prior to Mr. Cordray's confirmation may also be implicated. And regulatory action taken pursuant to that information may be subject to attack. Accordingly, we may see vestiges of the issue crop up in connection with the CFPB's enforcement activity. However, now that Mr. Cordray has received congressional imprimatur, the legal and practical standing of such attacks is considerably weakened, and we can expect the CFPB to continue as if its director were Senate-confirmed from the beginning.