Bloomberg News

Cordray Nomination Shows U.S. Consumer Bureau Battles Remain

January 25, 2013

The re-nomination of Richard Cordray to run the U.S. Consumer Financial Protection Bureau shows that the former Ohio attorney general has won the confidence of Democrats who fought for the agency’s creation despite his failure to win over Republican critics.

President Barack Obama yesterday put Cordray’s name forward for a full five-year term after more than a year of work in which he oversaw the agency’s effort to protect consumers from scams and other abuses in the financial services market.

“Through it all, Richard has earned a reputation as a straight shooter and somebody who’s willing to bring every voice to the table in order to do what’s right for consumers and our economy,” Obama said at a White House news conference.

“There’s absolutely no excuse for the Senate to wait any longer to confirm him,” Obama added.

Opponents of the nomination may point to a ruling today by the U.S. Court of Appeals in Washington to support their argument that Obama’s appointment of Cordray to the post in January 2012 was unconstitutional.

Obama bypassed Republican opposition by installing Cordray through a so-called recess appointment, arguing that the Senate was out of session. That move put Cordray in the job through the end of 2013.

‘Constitutionally Invalid’

The court ruled that three Obama recess appointments made at the same time, to the National Labor Relations Board, are “constitutionally invalid” because the Senate was not in recess at the time.

“Considering the text, history and structure of the Constitution, these appointments were invalid from their inception,” U.S. Circuit Judge David Sentelle wrote.

The ruling today is the first substantive decision by a federal appeals court on several challenges to the president’s naming of the NLRB members on Jan. 4, 2012.

Raymond Natter, a partner with Barnett Sivon & Natter, P.C. in Washington said a company can now go into court and seek a “summary judgment motion” overturning the Cordray appointment. That might invalidate the important actions by the bureau since last January, though the decision can be appealed, and the court could preserve some of its decisions.

“It means rules would have to be reissued,” Natter said in an interview. “Proposals would have to be re-proposed. Enforcement actions could be reversed.”

Mark Calabria, a former Senate Republican staffer, said a decision against the Obama administration over the NLRB would probably have the ripple effect of stalling any progress Cordray makes in the Senate. They would also embolden Republicans in their quest to change the law.

Confirmation Process

“How can you have a confirmation process if a court has said he’s been unconstitutionally appointed?” Calabria, director of financial regulation studies at the Cato Institute in Washington said in an interview.

Yesterday’s re-nomination drew praise from consumer groups and Elizabeth Warren, whom Obama passed over for the job when he first nominated Cordray in July 2011.

“The CFPB has had an extraordinary first year and a half holding credit card companies accountable for cheating consumers and adopting the first set of rules to clean up the mortgage market,” Warren, now a Democratic senator from Massachusetts, said in a statement. “Senate confirmation of Rich’s nomination will continue this momentum.”

Cordray has won support from some of the bankers whose companies are overseen by the bureau.

Jamie Dimon, the chairman and chief executive officer of JPMorgan Chase & Co. (JPM:US), praised Cordray’s work as the head of the agency.

‘Great Progress’

“They’ve done a great job,” Dimon said in a television interview with Fox Business News. “They started from ground zero and they are making great progress.”

Dimon singled out the CFPB’s so-called qualified mortgage rule, which outlines underwriting standards, calling them “good, thoughtful” and prompt. “They did it quickly. They didn’t delay.”

The re-nomination may also spark debates over the bureau itself. Republicans are still pressing for the agency to be headed by a multi-member commission before confirming anyone to the job. Democrats will count on Warren, who serves on the banking committee that must consider the nomination, to help block opposition.

The Independent Community Bankers of America, a trade association of smaller banks, also praised Cordray.

Outreach Praised

“Cordray has repeatedly reached out to community banks to better understand how the bureau’s regulations affect our industry, and the CFPB has worked to ensure that new mortgage regulations allow these institutions to continue meeting the needs of their customers and communities,” the group said in an e-mailed statement.

Richard Hunt, president of the Consumer Bankers Association, said the financial services lobby would push to revamp the structure of the agency as a multi-member commission.

“For the past two years, the CFPB has been a political football in part due to its flawed structure,” Hunt said in an e-mailed statement. “This is the perfect opportunity for Congress to replace a sole director with a commission.”

Americans for Financial Reform, an umbrella group of consumer advocates, labor unions and civil rights organizations, said the Senate should simply approve Cordray for a full term.

“The Senate now has a second chance to confirm this commendable nominee,” the group said in an e-mailed statement. “It should.”

Budget Authority

Senate Republicans, using Senate rules that let the minority block nominations, closed ranks to oppose any nominee in 2011 unless the Obama administration agreed to create a commission to run CFPB and subject its budget, now linked to the Federal Reserve, to congressional appropriations.

Senator Richard Shelby, an Alabama Republican who helped lead the fight against Cordray in 2011, has not changed his position, his spokesman Jonathan Graffeo said in an e-mail. Shelby was the top Republican on the banking commission in the last Congress but will be replaced by Senator Mike Crapo of Idaho.

Crapo spoke out against the bureau’s existing structure in a Dec. 8, 2011 speech on the Senate floor. In an e-mailed statement, he affirmed the Republican stance.

“If the president is looking for a different outcome, the administration should use this as an opportunity to work with us on the critical reforms we have identified to him,” Crapo said in the statement.

Warren’s Role

Before her election to the Senate, Warren was the Obama administration adviser who set up the agency and is widely credited with devising the concept behind it. While at the agency, Warren opposed changing the law to create a commission and subject it to congressional appropriations.

Senator Richard Durbin of Illinois, the chamber’s second- ranking Democrat, yesterday said in an interview that the Senate’s expanded Democratic majority in the 2012 election “helps a little” in overcoming Republican opposition, as does Warren.

“We now have a new senator named Elizabeth Warren,” Durbin said. “So there’s going to be an additional strong voice on the floor to support the CFPB.”

The Senate now has 55 Democratic and 45 Republican votes. Rules require 60 votes to end debate and move to an actual vote, which would still allow 40 of those Republicans to block nominees.

New Appointment

A new recess appointment for Cordray is possible, according to a Jan. 9, 2012 report of the Congressional Research Service. “The President may make successive recess appointments of the same or a different individual to a position,” according to the report.

There is a U.S. law that prohibits a recess appointee from being paid “from the Treasury,” according to the report. CFPB is funded via the Fed’s income stream, not through the Treasury.

Cordray has previously expressed interest in running for a statewide office in Ohio. The former governor, Ted Strickland, announced earlier this month he would not seek the Democratic nomination for his old job in 2014, opening the field to other candidates.

Ohio Landscape

David Rothstein, a researcher with Policy Matters Ohio, a Cleveland-based policy analysis group, said the re-nomination may have closed the door on that possibility.

“The buzz around Ohio now is that this cements the idea that Cordray will not run for governor,” Rothstein said in an interview.

In an interview with Bloomberg Television, Cordray said that he does not “think about politics” while working at CFPB.

“I’m in a job that doesn’t mix with politics,” Cordray said in the interview aired on Jan. 10. “I have a lot of work to do looking after consumers across this country and I’m happy to be doing it.”

To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net


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