Recess appointment puts Cordray in charge

President Obama made a recess appointment on Jan. 4, announcing that Richard Cordray will lead the Consumer Financial Protection Bureau.

President Obama made a recess appointment on Jan. 4, announcing that Richard Cordray will lead the Consumer Financial Protection Bureau during a campaign-like speech in Shaker Heights, Ohio, and on the White House blog.

Obama nominated former Ohio attorney general Cordray for the position last summer.

“For almost half a year, Republicans in the Senate have blocked Richard’s confirmation. … They want to weaken the law.  They want to water it down.  And by the way, a lot of folks in the financial industry have poured millions of dollars to try to water it down,” Obama told the crowd in Ohio.

“[W]hen Congress refuses to act, and as a result, hurts our economy and puts our people at risk, then I have an obligation as President to do what I can without them,” he said of the recess appointment.

Some in Congress question whether Obama can actually make a recess appointment, given that both the House and Senate have been holding pro-forma sessions every three days. According to the Constitution, the House and Senate cannot adjourn for longer than three days without the consent of the other chamber. Neither chamber has passed an adjournment resolution for this session, USA Today reported.

Others question the scope of Cordray’s authority. The Dodd-Frank Act specifies a “director confirmed by the Senate.”

Another detail emerges about the timing of the appointment: “Had [President Obama] appointed Cordray yesterday, during a brief period when the Senate was technically in recess, the action would have been supported by precedent. Apparently, though, that appointment would have lasted only through 2012. By appointing Cordray today, Obama can keep him at CFPB through 2013,” writes Timothy Noah at The New Republic.

In December, Senate Republicans used a filibuster to block Cordray’s nomination, ending seven votes short of the 60 needed for a final confirmation vote.

Without a director in place, the CFPB could not regulate nonbank financial service providers.

“In particular, we lacked the ability to supervise financial institutions other than big banks – like nonbank mortgage lenders and servicers, and payday lenders. Many of these institutions had no regular federal oversight in the run up to the financial crisis. They led a race to the bottom that pushed aside responsible businesses, including community banks and credit unions, and greatly harmed consumers,” Cordray wrote on the CFPB blog. Cordray previously served as head of enforcement for the Bureau.

The recess appointment could jeopardize the nominations of other banking regulators. All could become “collateral damage in an escalating fight between Senate Democrats and Republicans,” according to the San Francisco Chronicle, including: Martin J. Gruenberg to lead the Federal Deposit Insurance Corp.; Thomas Hoenig, FDIC vice chairman nominee; Thomas J. Curry, tapped to lead the Office of the Comptroller of the Currency; and two Federal Reserve governor nominees, Jerome H.  Powell and Jeremy Stein.

The American Bankers Association voiced its concerns with a statement that began:

The controversial nature of today’s recess appointment reinforces the banking industry’s concerns about the Bureau’s structure and lack of accountability. It puts the Bureau’s future actions in constitutional jeopardy, threatening its work, complicating compliance efforts of banks and further undermining the entity’s authority and credibility. Moreover, with this appointment, the President has also altered the composition of the board of the FDIC, potentially undermining its official acts. This is at the same time that FDIC appointments, including that of its chairman, are pending in Congress.

The U.S. Chamber of Commerce was vocal in its criticism as well, saying, “Under its current structure, the CFPB is rife with uncertainty and has the potential to harm our economy and job creation.”

Consumer advocates praised the President’s action, calling for the CFPB to act quickly to crack down on payday lenders. In fact, the stock prices for several national payday lending chains fell after Obama made the announcement.

Pundits called Obama’s move a calculated re-election strategy. “It fits every narrative that the reelection campaign is trying to hit. It is fighting for the middle class; running against the banks; and running against Republican obstructionism in Congress,” said Edward Mills, an analyst with FBR Capital Markets. Read more at

Fredrikson & Byron Law