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Cordray installed as CFPB head without Senate approval

Wednesday, President Obama installed former Ohio Attorney General Richard Cordray as director of the Consumer Financial Protection Bureau, but without Senate approval, by using his authority under the Constitution to make a recess appointment. Several questions have arisen in the wake of this action which many see as purely political.

Here's the background: In an effort to prevent a “recess appointment” from taking place, the Republican-led House did not agree to go into recess in December. Pro forma Senate sessions have been held every three days in accordance with the established precedent in such circumstances (trying to prevent a recess appointment by the President). This process has been routinely followed by both Democrats and Republicans.

There are decades of precedent that the nation's chief executive has the power to ignore the “advice and consent” requirements for his nominees only when the Senate is in a genuine recess, which has been defined as one lasting longer than three business days. The administration's legal team concluded that the Senate was effectively in recess even though it was holding the pro forma sessions.

“There are at least two issues on the table,” said OBA President Roger Beverage. “The first is whether the Senate was truly in 'recess' thus triggering the President's authority under the Constitution. The second is whether a 'recess appointed' Director has legal authority to operate the Bureau in its normal course of business.

“Taking the second question first, some are arguing that the Director must be Senate-confirmed before authority over non-banks attaches. In reading the statutory language, however, I'm not so sure this is a very strong argument. It's technical and sometimes confusing, but the language is fairly clear, at least in my view, and does not require an actual Senate confirmation.

“Many will also argue that the bureau's future actions are in jeopardy, which threatens its work, and which could cause a great deal of uncertainty going forward,” Beverage continued. “But that's only if it turns out that the 'recess' appointment wasn't valid. I think that's where the fight will ultimately be had.”

ABA's President and CEO Frank Keating said that it's critical for Congress to strengthen CFPB accountability by instituting a board or commission to address the director's unchecked authority to make decisions that could limit consumers' financial choices.

“By abandoning the opportunity to compromise on the governance structure of the CFPB, the potential to create regulatory clarity for our industry, allow for the regulation of nonbanks, and ultimately benefit consumers is damaged,” he said.

You can read all of Keating's statement by clicking here.

Cordray's term will run through 2012, at a minimum. It could go into 2013 if the president is reelected in November. 

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