Recess Appointment at CFPB Is High-Stakes Move

By Ron Mann (Professor of Law at Columbia University)

President Obama’s decision yesterday to use a recess appointment to install Cordray as the first Director of the Consumer Financial Protection Bureau is a daring move to finally get the agency up and running. For a variety of reasons related to compromises about the agency’s original design, the agency does not obtain many of its most important powers until its first Director is appointed. Essentially, it has been exercising the regulatory and supervisory powers transferred to it from the Federal Reserve Board and the Federal Trade Commission since July, but the newly granted powers under Dodd-Frank have been in limbo pending the appointment of a director. So if the CFPB now has a director, it can now for the first time exercise two of its most important powers: challenges to “abusive” activities involving consumer financial services (a power broader than the FTC’s similar power); and supervision of large non-depository service providers like payday lenders.

(Related: Obama’s Recess Appointment of Cordray Eschews Constitutional Process) 

The action is most provocative because it is certain to be met by a serious constitutional challenge. The principal reason the President has waited so long to make this appointment is because the Senate has declined to go into recess since he originally nominated Cordray. The President, however, has taken the position that the “pro forma” sessions the Senate has scheduled to prevent itself from technically going into recess are not enough under the Constitution — that the Senate for legal purposes is in recess even if it claims to be in session. The only thing sure about that argument is that it will be settled in the courts (and presumably in the Supreme Court). To be sure, it may be quite a while before the question finally is resolved (probably long after Cordray’s appointment expires next year). This is because regulated entities affected by the appointment probably cannot challenge it until Cordray takes some affirmative act. But it is a safe bet that the first substantive regulation or enforcement activity taken under the authority the agency gained from Cordray’s appointment will be met by a vigorous (and non-frivolous) argument that the appointment (and all actions taken by Cordray) are invalid.

Ron Mann is one of the leading global authorities on the law and economics of payments. He has authored numerous authoritative books and articles on the law of payments including Payments Systems and Other Financial Transactions.  He is a Professor of Law at Columbia University.