Thursday, July 31, 2014
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Will NLRB beatdown wreck Obama's consumer board, too?

Democrats may agree to give banks veto power to keep the Consumer Finance Protection Board in business, says bank lawyer Alan Kaplinsky

Will NLRB beatdown wreck Obama's consumer board, too?

Richard Cordray, the first head of the Consumer Financial Protection bureau. (AP Photo / Kiichiro Sato)
Richard Cordray, the first head of the Consumer Financial Protection bureau. (AP Photo / Kiichiro Sato)

Could the D.C. federal appeals court's overthrow of President Obama's three pro-union National Labor Relations Board members -- who Obama appointed directly while Congress was in recess, after he couldn't get Republicans to back his picks -- affect other recess appointments, like Obama's pick of Richard Cordray to head the Consumer Financial Protection Bureau? Decision here

"Absolutely," says bank lawyer Alan Kaplinsky, partner at Philadelphia-based Ballard Spahr and longtime counsel to credit card and consumer lenders who has long fought government efforts to rein in financiers.

"The logic of the DC Circuit Court opinion applies with equal force to Obama's appointment of Cordray to head the CFPB. There's no way to distinguish the situations. The appointments were made the same day. The same infirmities the court found with the appointment of the three people to the NLRB apply to Cordray's appointments," Kaplinsky told me.

"That being said, it's still business as usual for CFPB. I was there today for a client. They've indicated nothing has changed. But there's a huge cloud of uncertainty that overhangs CFPB. Unfortunately there is no sunshine appearing yet.

"The solution will probably not come from the courts. There's a very strong likelihood in my view that if the Supreme Court hears this case they will agree with what the D.C. Circuit Court has done.

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"So there is a need for a political solution. Obama and the Republicans are going to have to make a deal: either the Repulbicans agree not to hold up Cordray's nomination, or to make some changes to CFPB by subjecting the management of that agency to a five-person commission, rather than a sole director, and subjecting CFPB to the congressional appropriations process, instead of getting funding by the Federal Reserve."

That, of course, would give big banks what they want: a politically-accountable board that could be captured by the industry, especially during sympathetic Presidential administrations. 

What's at stake? "Number One, the biggest change affected by creation of CFPB, is that nonbanks are now subject to federal supervision and enforcement" of fraud and consumer abuse limits.

"My bank clients agree there's been an unlevel playing field. I don’t think any of them were thrilled by creation of CFPB. It was of some solace to them that it leveled a playing field. Mortgage companies, payday lenders, private student lenders, credit bureaus, debt collectors and debt buyers and law firms that collect debts. They are now being examined by CFPB," and the court ruling makes it easier for them to resist or, ultimately, refuse to accept government limits on interest rates, fees and practices.

"Number Two, they’ve issued such an avalanche of thousands of pages of regulations issued just within the past couple of weeks. Now there is a big cloud hanging over whether these regulations are valid. The banks don’t like them but can live with them. (It's more of a problem for) the smaller banks," who have to hire compliance officers or face pressure to sell out. To the extent it cripples Cordray, the court ruling eases pressure on those small banks, too. 

There may be a workaround that could keep the Obama administration in control of the consumer bureau for now, adds Kaplinsky: "There's a provision of the Dodd-Frank Act gives Secretary of the Treasury the right to do things at the bureau if bureau doesn't have a director. The acting Secretary of the Treasury,  if he wanted to, Neil Wolin, could ratify all the regulations." Though he couldn't extend that to supervising nonbanks, he added.

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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