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From Securities Regulation Daily, June 25, 2013

Reaction to Noel Canning certiorari decision falls along party lines

By John M. Pachkowski, J.D.

Following the U.S. Supreme Court granting certiorari to hear NLRB v. Noel Canning (Dkt No 12-1281) case to determine whether President Barack Obama’s three recess appointments to the National Labor Relation Board in January 2012 pass constitutional muster, members of congress reacted to the Court’s action and commented on how any future decision will affect the president’s January 2012 recess appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau. The reactions fell along party lines.

CFPB challenge. Although the Canning decision did not directly address the president’s recess appointment of Richard Corday, a collection of private interest groups and U.S. states had filed a complaint earlier this year in the federal court for the District of Columbia alleging the unconstitutionality of several key Dodd-Frank provisions (State National Bank of Big Spring, et. al. v. Neil S. Wolin, et. al., Complaint, Filed Feb. 13, 2013, Huvelle, E.). Count I of the complaint alleged that Title X of the Dodd-Frank Act, which created the CFPB, violated separation of powers. According to the plaintiffs, the CFPB has broad regulatory powers without any meaningful checks and balances. The plaintiffs said this gives the CFPB too much unchecked discretion to affect U.S. financial affairs. Likewise, the complaint alleged that the president’s recess appointment of CFPB director Cordray violated the U.S. Constitution’s appointments clause.

Power grab. Senate Republican Leader Mitch McConnell (R-Ky) welcomed the Supreme Court’s decision adding “the President made an unprecedented power grab by placing political allies at a powerful federal agency without even trying to obtain the Senate’s advice and consent.”

More that can be done. House Financial Services Committee Chairman Jeb Hensarling (R-Texas) echoed McConnell’s sentiments. He noted, “Today’s announcement by the Supreme Court is welcome news for Americans seeking greater certainty in our struggling economy and greater accountability in Washington. … No bureaucrat in Washington should have the power to deny a credit card to a hardworking single mother trying to put food on the table, a mortgage to a couple trying to buy their first home, or a car loan for a family. It should be up to individual consumers to determine whether a product is the right fit for their lifestyle and financial planning—not a Washington bureaucrat.”

Hensarling added, “Congress and the Administration should take this opportunity to make common sense reforms to the CFPB so it is transparent and accountable to the American people,” with the CFPB governed by a bipartisan commission and subject to same appropriations process as other agencies to ensure there is “proper oversight of this massive bureaucracy.” He concluded that the House passed reform legislation in the last session of Congress and the Financial Services committee “will once again advance a proposal to bring accountability and oversight to the CFPB.” It should be noted that since its creation, the representatives of the CFPB have appeared before Congress 35 times as evidenced in recent testimony by the bureau’s chief financial officer, Stephen Agostini, who noted, “The Bureau welcomes rigorous Congressional oversight.”

Checks and balances. Rep. Bill Huizenga (R-Mich), a member of the House Financial Services Committee, was “glad to see the Supreme Court take up this important constitutional issue. The system of checks and balances was designed to prevent one branch of the federal government from overreaching its authority.” He added, “The CFPB is a powerful regulatory agency that has the ability to make decisions that impact every American household. It is essential the appointment of an individual to head such an agency is done in a manner that respects and adheres to the Constitution.”

Sen. Mike Johanns (R-Neb) also said, “It is past time to restore the checks and balances enshrined in our Constitution and prevent further power grabs by this President.” He added, “It is unfortunate that the Supreme Court must step in and settle this matter, which should never have happened in the first place.” Johanns and other Senate Republicans filed an amicus brief in May asking the Supreme Court to hear the case and consider broadly all the constitutional issues presented.

Confirm Cordray. Sen. Sherrod Brown (D-Ohio), Chairman of the Senate Subcommittee on Financial Institutions and Consumer Protection, urged Senate confirmation of Richard Cordray and also released a sampling of positive reviews that Cordray has received from industry and consumer groups alike. Brown noted, “The president has faced unprecedented obstruction on Rich Cordray’s nomination to CFPB. For the first time in history, a minority party pledged to block a nominee simply because it opposed an agency’s very existence. And despite receiving high marks from industry and consumer groups alike, Wall Street special interests and their allies in Congress continue a nonsensical quest to weaken the ability of the federal government to stand up for consumers. So-called reforms to the CFPB’s structure represent nothing more than solutions in search of problems. It’s time to put consumers first and confirm Rich Cordray.”

Cloud of uncertainty. Finally, Richard Hunt, president and chief executive officer of the Consumer Bankers Association noted that the Noel Canning case is a “reminder the CFPB operates under a continuing cloud of uncertainty for consumers and the industry. Congress has the opportunity to take corrective measures to restructure the virtually unchecked power of the Bureau from one individual to a bi-partisan commission.” He added, “The President and the U.S. Senate have recommended and confirmed several individuals to other commission-led financial regulatory agencies (SEC, FDIC, CFTC). Political posturing aside, there is no reason the CFPB should not have the same structure.”

Implications. Following the Canning decision by the Court of Appeals, the Congressional Research Service released a report examining the practical implications of that decision on the NLRB and the CFPB. The report was prepared by David H. Carpenter and Todd Garvey, Legislative Attorneys at the CRS. The authors also prepared a companion report, The Recess Appointment Power After Noel Canning v. NLRB: Constitutional Implications, which focused on the ramifications that the Noel Canning decision might have on the President’s authority to make a recess appointment by providing a legal analysis of Noel Canning and the applicable case law that existed prior to that decision.

In the report entitled Practical Implications of Noel Canning on the NLRB and CFPB, the authors noted if a court invalidated Cordray’s recess appointment and determined that every rulemaking and enforcement action conducted under the direction of Cordray was done without proper legal authority, that does not necessarily mean those actions are void. The report went on to say that "many of the substantive actions taken while Cordray was at the helm were exercises of transferred authorities that the [Treasury] Secretary could have authorized had he been serving as interim director pursuant to [Dodd-Frank Act] section 1066(a)" and the Treasury Secretary may be permitted to validate some of bureau’s past actions through the doctrine of ratification.

MainStory: TopStory ConsumerCredit CFPB DebtCollection DoddFrankAct EnforcementActions EqualCreditOpportunity FairCreditReporting Loans Mortgages RESPA TruthInLending UDAAP

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