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Obama Sets Up for Showdown With GOP Over Consumer Protection Chief Cordray

January 4, 2012 at 12:00 AM EDT
President Obama bypassed congressional Republicans Wednesday, naming Richard Cordray as director of the new Consumer Financial Protection Bureau -- setting up a potential constitutional showdown. Jeffrey Brown discusses the recess appointment with CQ Roll Call's David Hawkings and Binyamin Appelbaum of The New York Times.

JEFFREY BROWN: Even as the presidential campaign heats up, President Obama and congressional Republicans are at odds once again. This time, it’s part of a long-running battle over the president’s nominees who’ve been blocked from confirmation.

President Obama chose the Cleveland suburb of Shaker Heights, Ohio, to name the state’s former attorney general, Richard Cordray, as director of the new Consumer Financial Protection Bureau.

PRESIDENT BARACK OBAMA: His job will be to protect families like yours from the abuses of the financial industry.


BARACK OBAMA: His job will be to make sure that you have got all the information you need to make important financial decisions.

JEFFREY BROWN: But the move set off what could be a constitutional showdown between the executive and legislative branches. White House aides said the president acted under his authority to make recess appointments when Congress is not in session.

[President Obama is] saying: I don't care. I'm not bound by this seemingly gentleman's agreement. And I don't view these pro forma sessions as counting or in his view what the framers would have had in mind as a true recess.David Hawkings, CQ Roll Call

Republicans said the Senate remains in so-called pro forma sessions over the holidays, open for business even if no business is scheduled to take place. In a statement, Senate Minority Leader Mitch McConnell said, “President Obama, in an unprecedented move, has arrogantly circumvented the American people.”

The president had nominated Cordray in July to run the new agency created under the Dodd-Frank financial reform law. Consumer advocates initially hoped that Elizabeth Warren, the bureau’s chief architect, would oversee it, but the Harvard professor and the agency itself ran into strong opposition from Republicans.

Alabama Sen. Richard Shelby.

SEN. RICHARD SHELBY, R-Ala.: This massive new bureaucracy was designed by the drafters of Dodd-Frank to be virtually unaccountable to the American people. Before we spend hundreds of millions of dollars on a new federal government agency, I believe we should ensure that it can be held accountable for its actions.

JEFFREY BROWN: Last month, Senate Republicans blocked action on Richard Cordray’s nomination. Today, the president said, “I refuse to take no for an answer.”

BARACK OBAMA: When Congress refuses to act, and as a result hurts our economy and puts people at risk, then I have an obligation as president to do what I can without them.

JEFFREY BROWN: For his part, Cordray was trying to stay above the fray. He told Reuters: “I can’t be distracted by that. I’ve got a big job to do and I need to be 100 percent focused on what we can do to protect American consumers.”

Cordray will take over as director of the new agency this week. His appointment is good for at least two years.

And the president upped the ante this afternoon by making three recess appointments to the National Labor Relations Board. The five-person panel oversees labor management issues, as well as union elections. And the NLRB recently lost one of its members and was unable to make any major decisions due to lack of a quorum.

So, we look at the appointment battle over Richard Cordray now with David Hawkings, who follows this as editor of CQ Roll Call’s Daily Briefing, and Binyamin Appelbaum, who covers the Consumer Protection Bureau as a financial reporter for The New York Times.

And, Binyamin, I’ll start with you.

You remind us what this was. Originally, this started as a fundamental fight over the creation and powers of this new regulatory body.

BINYAMIN APPELBAUM, The New York Times: That’s right. This is a centerpiece — this agency was a centerpiece of the Democratic vision for how financial regulation should be overhauled in the wake of the 2008 financial crisis.

The idea is that the responsibility for protecting consumers, for enforcing all the various regulations that are intended to protect borrowers and other users of financial products should come under a single agency, which would have the authority to enforce those rules, to evaluate whether new rules were needed, to look for places where consumers were being abused by deceptive practices, by overcharging, by hidden fees, and to take action.

JEFFREY BROWN: And it’s been up and running, but leaderless.


JEFFREY BROWN: So what does that mean?

BINYAMIN APPELBAUM: Well, the way the law was written is that so long as the agency doesn’t have a permanent director, its power are very circumscribed.

