Will Court Move Lead to CFPB Uncertainty?

Joshua Roberts/Bloomberg

Yesterday the 3rd Circuit U.S. Court of Appeals slammed the Obama administration in an unusually critical opinion, finding that a recess appointment to the National Labor Relations Board was an unconstitutional "power grab" by the president. The 3rd Circuit thus joined the D.C. Court of Appeals, which earlier this year ruled the president's recess appointments were unconstitutional and invalid.

The timing of this decision could not be worse for Consumer Financial Protection Bureau director Richard Cordray, whose nomination is set for a vote in the senate. Indeed, the court's decision will further embolden republicans who have vowed to block any nomination to lead the Consumer Financial Protection Bureau until the agency's structure is changed. Furthermore, given the president's other problems at the moment (Benghazi and the Internal Revenue Service) it is hard to imagine the administration allowing itself to be set up for what would be a politically damaging defeat before the U.S. Supreme Court.

All of this sets up a scenario where the administration may need to reach a political compromise on the Consumer Financial Protection Bureau's structure. Of course, since the Consumer Financial Protection Bureau can in large part operate under the direction of the head of the Treasury Department, the administration could "wait it out," but during this period, the Consumer Financial Protection Bureau's authority and power to engage in enforcement and oversight over non-banks would be vulnerable to judicial attack.

Non-depository institutions facing investigation or oversight activities with the Consumer Financial Protection Bureau should begin paying attention to these events. While the rules the Consumer Financial Protection Bureau have passed will likely remain in place, its current enforcement authority over non-depositories is questionable (at best) and may be a strategic consideration that should not be overlooked.