RSSDespite a memo from the Justice Department defending the President’s recess appointment of Richard Cordray, Obama’s actions have raised significant constitutional issues and, in turn, more uncertainty for the banking industry.
On Jan. 4, Obama made “recess appointments” for Cordray to lead the Consumer Financial Protection Bureau and for three nominees to serve on the National Labor Relations Board.
Congressional Republicans had held pro-forma sessions every three days – defined as sessions held for the sake of formality, in which no business is transacted – in an attempt to block such appointments.
Written at the request of the White House, the Jan. 6 Justice Department memo says that the pro-forma sessions did not “not interrupt the intrasession recess in a manner that would preclude the President from determining that the Senate remains unavailable throughout to ‘receive communications from the President or participate as a body in making appointments.”
In this complicated constitutional matter, there are a number of arguments that can be raised, said Karen Grandstrand, chair of the Bank & Finance Group at Fredrikson & Byron, a Minneapolis-based law firm:
- First, there is the issue of whether the Senate was actually in recess.
- Second, there is an issue of whether there was actually a “vacancy” to be filled. Article II, Section 2 of the Constitution grants the President the authority to make recess appointments, stating, “The President shall 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.” Some have argued that since Cordray is the first person to fill the position, there was no vacancy to fill.
- Third, language in the Dodd-Frank Act requires that the CFPB director be confirmed by the Senate, which did not occur with Cordray. (Read more on this by Mark A. Calabria in the Cato@Liberty blog.)
- Finally, another potential challenge arises from the three appointments Obama made to the National Labor Relations Board at the same time. “The NLRB could very well take action before the CFPB does, and someone affected by an NLRB ruling would then have standing in court to raise a challenge to the appointments,” Grandstrand pointed out.
On Jan. 13, the National Right to Work Foundation and the National Federation of Independent Business have jointly filed a legal challenge to the constitutionality of the appointments.
“The U.S. Chamber of Commerce has expressed concern over the appointment, but they’ve also said that at this point they do not intend to pursue a legal challenge,” Grandstrand said. “Bank trade associations have also gone on the record expressing concern. To my knowledge, none of them have indicated that they would pursue action. I think that the most likely challenge in the courts might be from entities regulated by the CFPB.”
Indeed, a chief lobbyist for one of the nation’s largest banks – Candi Wolff, Citigroup’s executive vice president for global government affairs – questioned the appointment on the company’s blog.
“Legal challenges to the appointment are likely to come from every quarter – from individuals to community and labor groups to possibly even Congress. How quickly will litigation be resolved and what impact will it have on the decisions handed down by these bureaus in the intervening periods?” Wolff wrote.
Members of Congress also raised the issue during a House Oversight subcommittee hearing on Jan. 24. Chairman Darrell Issa, R-Calif., asked Cordray if the Bureau has a legal strategy in place, should his appointment be overturned in court. “In other words, do you have a Plan B?” Issa asked.
“It’s a good question, and it’s a bit of a dilemma,” Cordray responded.
In addition to questions about Cordray’s authority to make decisions at the CFPB, he also serves on the FDIC Board – which could lead to controversy over FDIC Board decisions as well.
“This is one more area now where there is lack of certainty, with some questioning again what authority the CFPB may or may not have. This just further complicates issues, in a climate where we already have a fair number of unanswered questions,” Grandstrand said.
