Banking & Financial Institutions

McConnell: NLRB ruling casts ‘serious doubt’ on Cordray appointment

Senate Minority Leader Mitch McConnell (R-Ky.) said a recent court ruling casts “serious doubt” on the constitutionality of the president’s recess appointment of Richard Cordray to head a new consumer watchdog.

On Friday, a federal appeals court ruled that President Obama’s controversial appointments for a trio of members to the National Labor Relations Board were unconstitutional. The 47-page opinion found that Obama ignored the Senate’s “advise and consent” role by appointing them to the board while the Senate was still in session.

{mosads}Those appointments were made the same day Obama named Cordray as the first director of the Consumer Financial Protection Bureau (CFPB), leading many to question whether Cordray’s appointment could be the next to be struck down.

The Senate’s leading Republican argued just that Friday.

“This decision now casts serious doubt on whether the presidents ‘recess’ appointment of Richard Cordray … which the president announced at the same time, is constitutional,” he said in a statement.

White House Press Secretary Jay Carney rebutted that claim, saying the ruling “has no bearing on Richard Cordray.”

Alan Kaplinsky, a partner at Ballard Spahr that represents companies before the bureau, said there is “zero” difference between the appointment challenges to the NLRB and the CFPB.

“If the NLRB appointments were invalid under the reasoning employed by the court, then the appointment of Cordray was clearly invalid,” he said. “There is this huge cloud now hanging over the CFPB.”

Kaplinsky said it was unclear at this point what work the CFPB did in its first year under Cordray could be jeopardized if his appointment was deemed unconstitutional. The CFPB actually enjoyed fairly broad powers after it opened its doors in July 2011, even without a director at the helm. Even with no head director, the CFPB could employ the powers it inherited from other financial regulators. The brand new powers it received under Dodd-Frank, including supervision of all nonbank financial institutions, can only be used with a director in place.

Cordray’s appointment is currently being challenged in a separate lawsuit, which also argues other provisions of the Dodd-Frank financial reform law — which created the CFPB — also violate the Constitution.

C. Boyden Gray, former White House Counsel under President George H.W. Bush, is now representing the plaintiffs, a small bank and two conservative groups, in their case challenging Dodd-Frank. Gray argued the NLRB ruling bolsters their case against Cordray, and suggests that actions taken by the bureau since his appointment could now be subject to legal challenge.

“The illegality of Cordray’s appointment casts serious doubt on the legality of CFPB actions implemented since his appointment,” he said in a statement.

A filibuster-proof bloc of Republicans had blocked Cordray’s nomination at the end of 2011. They warned that they would oppose any nominee to head the bureau until its structure was changed so it was run by a bipartisan commission instead of a lone director.

The White House has argued that the appointments did not violate the Constitution. At the time of the move, Congress had been holding brief “pro forma sessions,” lasting just a few minutes, in an effort to keep Congress in session over longer breaks, thereby blocking recess appointments. The White House argued after it made the appointments that these brief sessions do not constitute legitimate sessions of Congress.

The NLRB ruling came one day after Obama had re-nominated Cordray as director. His recess appointment, if it is not struck down, would expire at the end of 2013.
Amie Parnes contributed to this report.

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