Recess Appointments Ruling Raises Questions of CFPB Authority

February 7, 2013 at 8:00 pm Leave a comment

A recent ruling by the D.C. Circuit Court of Appeals on the power of the President to make recess appointments casts doubt on the enforceability of the issuances and orders (collectively, the “Orders”) of the Consumer Financial Protection Bureau (the “CFPB”) under current Director Richard Cordray.  The Orders enacted by the CFPB rely upon the authority granted to the Director of the CFPB under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  If Director Cordray has not been properly appointed, then all of the CFPB’s actions to-date under his directorship would be called into question.

 D.C. Circuit Court Ruling

The ruling (available here), specifically addressed an appeal of a decision by the National Labor Relations Board (the “NLRB”) against Noel Canning, a division of the Noel Corporation.  At the time of the NLRB decision, three of its members had been appointed by President Obama as recess appointments pursuant to the power established under the Recess Appointments Clause of the Constitution. This provision provides that “[t]he 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 D.C. Circuit Court found that the President exceeded this power in the recess appointments of the NLRB.  In contrast to the modern practice of presidential recess appointments, the court concluded that the recess appointment power is limited:

  • The power may only be used during an intersession recess of the Senate, the period between sessions of the Senate when the Senate is by definition not in session.  The NLRB had argued that the Clause included intrasession recesses, or breaks in the Senate’s business when it is otherwise in a continuing session.
  • The vacancy must arise during the recess and the filling of a vacancy must be done during the same recess in which the vacancy arose.

Based on its analysis of the recess appointment power, the court found that three recess appointed members were not properly appointed.   Without these three members, the NLRB did not have the necessary quorum and therefore, could not lawfully act in its decision.  This decision represents a significant reduction in the power of the President with respect to recess appointments.  Because of the importance of the parameters to the President’s recess powers addressed in the case, the U.S. Supreme Court will likely agree to hear an appeal of the decision and will have the final say on the issue. Until then, the D.C. Circuit opinion will control any new cases that come before that court. 

Impact on CFPB

Like the members of the NLRB disqualified by the D.C. court, Director Cordray was also appointed under the President’s recess power.  Further, Director Cordray’s appointment would similarly exceed the recess power, as described by the DC circuit court in its ruling, because he was appointed on the same day as the NLRB members disqualified under the ruling.  

However, the actions by the CFPB under Director Cordray have not been invalidated overnight.  As mentioned above, the U.S. Supreme Court will likely reach the final determination of the limits on the recess power of the President. Moreover, a party who has been harmed by a CFPB ruling must assert a valid challenge to Director Cordray’s authority (litigation in the D.C. Circuit Court is already pending).   Even if a court determines such circumstances exist for them to hear the case, courts generally try to avoid broad outcomes in their decisions.  If there is a basis to resolve litigation with respect to Director Cordray’s authority without invalidating every Order of the CFPB to-date, a court will likely limit its ruling to such reasoning.

Ultimately, a court will need to weigh in on the actions of the CFPB under Director Cordray and his appointment pursuant to the recess appointment power of the President. In the meantime, a political compromise with Congress may reach a resolution to the issue before a court ever rules.  Unsurprisingly, D.C. continues to find new ways to generate more uncertainty for banks.

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