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Showdown in Washington: Obama Appoints CFPB Chief under Legal Cloud 

Last July, President Obama appointed Richard Cordray of Ohio to lead the Consumer Financial Protection Bureau, which was established in 2010 as part of the Dodd-Frank Act.  In the following months, the Senate refused to act on Cordray’s appointment, mostly due to Republican opposition to the mission of the new agency.

On January 4th of this year, the President sought to break the deadlock by making a “recess appointment” of Cordray while the Senate was not in session.  However, a key question is whether or not the Senate was truly in “recess.”   If not, the appointment might not be legal, which could invalidate certain actions the CFPB might take under Cordroy.   

Generally speaking, Presidents have the ability to make certain appointments without Senate confirmation when the Senate is not in session, i.e. the Senate is in “recess.”   However, such recess appointment authority may not be utilized when a recess lasts fewer than three days.  Using this rule, Republicans in the Senate have successfully blocked recess appointments by scheduling “pro forma” sessions every three days, which are session days where no business is conducted.  This tactic has the effect of keeping the Senate in session even when, practically speaking, the Senate is in recess.  Democrats in the Senate used this tactic during the Bush Administration.

According to observers, the President’s move is part of a larger strategy to take on an unpopular Congress during the months leading up to the 2012 presidential election.   

In making the appointment of Cordroy, the President hopes to allow the CFPB to begin enforcing its rules against a range of non-bank financial institutions, including payday lenders, debt collectors, credit reporting agencies, check cashers, and mortgage servicers.  But the ability of the CPFB to enforce these rules may evaporate if the appointment of Cordroy is not legal, prompting speculation that certain business groups may legally challenge the appointment. 

However, the Obama Administration argues that the appointment is valid, and is prepared to defend it.  In the meantime, the authority of the CFPB over non-banks hangs in the balance.

For more information, here are some recent articles on the Cordray appointment from a wide range of perspectives:

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