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The Undirected CFPB

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Yesterday, Richard Cordray appeared before the Senate Banking Committee to present the Bureau of Consumer Financial Protection's semiannual report. His plans to appear before the House Financial Services Committee today ran into a roadblock--House Financial Services Committee Chairman Jeb Hensarling told him not to come. The letter of dis-invitation is premised on the fact that Mr. Cordray's status at the CFPB is under a legal cloud. That cloud is so big that not being permitted to testify is the least of Cordray's problems.


Cordray was nominated by President Obama to be director of the CFPB. Rather than making the structural changes to the CFPB that would have allowed Cordray to glide through the Senate confirmation process, on January 4, 2012, the president appointed Cordray to be CFPB director during a period in which he deemed the Senate to be in recess. At the same time, the president appointed three members of the National Labor Relations Board. The NLRB appointments were successfully challenged in the U.S. Court of Appeals for the District of Columbia Circuit. In Noel Canning v. NLRB, the D.C. Circuit held that the constitutional invalidity of the appointments meant that the NLRB lacked a quorum when the decision at issue was made and, therefore, the decision had to be vacated.

The same reasoning applies to Cordray's appointment to the CFPB. Because Cordray does not serve on a Board, but is the CFPB's sole decision-maker, all of the CFPB's actions since his appointment are clearly vulnerable to legal challenge. Cordray also sits on both the Financial Stability Oversight Council and the board of the Federal Deposit Insurance Corporation. Accordingly, all of their actions are also subject to challenge under the D.C. Circuit's reasoning in Federal Election Commission v. NRA Political Victory Fund, which invalidated an FEC enforcement action because of the presence of two ex illegal officio members.

Courts have considered the effect of invalid appointments in the past. The de facto officer doctrine allows government decisions to stand despite the fact that they were made by invalidly appointed officials, but the doctrine is applied when the source of the invalidity is technical, rather than substantive. A recent report by the Congressional Research service that considers the implications of Noel Canning on the NLRB and the CFPB predicts that "[a] reviewing court likely would consider challenges to the January 4 appointments as raising significant issues, rather than technical statutory flaws." Hence, the de facto officer doctrine would not be applied. The Noel Canning made no reference to the doctrine in its opinion.

It would seem particularly difficult to apply the doctrine to actions taken by the CFPB after Noel Canning. As the Supreme Court explained in Ryder v. U.S., "[t]he de facto officer doctrine confers validity upon acts performed by a person acting under the color of official title even though it is later discovered that the legality of that person's appointment or election to office is deficient." The D.C. Circuit's decision in Noel Canning confirmed widespread concerns that Cordray's appointment was legally deficient. In his work at the CFPB, the FSOC, and the FDIC, Cordray is not operating under the color of official title, but under a cloud of legal uncertainty.

2 Comments

I'm not a lawyer, but my understanding of the court's decision in Canning was that the court essentially declared almost all recess appointments invalid, even those which occurred during short, officially declared recesses of Congress, rather than limiting itself to the instances where the President "deemed the Senate to be in recess" (such as Cordray and the NLRB appointees).

Presidents have been appointing people in those instances, via recess appointments, for decades, meaning this decision could essentially undue hundreds of cases from decades past. Wouldn't the sweeping nature of this decision make the case more vulnerable to being overturned on appeal, in your opinion, than if the court had kept the case specific to the Obama appointees?

As I mentioned, I'm not an expert on this, so my interpretation is only based on what I read in the papers. Would love your thoughts on this.

Ray,

Thanks for the comment. I think that the decision is likely to be affirmed, even if it is on narrower grounds than the DC Circuit opinion. The Supreme Court does not have to fully endorse the DC Circuit's reasoning in order to embrace its result in this specific case.

Hester

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

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