Court Ruling May Force Deal on CFPB Structure

in In the News
January 30th, 2013

From American Banker
By Donna Borak, Victoria Finkle and Kate Berry
January 28, 2013

WASHINGTON — A ruling by a federal appeals court last week that President Obama acted improperly in recess appointing members of the National Labor Relations Board may encourage Democrats to cut a deal on the structure of the Consumer Financial Protection Bureau.

Senate Republicans have refused to consider any nominee to head the CFPB for the past two years unless several changes are made, including replacing the single director with a five-member commission and subjecting it to the congressional appropriations process.

But the Obama administration has resisted those changes, arguing the issue was already decided by the Dodd-Frank Act that created the consumer agency. Instead, President Obama recess appointed Richard Cordray last year to head the bureau, a move that many GOP lawmakers derided as unconstitutional.

The ruling by the U.S. Court of Appeals for the D.C. Circuit, which said the recess appointments to the NLRB were unconstitutional, has bolstered the GOP’s position, as those appointments were done at the same time as Cordray’s selection. Although the White House is expected to appeal the ruling to the Supreme Court, that fight could drag out for months or longer…

Cutting a deal at least gives CFPB legal certainty surrounding any rulemakings and enforcement actions it has taken to date — a key issue should a legal case against the agency proceed…

House Financial Services Committee Chairman Jeb Hensarling said Friday that the court ruling should push the Obama administration to cut a deal…

Observers agree that the most likely deal would be to replace the agency’s single director with a five-member commission. Democrats are far less likely to agree, however, to require the CFPB to submit to the appropriations process, something that is not required of the other banking regulators…

Yet some said the Democrats may hold out on any deal. Technically speaking, the NLRB ruling did not directly affect Cordray, and it would likely take significant time for a legal challenge against the agency to proceed…

So far, the only lawsuit with relevance to the CFPB is one from a small Texas bank, which is challenging the constitutionality of the Dodd-Frank law and Cordray’s appointment. The decision in the NLRB’s case could provide that bank with a legal reinforcement to it argument.

Still, that could take years to resolve. In the meantime, the bigger question will be applicability of the laws that the CFPB has drafted under Cordray…

Supporters of the CFPB may also fear that opening up the debate on structural changes to the agency could lead to pushes for other modifications to the Dodd-Frank reform law. Analysts have said that similar concerns are already delaying passage of a broader technical corrections bill, for fear the discussion would move toward re-litigating major substantive aspects of the law.

“Democrats are not going to engage in a debate if the club in the closet is total repeal of Dodd-Frank. Why should they do that? Perhaps if they could confine the discussion to those two structural issues,” said Cornelius Hurley, director of Boston University’s Center for Finance, Law & Policy. “CFPB is starting to do significant things. The more the impact of those things is considerable, the stronger the case that can be made that it be a commission or a board rather than one person. But the merits of that get lost in the bombast of total repeal of Dodd-Frank…”

Read the full article at AmericanBanker.com (subscription required).