By Paula Dwyer
It was obvious that the Consumer Financial Protection Board was in trouble almost as soon as a federal appeals court ruled late last week that President Barack Obama had overreached in bypassing the Senate to install three people on a labor-relations board.
It’s now becoming clear that the decision by the U.S. Court of Appeals in Washington could emasculate the consumer bureau for a long time. Here’s why:
The ruling, as the White House hastened to point out on Jan. 25, technically concerns only the National Labor Relations Board and the soda bottling company challenging its ruling in a collective-bargaining dispute. But companies looking to undo any of the more than 200 decisions by the NLRB over the past year won’t hesitate to file similar court challenges. And they’ll probably win.
Without the recess appointees, the labor board has only one confirmed member. It needs at least three of its five board members to conduct business.
The Consumer Financial Protection Bureau could be just as crippled. Obama named Richard Cordray, the former Ohio attorney general, to head the consumer bureau on the very same day that the three NLRB board members were named. Any lender, credit-card issuer or mortgage broker that is unhappy with the consumer bureau’s rules, or that is subject to a supervisory action for failing to adhere to them, could challenge Cordray’s appointment now. If found invalid, every regulation the CFPB has ever written would be invalid, too.
It gets worse. The Dodd-Frank financial reform law, which created the consumer bureau, stipulates that the agency can’t issue any rules unless it has a permanent chairman. Any bank that dislikes the CFPB’s new rules for, say, requiring that mortgage borrowers have the financial ability to repay their loans, could stop the bureau dead in its tracks by challenging Cordray’s appointment.
Obama renominated Cordray Jan. 24, but the chances that the Senate will confirm him are slim to none, which is why Obama sought to bypass the Senate in the first place. A group of Republican senators, led by Richard Shelby of Alabama, have blocked Cordray because they dislike the way the Dodd-Frank law created the bureau. To them, the CFPB isn't accountable to Congress because it's housed in the Federal Reserve and receives its funding from the Fed, yet doesn't answer to the Fed board or to Chairman Ben S. Bernanke.
Moreover, the CFPB, unlike most other regulatory agencies, isn't overseen by a commission with representatives from both parties. In other words, the Republican senators view the CFPB as politically untouchable.
This sad state of affairs, which revolves around the constitutionality of recess appointments, was all but inevitable. Truth be told, Democrats started it.
During President George W. Bush’s tenure, Senate Democrats began holding pro-forma sessions whenever the Senate took a holiday break. A single senator would appear in the chamber every third day just long enough to bang the gavel and technically keep the Senate in session. In doing so, Democrats blocked Bush from making any recess appointments.
With Obama in the White House, Republicans turned the tables. To prevent him from making appointments after Congress started a holiday break in December 2011, House and Senate Republicans refused to formally adjourn.
The president named the three NLRB members and Cordray anyway on Jan. 4, 2012. The Senate was holding a pro-forma session, but because no real business was being done, the White House decided it was a sham and made the appointments.
The court held that the appointments were “constitutionally invalid” because the Senate wasn't in recess at the time. The court moreover agreed with the bottling company’s argument that a recess only occurs in the period between one session of Congress and the next, not when members are simply absent, and especially not if the Senate says it hasn't adjourned.
Chief Judge David B. Sentelle sharply criticized the president for seeking “free rein to appoint his desired nominees at any time he pleases, whether that time be a weekend, lunch, or even when the Senate is in session and he is merely displeased with its inaction,” Sentelle wrote. “This cannot be the law.”
The White House will almost certainly appeal, but first may try to get the full court of appeals in Washington to rehear the case before asking the Supreme Court to consider it.
It’s difficult to overstate the decision’s importance and reach. For now, the Consumer Financial Protection Bureau and the labor-relations board are essentially decapitated. The future of the recess appointment as used by past presidents is also in doubt. (President Bill Clinton made 139 recess appointments, while President George W. Bush made 171 and Obama 32 so far, according to the Congressional Research Service.)
If recess appointments are limited to the short window that opens every two years when one Congress ends and another begins, then nothing short of the ability of presidents to govern is at stake. If Obama or a future president can’t install the Cabinet heads, regulatory agency chairmen and federal judges he or she wants over the objections of the minority, the government will cease to function.
(Paula Dwyer is a member of the Bloomberg View editorial board. Follow her on Twitter.)-0- Jan/28/2013 16:02 GMT