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The Cordray Appointment

Anthony Randazzo
January 4, 2012, 5:30pm

Either Obama just overplayed his hand or the White House has baited the Republicans into looking like the party of "no" without much in the way of alternative ideas. This morning President Obama made good on this threat to make a recess appointment of Richard Cordray as CFPB director after months of fighting in the Senate over his nomination. The aftermath today has been verbally violent, with accusations flying left and right, with a top business lobbyist even predicting the appointment would be challenged at the level of the Supreme Court, in the midst of all of this, though, there is a lot of obscuring the various components of the debate, and we should make sure everything here is clearly laid out on the table.

To start with, it is undenable that the President has, in effect, bypassed the Congressional process established for the CFPB by the Dodd-Frank Act less than two years after the landmark legislation was passed. Whether you agree with the recess appointment or not, that is a fact. At the time of the Dodd-Frank debate, one of the most heated points of contention was the so-called Consumer Financial Protection Bureau. Those opposed to the idea said the then-proposed legislation granted too much authority to a single agency, gave its director too much power, and threatened the competitiveness of banks by separating consumer protection from financial safety and soundness regulation. I wrote on October 9, 2009 for Reason.com:

the CFPA will pile on burdensome new rules, restrict innovation, hurt small businesses, increase the cost of doing business, spawn a massive bureaucracy, and create severe conflicts between state and federal law. Frank's proposed version would even allow the new agency to write and enforce laws beyond the scope of existing legislative authority. There are good ways of reforming consumer protection. The Consumer Financial Protection Agency is not one of them.

Supporters of the CFPB idea ultimately countered that the fears were overblown, and that the bureau would be subject to strict Congressional oversight. Those promises have now been broken, making all those fears appear highly valid once more. Thus, the President's recess appointment means the young federal regulatory body will be born of blood, eschewing that Congressional oversight because the President "won't take 'no' for an answer." In fact, that is the whole point of a check and balance system. The President says, "I want this guy," and Congress says, yes or no.

Where this gets tricky is in the messaging. The Republicans have not so much been opposed to Cordray in his qualifications as they have been opposed to the office he wants to fill. The Senate GOP has blocked the confirmation of Cordray on grounds that they don't like the structure of the CFPB, the way it is funded, the authority of the director's office, and the fact that it doesn't have a commissioner structure like most other federal agencies. Their concerns happen to be valid, but their approach grants some validity to the President's recess appointment.

Technically, the law was passed, the CFPB created, and the office established. From a purely technical perspective, the President nominated a director and the Senate should vote up or down on that individual. The Republicans have used the nomination process as leverage to wage their war on the CFPB. Procedurally it is within the law, but the nature of the politics has understandably infuriated the White House.

In response, the President has resorted to a dubious ploy of a recess appointment. An appointment that runs counter to both established precedent going back the Clinton administration, but in direct contrast to the findings of Elena Kagan in April 2010 when she was Solicitor General.

Thus, the act itself is being questioned on constitutional grounds, and the U.S. Chamber of Commerce is considering filing a lawsuit (the USCC was one of the biggest opponents of the CFPB). 

The act happens to run counter to the president's own promise to stand in contrast with the Bush administration and not "use signing statements as a way of doing and end run around Congress." And the defense of the act is dripping with so much political BS that it defies logic. Consider this section from the president's comment on the recess appointment: 

…Every day that Richard waited to be confirmed was another day when millions of Americans are left unprotected. Without a Director in place, the consumer watchdog agency we’ve set up is left without the tools it needs to prevent dishonest mortgage brokers, payday lenders and debt collectors from taking advantage of consumers. That’s inexcusable. It’s wrong. And I refuse to take “no” for an answer. 

I’ve said before that I will continue to look for every opportunity to work with Congress to move this country forward and create jobs. That means putting construction workers back on the job repairing our roads and bridges. That means keeping teachers in the classrooms and cops and firefighters on the streets. That means helping small businesses get ahead. These are ideas that have support from Democrats, Republicans and Independents. And I want to work with Congress to get them done.

But when Congress refuses to act and as a result hurts our economy and puts people at risk, I have an obligation as President to do what I can without them. 

Even if you agree with the mission of the CFPB, what does moving the country forward to create jobs have to do with the CFPB? What does putting construction workers back on the job (jobs they only had because of the housing bubble in the first place) have to do with the CFPB. The President wasn't really equating the CFPB with job creation (to give him the benefit of the doubt), but he was wrapping the defense of his recess appointment up with his drive to usurp Congress on fiscal policy. The untrained listener will equate stopping the CFPB with stopping job creation—as if either party really does not want America "back to work." Politics as usual to be sure.

Ultimately, though, the question of constitutionality is the real challenge the President faces. His politics may be dirty, but the debate should center on the policy act itself. 

So that leaves us with four core elements of this argument:

1) We have the debate over whether or not the CFPB is structured properly (assuming it has to exist at all, which it should not, but that is a separate debate);

2) We have the matter of Republicans using the confirmation process to make a political point;

3) We have the question of whether Cordray is the right man for the job, assuming someone should be confirmed as director of the CFPB; and

4) We have the issue of whether or not the recess appointment was a constitutional or legal act.

There are also the campaign promises, ethics, the nature of Washington, etc. that I've mentioned that could go on this list, but even though I added it to the blog post I don't want it to obscuring the core elements here because the conflation in the public square today has led to lines being misdrawn in the sand and misinformed opinions.

Even if you don't like the GOP's tactic, that doesn't mean Cordray should have the job or what the President did was right. The Republicans have the right idea in wanting changes to the structure of the CFPB, but they are going to lose this political battle if they focus on just that—there are many problems with Cordray himself taking this position that should be mentioned as well (which we have done on our blog a few times). Finally, the debate over the legality of the President's decision should not distract from the fact that the CFPB director office is a horrifying power grab that has the potential to damage the economy from financial innovation to access to credit for small businesses and households.


Anthony Randazzo is Director of Economic Research


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