Defying GOP, Obama names Cordray to head the CFPB

Defying Republican leaders, President Obama has decided he can use the congressional recess to appoint Richard Cordray, the former Ohio attorney general, to head the new Consumer Financial Protection Bureau.

White House communications director Dan Pfeiffer announced the decision this morning in a blog post that said Cordray had one primary duty: to "look out for the best interest of American consumers." According to the Washington Post, the timing of Cordray's appointment means he can serve till the end of 2013.

The announcement followed reports by the Associated Press, the Wall Street Journal and the The New York Times that said White House lawyers had decided they could sidestep efforts by the GOP to block a recess appointment by keeping Congress formally in session.  It drew a swift rebuke from the Senate minority leader, Mitch McConnell (R., Ky.), who issued a news release headlined, "Arrogantly Circumventing the American People with an Unprecedented ‘Recess Appointment’ of an Unaccountable Czar."

The White House blog said:

The President nominated Mr. Cordray last summer. Unfortunately, Republicans in the Senate blocked his confirmation. They refused to let the Senate go forward with an up or down vote. It’s not because Republicans think Cordray isn’t qualified for the job, they simply believe that the American public doesn’t need a watchdog at all. Well, we disagree.

And we can’t wait for Republicans in the Senate to act. Now, you might hear some folks across the aisle criticize this “recess appointment.” It’s probably the same folks who don’t think we need a tough consumer watchdog in the first place. Those critics might tell you that Wall Street should write their own rules. Or you might hear them say the American people are better off when everyone is left to fend for themselves. Again, we disagree with those critics.

Here are the facts: The Constitution gives the President the authority to make temporary recess appointments to fill vacant positions when the Senate is in recess, a power all recent Presidents have exercised. The Senate has effectively been in recess for weeks, and is expected to remain in recess for weeks. In an overt attempt to prevent the President from exercising his authority during this period, Republican Senators insisted on using a gimmick called “pro forma” sessions, which are sessions during which no Senate business is conducted and instead one or two Senators simply gavel in and out of session in a matter of seconds. But gimmicks do not override the President’s constitutional authority to make appointments to keep the government running. Legal experts agree. In fact, the lawyers who advised President Bush on recess appointments wrote that the Senate cannot use sham “pro forma” sessions to prevent the President from exercising a constitutional power.

Congressional Republicans had been trying to block Obama from naming anyone to head the CFPB, which was established by 2010's Dodd-Frank financial reform, unless Democrats agree to amendments weakening the new agency. Without a director, the CFPB has been unable to fulfill many of the duties assigned it by Congress, including oversight of nonbank financial institutions.

McConnell's statement said:

Although the Senate is not in recess, President Obama, in an unprecedented move, has arrogantly circumvented the American people by 'recess' appointing Richard Cordray as director of the new CFPB. This recess appointment represents a sharp departure from a long-standing precedent that has limited the President to recess appointments only when the Senate is in a recess of 10 days or longer. Breaking from this precedent lands this appointee in uncertain legal territory, threatens the confirmation process and fundamentally endangers the Congress’s role in providing a check on the excesses of the executive branch.

The CFPB is poised to be one of the least accountable and most powerful agencies in Washington. Created by the deeply flawed Dodd-Frank law, it is subject to none of the checks that independent agencies normally operate under, and will have an unprecedented reach and control over individual consumer decisions. Earlier this year, 44 of my Senate Republican colleagues and I served notice that we will not confirm any nominee as director, regardless of party, until structural changes are made to make the bureau accountable to the American people—and more transparent. Our request was met with silence from the administration. As a result just last month the Senate rejected Cordray’s nomination. Congress has a constitutional duty to examine presidential nominees, a responsibility that serves as a check on executive power. But once again, the President has chosen to circumvent the confirmation process.

As I wrote last spring, McConnell's arguments rely on the assumption that voters have short memories about the causes of the housing bubble and credit crisis that triggered our long economic slump.  And GOP assertions that the new agency would be remarkably unaccountable and powerful have been debunked by no less an authority than the American Banker.  In some ways, the CFPB faces more checks and balances than any other financial regulator - including the possibility that its rules can be overridden by the new Financial Stability Oversight Council.

[UPDATE] In a statement from its president, Frank Keating, the American Bankers Association warned that the unusual path to Cordray's recess appointment could cast a shadown over the bureau's actions:

The controversial nature of today’s recess appointment reinforces the banking industry’s concerns about the Bureau’s structure and lack of accountability. It puts the Bureau’s future actions in constitutional jeopardy, threatening its work, complicating compliance efforts of banks and further undermining the entity’s authority and credibility. Moreover, with this appointment, the President has also altered the composition of the board of the FDIC, potentially undermining its official acts. This is at the same time that FDIC appointments, including that of its chairman, are pending in Congress.

It’s critical that Congress strengthen accountability at the CFPB by instituting a board or commission to address the director's unchecked authority to make decisions that could limit financial choices available to consumers. The FDIC, SEC, FTC, Federal Reserve and the Consumer Product Safety Commission all have boards.

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 non-banks, and ultimately benefit consumers is damaged.

Obama's recess appointment quickly drew praise from consumer advocates such as Ed Mierzwinski of U.S. PIRG, who said GOP opposition played into the hands of financial institutions that wanted to avoid stronger regulation:

Unfortunately, without a director, the CFPB would have remained a second-class regulator without full authority over either the Wall Street banks that destroyed the economy or the payday lenders seeking to pick consumer pockets. Opponents make the false claim that the CFPB is “unaccountable” even though its structure, independence and funding are no different than those of other bank regulators. Opponents want it killed, not changed.

Elizabeth Warren, the Harvard law professor who first proposed the new agency and was widely expected to be tapped to run it, also hailed Obama's decision.  Warren, now running for the U.S. Senate from Massachusetts, said in an email statement:

Republicans never had any substantive objections to Mr. Cordray, the very qualified former Attorney General of Ohio. Instead, Senate Republicans blocked a confirmation vote for anyone to head up the consumer agency. Instead of implementing the law as written, Senate Republicans tried repeatedly to undermine the agency’s effectiveness and to frustrate efforts to hold the big banks accountable for bringing our economy to its knees.

The President made every effort to present a candidate for a Senate vote, but he was right not to let Senate Republicans block full implementation of the consumer agency. Senate Republicans will surely complain about the recess appointment, but their refusal to allow an up or down vote on Cordray’s nomination is just another example of the political games in Washington that must end.

It’s time the big banks and their allies acknowledge the urgent need for change. It is time to work with Richard Cordray as he promotes basic, common sense rules to level the playing field for consumers.

[UPDATE] Cordray welcomed the recess appointment in a blog post that outlined his priorities and why he believes the new bureau is important for protecting consumers:

Financial products can help make life better, but they can also make life harder. Most of us know at least someone -- a parent or sibling or friend -- who has money troubles. Sometimes, those troubles are caused by a tough break or just not having enough money to go around; other times, by a poor decision. But sometimes, those consumer money troubles arise out of problems in the consumer financial markets. I have seen senior citizens lose their life savings to scams and fraud. I have seen young adults start their lives with crushing student loan debt burdens that they cannot afford. I have seen families bankrupted, and thrown out of their homes, by complex mortgages with spiraling interest costs and monthly payments that were never clearly explained.