It was a controversial move for the president, prompting Senate Republicans to accuse him of making a power grab and abusing executive authority. Indeed, Republican resistance to confirming the former Ohio attorney general for the post prompted the recess appointment. The CFPB would be unable to fulfill its mission without a leader at the helm, according to the administration.
To be sure, there are many layers of political calculation on the part of both parties. Will the Republicans challenge the appointment? If they should do so, would it help or hurt their image with the general public? Does the recession appointment paint President Obama as too partisan — a portrayal he has worked hard to avoid? Or will it revive his base?
Whether the appointment can be successfully challenged is a complex legal issue, noted White & Case Partner Ernie Patrikis.
“I am sure the president has consulted with counsel and must have concluded it is a valid appointment,” he told CRM Buyer.
Perhaps a more pertinent question for the business community and consumer advocates is whether the recess appointment could open the CFPB to legal challenge if it should make a move seen as adverse to a particular business constituency.
It is a distinct possibility, said Kevin Petrasic, a partner at Paul Hastings.
“A credible challenger would have to have standing, but a Republican senator could argue that he or she does,” he told CRM Buyer.
However, it probably would not be politically smart to challenge the appointment right away, he continued.
What may happen is that once the CFPB under Cordray makes a move seen as damaging to a company or industry, a suit could be brought forth challenging the CFPB’s authority because its director was appointed during recess, Petrasic speculated.
Until that happens, though, “it would be difficult for a third party, such as the Chamber of Commerce, to assert it has standing,” he said.
Cordray’s appointment compounds other problems Republicans have with the CFPB, White & Case’s Patrikis noted — namely that it is operating on nonappropriated funds, a status rarely bestowed on a government agency. The Federal Reserve Board, for instance, operates on nonappropriated funds.
“I don’t think consumer protection should be placed on the same level as monetary policy is,” said Patrikis. “For that reason, I view this as a flawed agency.”
The CFPB was already a politicized issue, Paul Hastings’ Petrasic observed. Making Cordray head during a recess appointment only politicized it more.
Consumer advocates and Democrats are quick to point out that refusing to confirm Cordray was a play by Republicans hoping to score points with their own base, and that their ultimate goal is to dismantle an agency whose mission is to protect consumers — which is antithetical to their business-friendly worldview.
Now that the CFPB has a director, its powers are significantly enhanced, according to the National Association of Federal Credit Unions. Cordray will be able to write regulations identifying unfair, deceptive or abusive acts or practices by any party offering a consumer financial product or service.
He can also write regulations requiring clear disclosures — both initially and over the term of a product or service. Another power the head of the institution has is the ability to examine and supervise nondepository institutions that originate or service mortgage loans, offer private education loans, or offer payday loans.
One school of thought is that because Cordray was appointed during a Senate recess, he will keep a low profile, Petrasic said. “Personally, I don’t think that will be the case. From what I have read about him, he plans to execute his role as director to the fullest extent allowed.”
The CFPB did not respond to our request to comment for this story.