January 4, 2012
The White House's bombshell decision to install Richard Cordray at the helm of the Consumer Financial Protection Bureau through a questionable recess appointment signaled that the White House is convinced the move benefits President Obama's reelection bid and is willing to take the heat for it on Capitol Hill and in the courts. "What the White House is thinking here is that this is a 'three for,' " said Edward Mills, an analyst with FBR Capital Markets. "It fits every narrative that the reelection campaign is trying to hit. It is fighting for the middle class; running against the banks; and running against Republican obstructionism in Congress." Obama announced the appointment in the swing state of Ohio as the White House linked the move to their campaign of attacks on congressional obstruction. The exceedingly rare step of circumventing a Senate technically in session instantly antagonized Republican leaders, who called the move a "power grab." Others equated it with the "nuclear option" of disarming the filibuster. In one bold stroke, Obama broke what Democrats called an unprecedented GOP attempt to hold up installation of any CFPB chief unless Democrats agreed to change the agency's structure. Republicans filibustered Cordray's nomination last month. Obama's move marks a new step in a procedural arms race in which both parties, while professing outrage, counter each other's obstruction with new procedural tactics. Legally, Cordray has no better claim to a recess appointment than any other pending nominee. But because Republicans blocked Cordray on the grounds that they oppose the bureau rather than think him unqualified, Democrats feel they have a stronger political case for installing him. Lawyers of all stripes agree that legal challenges are inevitable, and that, like the health care law, they could ultimately wind up before the Supreme Court. Whether the unprecedented maneuver ultimately survives legal scrutiny does not outweigh the short-term gain, according to many Democratic leaders and consumer advocates. "How are they any worse off?" asked Rep. Barney Frank, D-Mass., coauthor of the eponymous 2010 law that created the agency. Beyond the perception of having more authority with a permanent leader in place, the bureau's powers to take action against financial providers such as check cashers, payday lenders, and mortgage brokers are not activated until a director is officially installed. "This will give the bureau the full authority to enforce its powers," Frank said. "Right now it can't go after the nonbanks. If the court says, 'You can't do this,' well, it wasn't going to get it done without this so what's the downside?" Sidestepping Senate Republicans may turn up the acrimony that has prevented Congress from performing its most basic functions without coming to the brink of implosion this year and could doom pending would-be financial regulators for critical posts, such as leaders for the Federal Deposit Insurance Corp., Federal Reserve Board, and Office of the Comptroller of the Currency. In installing Cordray, the move automatically brings a consumer perspective to financial regulation. The CFPB director gets to serve on the board of the FDIC, and the Financial Stability Oversight Council, which both have a major say in carrying out financial regulations under the Dodd-Frank Act and setting banking policies. "The anxiety levels in the banking industry have shot up tenfold overnight," said Richard Hunt, head of the Consumer Bankers Association. "It's going to give great consternation to the new powers of the CFPB." Any new regulation issued by the agency will likely be contested in court on the grounds that Cordray's installment was unconstitutional. "There will be a cloud over everything the bureau does in any kind of official way for a very lengthy period," said Alan Kaplinsky, a partner with Ballard Spahr. "This is the kind of thing that probably goes all the way to the U.S. Supreme Court. It's a colossal waste of resources." The U.S. Chamber of Commerce's David Hirschmann called the move a "lightning rod" that amounted to a "slash-and-burn approach" but would not commit his group to a lawsuit. "As we've shown in the past, we'll pursue every avenue possible to ensure that regulators do their job within the law effectively," he warned. Cordray's term is expected to run through the end of 2013, although that is under debate. There is a question about how much the bureau can accomplish this year, and it might have a limited window in which to act with full authority beyond then if Democrats lose the Senate and/or the White House. "The agency can't act rashly, but it can get the ball rolling now very prominently and firmly on a number of these problems and say, 'Here's what we identify as serious problems we are going to address, and here's what we are going to do to address them,' " said Travis Plunkett, the legislative director for the Consumer Federation of America. "I would think by later this year some of those steps should be well underway." Advocates who fought for the consumer agency's July 2010 creation say that having a leader in place is long overdue. Lawrence Kaplan, a banking lawyer with Paul Hastings, said the only surprise was that it took the administration so long to act. "It's an agency that needs a leader," he said. "It's been totally stymied. Clearly, Republicans were holding it up more for politics and they are not going to be happy but it was passed into law and this allows the agency to start doing its job." Julia Edwards, Dan Friedman and Billy House contributed to this report.
January 4, 2012