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Is the Consumer Financial Protection Bureau in Jeopardy?

Recess Appointments CFPB in Jeopardy

Most of us know a thing or two about recess squabbles.  The thing is, we probably look back fondly on those arguments over who got to play with the most coveted piece of jungle gym equipment or whether or not the defense got one hand or two on the receiver before he reached the end zone (which happened to be just an arbitrary area over by the basketball hoop).

Well, it turns out that adults argue about recess too.  But rather than being all fun and games, the grown-up version has big-time consequences (not to mention questionable motivations).

A Controversial Ruling

President after president throughout history has appointed officials to lead government agencies and the like while Congress was in recess, and these so-called recess appointments have never ruffled too many feathers.  Sure, challenges to their legality have come and gone, but the courts never gave them much weight until the D.C. Circuit Court of Appeals ruled on Jan. 25 that President Obama overstepped his authority in filling three seats on the National Labor Relations Board earlier this month.  The decision thereby casts doubt on Richard Cordray’s appointment as head of the Consumer Financial Protection Bureau (CFPB), which was announced the same day as the Labor Board moves.

This is a really big deal because the issue will ultimately make its way before the Supreme Court.  If it upholds the Appeals Court’s decision, that could serve to nullify the aforementioned appointments, which raises the question among many experts as to whether numerous CFPB rulings and the more than $425 million in enforcement actions the organization has levied against financial companies thus far would also be put in jeopardy.  A ruling to sustain could also have an untold effect on similar recess appointments throughout U.S. history.
douglas laycock

Yes, this puts in doubt pretty much every recess appointment ever made,” says Douglas Laycock, the Robert E. Scott Distinguished Professor of Law at the University of Virginia School of Law.  “Probably every single one, because Presidents don’t make these appointments immediately. Maybe there are one or two that qualify under the DC Circuit’s rules, but I doubt it.


If you are, you aren’t alone.  The Court’s ruling has caused a ruckus in Washington to say the least, prompting frantic research into Constitutional Law and U.S. political history in search of both precedent and a better understanding of the dynamics at play in this unusual case.

We at Card Hub are no exception.  Our interest stems largely from the fact that the ruling as it currently stands could have widespread implications for the personal finance world?  Could the courts find the CFPB’s enforcement actions to be improper due to the illegality of Cordray’s appointment?  Would consumers have to pay back monetary rewards to the very financial institutions that were found to be improperly charging them for bogus account services and various other improprieties?  Are we not taking a closer look at widespread credit reporting errors?  What about debt collectors – are they off the hook?

The answers to these questions obviously depend on the merits of this legal challenge, so we’ll try as best we can to break it down in the simplest terms possible (it is Constitutional Law, after all).

Background Info

Basically, the Constitution gives the President the right to fill certain positions without Senatorial approval when the Senate isn’t in session.  In the era of horse and buggy transportation, the framers didn’t want to stall government operations waiting for either oversight to assemble from across the country or for the next scheduled Congressional season.

More specifically, Article II, Section 2 holds that:

“The President shall have power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.”

What complicates matters in this case is the fact that Congress technically was in session.  It’s not that straightforward, though.  The Senate was holding what’s known as “pro-forma” sessions, in a thinly veiled attempt to block President Obama from taking advantage of their would-be absence in order to avoid the confirmation process in making the very appointments in question.  Pro-forma in Latin means “as a matter of form,” and it’s used to describe very brief meetings of the Senate, which have been known to last as little as one minute.

President Obama isn’t the first oval office inhabitant to make recess appointments.  In fact, Reagan holds the record with 243 recess appointments.  The current crop of Senate Republicans isn’t the first to use pro-forma sessions to prevent the practice either, as Democrats in the George W. Bush-era first set up such a road block.  Obama was simply the first to push the issue by making his appointments anyway.

The act is no doubt viewed by many as a laudable attempt to take a detour around the frustrating Washington political traffic jam, while others see it as a dangerous abuse of power.  David Sentelle, chief judge for the U.S. District Court of Appeals, falls into the latter group.

david sentelle

An interpretation of ‘the Recess’ that permits the President to decide when the Senate is in recess would demolish the checks and balances … giving the President free rein to appoint his desired nominees at any time he pleases, whether that time be a weekend, lunch, or even when the Senate is in session and he is merely displeased with its inaction. This cannot be the law,” Sentelle wrote in handing down the Court’s decision.  “Allowing the President to define the scope of his own appointments power would eviscerate the Constitution’s separation of powers.

The White House, naturally, criticized the court ruling.  “The decision is novel and unprecedented, and it contradicts 150 years of practice by Democratic and Republican administrations,” White House press secretary Jay Carney said. “We respectfully but strongly disagree with the ruling.”

When asked for comment on the matter, a Consumer Financial Protection Bureau spokesperson said, “The Bureau is not a party in the recently decided case, and the Court’s ruling has no direct effect on the Bureau. Going forward, we will continue our essential work to protect American consumers.”

