"The Consumer Financial Protection Bureau has a Director, or Does It?"
Contributed by Blair Rugh, Trinovus
On Wednesday, January 4, President Obama appointed Richard Cordray, the former Attorney General of Indiana, as the Director of the Consumer Financial Protection Bureau. In doing so, the President said that he was exercising his right to make recess appointments under the Constitution. Constitutional scholars on both sides of the aisle have weighed in their opinions regarding whether the President’s action was valid. While I took a class in Constitutional Law in law school, I don’t pretend to be a constitutional scholar. Nonetheless, the following is what the Constitution provides and you can make up your own mind about the appropriateness of the President’s action.
Article II, Section 2 of the Constitution defines the presidential power over appointments. What it says, in a nutshell, is that the President shall have the power, by and with the advice and consent of the Senate, provided two-thirds of the Senators present concur, to make various appointments. It goes on to say that the President shall have power to fill up all vacancies that may happen during the recess of the Senate, by granting commissions which shall expire at the end of their next session. The thorn in the ointment is Section 5 of Article I. Article I of the Constitution defines the powers of the Congress. Section 5 provides that neither house, during the Session of Congress, shall, without the consent of the other, adjourn for more than three days. In the instant situation, the House of Representatives did not consent to the adjournment of the Senate. As such, the Senate could not have adjourned even if it wanted to. Moreover, the Senate did not adjourn; and, at least once every three days during the Christmas period, it was called to order. As a matter of fact, it passed legislation during the period - specifically the bill to extend the reduction of social security taxes and the extension of unemployment benefits, and the President signed the legislation into law.
Whether you think the President’s action was constitutional and if it was not, whether again you care probably depends on which side of the political aisle that you sit. Most Republican pundits that I have heard claim that the action was grossly in violation of the constitution and was a terrible overreaching of power by the President. Most Democrat spokesmen say that it was probably constitutional. Even if it was not, the President was only trying to protect the consumers. My guess is that the question will end up before the Supreme Court, and it will provide a definitive decision.
If the Supreme Court decides in favor of the President there will not be a great deal of upheaval. On the other hand, if the Court rules against the President, there could be a really messy situation. Most of the power of the Consumer Financial Protection Bureau is vested in the Chairman. If Mr. Cordray is the Chairman, then, the actions that he takes in the interim are valid. But what if his appointment was faulty and he is not the Chairman? What happens to the actions and rulings that the CFBP takes in his name? For example, recently in an interview Peggy Twohig, the associate director for nonbank supervision, said that now that the new director has made the required appointments the CFPB can begin its regulation of nonbank lenders. This same story is unfolding in every agency of the bureau. Are the rules that they will make and the enforcement actions that they will take of any force? I am not sure that anyone knows the answer to that question, but the unfolding of the story will be interesting.
In a similar vein, several of the Republican candidates for President are talking about repealing Dodd Frank. That will be a lot easier said than done. When you review all of the things that Dodd Frank did, you realize that sometimes you cannot put the tooth paste back into the tube. For example, the Office of Thrift Supervision has been eliminated. It would be impossible to recreate it. And there are a multitude of similar situations. If nothing else, this political year will be interesting, and its results will have a huge impact on the banking industry.