Despite Republican Objections, Obama Installs Cordray as CFPB Director

President Obama announced this afternoon that he will install Former Ohio Attorney General Richard as director of the Consumer Financial Protection Bureau by “recess appointment.” The recess appointment comes despite the fact that the Senate is not officially in recess. The appointment will almost certainly be challenged in court.

Speaking in Shaker Heights, Ohio, the president said “Today I’m appointing Richard as America’s consumer watchdog. That means he’ll be in charge of one thing: looking out for the best interests of American consumers. His job will be to protect families like yours from the abuses of the financial industry.” The president went on to criticize Senate Republicans for blocking Cordray’s confirmation. “The only reason Republicans in the Senate have blocked Richard is because they don’t agree with the law setting up the consumer watchdog. They want to weaken it. Well that makes no sense at all.”

Now that the bureau has a director, it will assume its full authority under Dodd-Frank, which includes oversight authority over non-bank financial institutions. In the five-and-a-half months since the bureau opened its doors, mortgage servicers, debt collectors, and payday lenders have been outside of its purview. Now, these and other non-banks will likely be subject to regulatory and enforcement actions by the CFPB.

While many Democrats are claiming victory, all signs suggest that the battle is just beginning for Cordray. Many Republicans are already threatening court challenges, and Rep. Patrick McHenry, Chairman of the House Financial Services Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs wrote to Cordray today, requesting that he testify before the Subcommittee on January 24th.

This will not be the first time a presidential recess appointment has ended up in a courtroom. In 1921, the attorney general, at the request of the president, held that recess appointments could be made during an almost month-long recess, but noted that recess appointments during short recesses are unconstitutional finding that “ the term ‘recess’ must be given a ‘practical construction.’”

According to a report released by the Congressional Research Service last month, no recess appointments have been made in recent history during recesses lasting fewer than 10 days. During the Clinton Administration, the Department of Justice argued that any recess longer than three days meets the Constitutional standard for recess appointments. The DOJ did not claim that a recess appointment made in a recess of three days or less is unconstitutional, rather, only that it would present a “closer question.” It remains to be seen who will bring the suit, though there are undoubtedly a number of third parties that have a vested interest in the issues.

Senate Democrats were vocal opponents of recess appointments during the George W. Bush Administration. When President Bush recess appointed John Bolton as Ambassador to the United Nations, then-Senator Barack Obama (D-IL) said that a recess appointment was “the wrong thing to do,” and added that a recess appointee is “damaged goods… somebody who couldn't get through a nomination in the Senate. And I think that that means that we will have less credibility...” Also during the Bush Administration, Senate Majority Leader Harry Reid called recess appointments “mischievous” and “an end run around the Senate and the Constitution.” Now that the tables have turned, Senate Republicans have several of their Democrat colleagues on the record making similar comments. 

The Senate failed to confirm Cordray on December 8, 2011, when it voted 53-45 to end the filibuster and proceed with the confirmation, falling short of the 60 votes needed to proceed. All but two Republicans voted to sustain the filibuster. Sen. Scott Brown (R-MA) is the only Republican Senator to publicly support Cordray, likely because he finds himself in a tight Senate race against CFPB architect Elizabeth Warren. Sen. Olympia Snowe (R-ME), who was one of only three Republicans to vote for Dodd-Frank, voted “present.”

Forty-Five Republican Senators signed onto a letter vowing to oppose any nominee for director until the CFPB is restructured. Specific reforms suggested in the letter were: (1) the establishment of a board of directors; (2) the requirement that the CFPB submit a budget request and go through the appropriations process just like the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Trade Commission; and (3) the oversight of CFPB regulations by Federal bank regulators to ensure that such regulations do not needlessly cause bank failures.

Members on both sides of the aisle issued strongly-worded statements on the president’s move:

Senate Minority Leader Mitch McConnell (R-KY), who has led the Republican effort to block the confirmation, blasted President Obama’s decision, accusing him of “arrogantly circumventing the American people with an unprecedented ‘recess appointment’ of an unaccountable czar.” McConnell described the historical precedent of limiting recess appointments to recesses lasting ten days or more and said “breaking from this precedent lands this appointee in uncertain legal territory, threatens the confirmation process and fundamentally endangers the Congress’s role in providing a check on the excesses of the executive branch.”

Senate Majority Leader Harry Reid (D-NV) said, “I support President Obama’s decision to make sure that in these tough economic times, middle-class families in Nevada and across the country will have the advocate they deserve to fight on their behalf against the reckless practices that denied so many their economic security… I hope that moving forward, Republicans will work with Democrats to address the concerns of middle-class Americans, instead of turning every issue into a partisan fight.”

House Speaker John Boehner (R-OH) issued a statement calling the move “an extraordinary and entirely unprecedented power grab by President Obama that defies centuries of practice and the legal advice of his own Justice Department," Boehner said. “This action goes beyond the President’s authority, and I expect the courts will find the appointment to be illegitimate.”

Senate Banking Committee Chairman Tim Johnson (D-SD) said, “With Richard Cordray leading the Consumer Financial Protection Bureau, Americans will finally get the consumer protections they deserve. Mr. Cordray is eminently qualified for the job, as even my Senate Republican colleagues have acknowledged…It’s disappointing that Senate Republicans denied him an up-or-down vote, especially when it’s clear he had the support of a majority of the Senate.”

House Financial Services Committee Chairman Spencer Bachus (R-AL) said, “The President’s unprecedented decision to attempt to circumvent the Constitution and ignore the law he himself signed is the clearest indication yet that he has abandoned any effort to work in a bipartisan manner to strengthen accountability and oversight of this new government bureaucracy… In doing so, President Obama has delegitimized the CFPB and has opened the agency up to legitimate legal challenges that will cripple it for years. The greatest threat to our economy right now is uncertainty, and the President just guaranteed there will be even more uncertainty.”

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