Eying an Outcome

The argument over these recess appointments is, at its core, politically motivated.  It’s no secret that our Democratic and Republican leaders have found it difficult to play nicely (or get much done) in recent years.  Therefore, it’s difficult to separate ideology from actual legal basis, especially since interpretation of the Constitution’s recess appointment provision naturally pits strict and loose constructionists against each another.

greg magarian

Although I don’t think it’s possible to dismiss the D.C. Circuit’s decision as ‘political posturing,’ the decision may fairly be critiqued as politically motivated, or at least politically contoured.  Three Republican-appointed judges struck down a Democratic President’s appointment of consumer- and union-friendly regulators.  The legal problem and the arguments the court advanced aren’t novel.  Politics, therefore, may have influenced the court’s decision, although that doesn’t necessarily mean the decision is legally wrong,” Greg P. Magarian, a professor of Constitutional Law at the Washington University (St. Louis) School of Law told Card Hub.  “The administration was certainly aware of the legal controversy around intrasession recess appointments.  But administrations for roughly 70 years have been making such appointments, and the G.W. Bush administration used the process more aggressively than the Obama administration.  Presidents have simply hoped the courts would not invalidate recess appointments, and in this case, the D.C. Circuit didn’t cooperate.  Of course, the U.S. Supreme Court will now have to deliver the last word.

So, the question of the hour is:  What kind of legal basis is there for this forthcoming decision?

“There is a viable case to be made,” according to Laycock.  “I do not know what the framers and ratifiers of the Constitution understood this provision to mean. But the circumstances in which they wrote it were very different. Congress met only part time. A Congress elected in fall of an even numbered year typically did not convene until December of the following odd-numbered year. Travel was slow and difficult; convening a special session of Congress was so difficult as to effectively be available only for national emergencies. Once Congress was in session, they didn’t go home until the session was over. So it’s not crazy for the DC Circuit to think the kind of recess that counts is between sessions, when Congress was gone for a long time and when a vacancy opened up in its absence.”

Professor Magarian is of a similar mind as Laycock in the sense that while the challenge does have a sturdy legal foundation, much remains open to interpretation.

“There is a substantial constitutional basis for challenging the sort of recess appointments at issue in the recent D.C. Circuit decision.  The Recess Appointments Clause of the Constitution does not make clear what constitutes a “recess” of the Senate,” he said.  “Before World War II, the conventional understanding was that the clause allowed only for appointments during ‘intersession’ recesses – the formal breaks between (usually) late fall and the following January.  But after World War II, ‘intrasession’ recess appointments became increasingly more common.  The big legal question is whether an ‘intrasession’ recess – a break of at least three days while the Senate is still formally in session – counts as a ‘recess’ within the meaning of the clause.”

So, I guess we’ll really just have to wait and see what the Supreme Court has to say on the matter.

But what about the CFPB’s fines and enforcement actions?

Luckily, regardless of what the nation’s high court rules, it seems that the CFPB’s actions to date are fairly safe.

“On matters already decided, there is a de facto officer doctrine,” Laycock told Card Hub. “The first person to complain about an improperly appointed officer gets the decision in his case thrown out, so that someone will have an incentive to raise the issue. But the court does not go back and throw out everything that officer ever did.”

In layman’s terms, the de facto officer doctrine holds that actions undertaken in an official capacity are upheld in certain situations, even if the elected or appointed official who ordered the actions is subsequently ruled to have improperly reached his or her position of authority.  According to case law, “An officer de facto is one whose acts, though not those of a lawful officer, the law, upon principles of policy and justice, will hold valid so far as they involve the interests of the public and third persons.”

Anything could happen, though.  As a result, all we can really say for sure at the present time is that this recess issue could certainly get messy.

john ferejohn

There seem to be many consequences of the holding even if the current judges attempt to limit the effects,” John Ferejohn, The Samuel Tilden Professor of Law at the New York University School of Law, told Card Hub via e-mail.  “One can imagine a battalion a lawyers lined up to file petitions on all kinds of issues.  So it seems like we are on uncertain ground and the panel put us there.


This is obviously a lot to digest, so we’ll boil down the most important issues into a few key takeaways for all you skimmers out there.

  • Recess appointments and pro-forma Senate sessions are nothing new, but making appointments without the requisite approval despite the Senate technically being in session is.
  • While Richard Cordray’s CFPB appointment was not nullified by the D.C. Circuit Court of Appeals, the Court’s decision means that it could be in jeopardy moving forward.
  • Although these proceedings are inextricably political in nature, there is indeed a legal case to be made from the perspective of both the administration and those challenging its appointments.
  • Much remains open to interpretation, and the Supreme Court will ultimately have the final say over whether or not President Obama’s appointments will be upheld.
  • Even if Cordray’s appointment is ruled to be unconstitutional, it’s unlikely to affect the CFPB’s actions on his watch in light of the de facto officer doctrine.
  • Nevertheless, the Supreme Court’s ruling could ultimately have far-reaching implications for recess appointments in the past as well as those future presidents are able to make.


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