Personal Finance

In Surprise Move, Obama Appoints Consumer Protection Chief

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In a surprise move that ends months of speculation, President Obama appointed Richard Cordray to lead the Consumer Financial Protection Bureau during a trip to Ohio today. The move comes as a recess appointment while the Senate is away on its winter break, which allows the president to bypass Senate Republicans who have blocked Cordray’s nomination for months.

“I am now the director and my work will be to protect American consumers,” Cordray said at the airport in Cleveland, where he was accompanying the president to a speech on the economy. “I’m going to be 100 percent focused on that.”

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The bureau was created in 2010 by the Dodd-Frank financial reform act. Its job is to be the only financial regulator specifically focused on enforcing consumer protection laws concerning credit cards, checking accounts and mortgages.

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The bureau officially opened its doors in July. Since then it’s had the power to enforce existing rules and laws. But without a permanent director, the bureau lacked the authority to write new rules or regulate industries that currently are virtually unregulated, such as payday lenders or credit rating agencies.

Meanwhile, Republican leaders in the Senate had blocked Cordray’s nomination, arguing that the bureau has too much unchecked power. Republicans went to extensive lengths to block the nomination, including keeping both the House and Senate in “pro forma” sessions throughout vacations to block a recess appointment.

A Controversial Move

In a pro forma session, a maneuver that has historically been conducted to prevent Presidents from making recess appointments, the Senate is gaveled to order for as little as 30 seconds, then immediately the session is gaveled closed. This occurs every three days or so, and the procedure has been used by both Democrats and Republicans to block recess appointments.

“This recess appointment represents a sharp departure from a long-standing precedent that has limited the President to recess appointments only when the Senate is in a recess of 10 days or longer.” Mitch McConnell, (R – Ky.), said. “Breaking from this precedent lands this appointee in uncertain legal territory, threatens the confirmation process and fundamentally endangers the Congress’s role in providing a check on the excesses of the executive branch.”

Some have argued, however, that the pro forma sessions should not prevent the President from making recess appointments. In a 2010 editorial in the Washington Post, former Justice Department attorneys Steven G. Bradbury and John P. Elwood wrote:

“The Senate, of course, does not meet as a body during a pro forma session. By the terms of the recess order, no business can be conducted, and the Senate is not capable of acting on the president’s nominations. That means the Senate remains in ‘recess’ for purposes of the recess appointment power, despite the empty formalities of the individual senators who wield the gavel in pro forma sessions. The president should consider calling the Senate’s bluff by exercising his recess appointment power to challenge the use of pro forma sessions. If the Senate persists, then the federal courts may need to resolve the validity of the Senate’s gambit.”

It looks like the President took their advice.

[Related article: GOP to Wall Street: "Richard Cordray Sleeps with the Fishes"]

The Debate Over the Agency’s Power

“The director will single-handedly determine the financial products that consumers can buy, as well as which consumers have access to credit and which do not,” Sen. Richard Shelby (R – Ala) said during a confirmation hearing for Cordray in September. “There is no meaningful check on the director’s authority.”

Democrats and consumer advocates fired back, saying the bureau actually has more checks on its power than any other financial regulatory agency, including a budget cap and an oversight body with which other agencies have the power to overrule the bureau’s decisions.

“This doesn’t sound unaccountable to me,” Sen. Sherrod Brown (D – Ohio) said in a confirmation hearing.

The resulting stalemate appeared likely to remain firmly in place until the 2012 elections, especially since the Obama administration repeatedly decided not to challenge Republicans’ pro forma sessions by making a recess appointment anyway.

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Image: whitehouse.gov

Updated Jan. 4, 2012 at 1:35 pm to reflect Richard Cordray’s appointment.

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