A recent decision by a three-judge appellate panel of the US Court of Appeals for the District of Columbia Circuit (DC Circuit) may hold the key to whether, and to what extent, actions taken by Richard Cordray as the Director of the Consumer Financial Protection Bureau (CFPB) will be viewed as lawful. Though the case in question, Noel Canning vs NLRB, is an action challenging the purported recess appointments of certain NLRB administrators, and not Director Cordray, the case is significant in that the reasoning thereof is being used by plaintiffs in State National Bank of Big Spring v. Geithner to attack Director Cordray’s appointment, which was also a “recess” appointment.
The DC Circuit held, among other things, that the appointment of the NLRB administrators by the President violated the Recess Appointments Clause of the US Constitution because it was not made during a recess that occurred between sessions of Congress. Without discussing herein the court’s holding, it is worth mentioning that the DC Circuit’s decision is at odds with that of another appellate court, the US Court of Appeals for the Eleventh Circuit. Commentators have surmised that the conflict between the courts will propel the case, perhaps on an accelerated timetable, to the US Supreme Court for resolution.
Even if the Cordray appointment is ultimately held to have been unlawful (which is by no means certain), due to the particular language of the Dodd-Frank Wall Street Reform and Consumer Protection Act pursuant to which the CFPB was created, it appears that certain powers to promulgate rules, regulate, and examine financial institutions may still exist, though those powers may be in the hands of the Secretary of the Treasury (Secretary). Under the Dodd-Frank Act, until the director is appointed with the advice and consent of the Senate, the Secretary has the administrative authority, intended to be transferred to the CFPB, over laws, regulations and financial institutions that were previously administered by other federal agencies such as the Federal Reserve and the Office of the Comptroller of the Currency. On the other hand, it is clear under the Dodd-Frank Act that so-called new regulatory powers given to the CFPB, such as the ability to supervise non-depository institutions, may not be so exercised by the Secretary. To further complicate matters, there are various hybrid laws, such as the Electronic Funds Transfer Act, which have been on the books for years but which also contain brand new provisions (i.e. the remittance provisions) that may be considered beyond the scope of the Secretary’s power.
Finally, there is some conjecture that even if Director Cordray’s appointment is held to be invalid, a reviewing court may nonetheless hold that all actions taken by the CFPB will be considered valid because the director was acting under a cloak of apparent authority.