Noel Canning v. NLRB, Implications for the CFPB and Richard Cordray’s Pending Nomination to Lead the CFPB: Recent Developments
On June 24, 2013, the Supreme Court of the United States agreed to hear Noel Canning v. NLRB, which raises a Constitutional challenge to President Obama’s use of his recess appointment power to fill administrative positions in the face of Congressional inaction. The case, while having obvious relevance to issues involving labor relations, also has significant implications for the Consumer Financial Protection Bureau, as well as its Director, Richard Cordray, as Cordray was installed by President Obama by recess appointment in much the same way as were the appointees in Noel Canning v. NLRB.
The Controversial Appointment of Richard Cordray
On January 4, 2012, President Obama appointed Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB), pursuant to the President’s constitutional recess appointment powers. This appointment is currently the subject of a constitutional challenge in a case pending in the U.S. District Court for the District of Columbia. The primary issue concerning Cordray’s appointment is whether President Obama had the authority to make the recess appointment pursuant to the Recess Appointment Clause.
Thirty-nine Republican Senators have since signed a letter indicating their intent to file an amicus brief and join a court challenge to the recent recess appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau. In the letter, the Senators, including Senate Minority Leader Mitch McConnell (R-KY), said that President Obama’s January 4, 2012, recess appointments of individuals to lead the Consumer Financial Protection Bureau and National Labor Relations Board were unprecedented and unconstitutional.
Potential Implications of Noel Canning
In Noel Canning v. NLRB, the United States Court of Appeals for the D.C. Circuit ruled that President Obama’s recess appointments to the National Labor Relations Board (NLRB), also made in January 2012, were unconstitutional. The President’s appointments to the NLRB were made while the Senate was conducting short, pro forma sessions. The D.C. Circuit held these pro forma sessions were sufficient to prevent the President from exercising his recess appointment power, and invalidated the appointments to the NLRB. The case will now be heard by the Supreme Court of the United States during its next term, with a decision likely sometime in late 2013 or early 2014.
Given the procedural similarities, the Supreme Court’s opinion may have important implications for other similar recess appointments, including that of CFPB Director Richard Cordray. The implications for the CFPB are particularly sweeping. If Cordray’s appointment were deemed to be unconstitutional, the CFPB’s regulations, supervisions, and enforcement actions to date, including a broad rewrite of mortgage regulations, could potentially be invalidated as well. This is due to the fact that Title X of the Dodd-Frank Act endows the Director, and not the CFPB itself, with many of the CFPB’s broad powers to supervise financial institutions of many types and sizes and to enforce virtually all of the federal consumer protection laws. Indeed, without a director, the CFPB’s powers are limited to:
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Writing rules, orders and guidance regarding any of the consumer laws that transferred to the CFPB;
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Conducting examinations of and issuing and enforcing orders against banks, savings associations or credit unions with assets of greater than $10 billion; and
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Taking over consumer protection issues related to RESPA and certain consumer rules previously under the authority of the Federal Trade Commission.
Nonetheless, in the interim, the CFPB and Cordray continue to remain highly active despite the specter of an invalidation of the exercise of powers by Cordray. And, regardless of whether Cordray’s appointment is ultimately upheld, the CFPB still maintains the rule-making and regulatory powers it inherited from other governmental agencies, including the Federal Trade Commission’s consumer protection authority. The CFPB’s enforcement activities may also be bolstered by the involvement and parallel enforcement powers of other regulators – particularly banking regulators and state attorneys general. In sum, while important, concluding that a possible invalidation of Cordray’s appointment is a fundamental threat to the CFPB’s ultimate ability to regulate the finance services market could well be an overstatement.
The Status of Cordray’s Nomination in the Senate
Cordray’s nomination is currently pending after clearing the Senate Banking Committee, and according to a number of recent reports, a vote by the full body on Cordray could come as soon as July. Republican Senators have vowed to filibuster any vote on Cordray unless the Obama Administration and Senate Democrats agree to structural changes to the Bureau. Of late, Senate Majority Leader Harry Reid (D-NV) has proposed packaging a July vote on Cordray’s nomination with those of stalled Environmental Protection Agency, Department of Labor and District of Columbia Circuit Court of Appeals nominees in an attempt to force Senate Republicans to either confirm the nominees or run the risk of Senator Reid pursuing changes to the Senate’s filibuster rules – the so-called “nuclear option.” If successful, the nuclear option would allow Cordray’s confirmation with a majority vote of the Democratically-controlled Senate. Confirmed reports from senior Democratic aides suggest that the votes on Cordray and other stalled nominees would only occur after the Senate concludes comprehensive immigration reform in July. Of note, Senator Rob Portman (R-OH) has been working closely with Senate leadership to broker a compromise that could clear the way for Cordray’s nomination.
How Should My Company Prepare for the CFPB Given this Uncertainty?
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Monitor CFPB rulemakings and other CFPB-related developments: The CFPB regularly issues rulemakings, public requests for information, studies, and other regulatory publications that often provide insight into future regulatory action. Monitoring CFPB developments will allow your company to remain ahead of the curve in developing policies that comply with federal consumer protection law. CFPBreport.com provides ongoing analysis and commentary of all CFPB-related developments.
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Large banking institutions should continue to prepare themselves for CFPB supervision and enforcement activity: Even if the Supreme Court concludes that the Cordray recess appointment was unconstitutional, banks with over $10 billion in assets are still subject to CFPB supervision and enforcement. In addition to monitoring CFPB activity, large banking institutions may wish to consider conducting internal audits of their business practice under relevant consumer finance protection law. Internal audits allow regulated entities to anticipate and correct compliance issues that could ripen into matters that could become issues during CFPB supervision and/or enforcement actions.
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Nonbank institutions should still consider compliance audits of their policies and business practices: Nonbank institutions currently subject to CFPB supervision stand to most directly be affected by a decision concluding that Cordray’s recess appointment is unconstitutional, as the CFPB’s supervisory and enforcement authority over nonbanks is triggered only when a Director is in place. The CFPB may still, however, exercise other functions – namely promulgating rules and sharing information with other regulators like state attorneys general who could then mount their own investigations and enforcement actions. In order to prepare for possible investigations, nonbank institutions should also consider auditing their business practices to ensure that they comply with federal and relevant state consumer protection law – particularly those firms that the CFPB and state attorneys general have identified as targets for regulatory action, such as debt collectors and mortgage servicers.
About Troutman Sanders
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation practice group has successfully litigated a wide variety of individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB.
© TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result.