It can enforce existing regulations on the largest banks, but it cannot enforce anything over non-bank financial companies — that’s payday lenders, student lenders, debt collectors. A whole range of companies that interact with consumers, have never fallen under federal regulation before, will now for the first time. But until a permanent director was appointed, those powers didn’t come into effect.

JEFFREY BROWN: All right, so, David Hawkings, Republicans, knowing this, have blocked the appointment of a director.

And it’s now it’s devolved into a fight over recess appointment.

DAVID HAWKINGS, CQ Roll Call: Right.


DAVID HAWKINGS: This is something you would never even study in A.P. civics, but it’s important now.

And there’s been an argument about this for at least 100 years as to when is the Senate in recess in such a way as the president can come in there and bypass the advice-and-consent requirements of the Constitution for most big deal appointees?

Teddy Roosevelt 100 years ago used a tiny couple-of-second break between the end of one Congress and the beginning of another to put 100 people on the job that the Senate had refused to confirm. Harry Truman did something similar. In the modern day for — there’s been a different sort of fight since the 1990s, when Bill Clinton and the Republicans who had power to block his appointees in the Senate went to war over this.

And, most recently, since about 1997, when George Bush put about 60 of his people on the job with recess appointments, Harry Reid said, from now on, we’re not going to go into what is traditionally thought of as a real recess, one lasting three days or longer.

We will come back every three days, we will turn on the lights in the Senate, we will say the Pledge of Allegiance, and then we will go home.

JEFFREY BROWN: This is what they call the pro forma session.

DAVID HAWKINGS: And that is the pro forma session. And if you do it every third business day, in Harry Reid’s view, and in something that Mitch McConnell and other all agreed to, this essentially was enough of Senate activity to forswear these recess appointments.

JEFFREY BROWN: So, Democrats did this before and had these pro forma sessions.

DAVID HAWKINGS: Yes, they did.

JEFFREY BROWN: But President Obama is doing something, I gather, that President Bush did not do. He’s saying: I don’t care. I’m going to ahead and making appointments.

DAVID HAWKINGS: He’s saying: I don’t care. This is — I’m not bound by this seemingly gentleman’s agreement. And I don’t view these pro forma sessions as counting or in his view what the framers would have had in mind as a true recess. I don’t think these are real sessions of the Senate.

They’re really not. There’s no — nobody’s in town except for the people who live in Virginia and Maryland to come to the Senate. The only — so there is no business being transacted. And the president is saying that’s what this idea was to have in mind. If the Senate is really gone as a practical matter, I can slip in here.

JEFFREY BROWN: But, at the same time, it stirred up Republicans. And that’s why we have Mitch McConnell saying this is unprecedented; this is a constitutional violation.

DAVID HAWKINGS: He’s furious about this. And he — whether he will have the standing, as the Senate majority leader, to take this to court, I think that’s a little bit — that’s for another day to decide.

My own guess is that probably it will be some regulated entity like a payday lender who will eventually go to court and say, Richard Cordray is not legitimately in office, and so I shouldn’t be bound by his regulations.

JEFFREY BROWN: Really? That’s the way it might play out, rather than go directly to the courts, you think?

DAVID HAWKINGS: Well, I think it will be a lawsuit probably brought by somebody with absolute legal standing to file such a claim, and somebody who’s regulated by this agency who claims it’s an illegitimate agency.

JEFFREY BROWN: Now, Binyamin, the opposition is not so much to Cordray himself, right?  It is to the agency. But tell us a little bit about Richard Cordray.

BINYAMIN APPELBAUM: Richard Cordray came to national prominence as the attorney general of Ohio. He won a special election to that office in 2008 and sort of walked into the middle of the foreclosure crisis.

Homes were being foreclosed all over Ohio. It was the center of the devastation. And he became quite an aggressive advocate for pursuing mortgage lenders, holding companies responsible for the way that they foreclosed, for the condition of the homes after they were foreclosed, filed a number of other major lawsuits against financial companies not directly related to foreclosures, but related to other forms of malpractice, and sort of became one of the most prominent attorneys general in this pursuit of the financial industry for its misconduct.

Now, do you have a sense of how this goes legally or what happens next, what kind of challenges there might be?

BINYAMIN APPELBAUM: What kind of challenges? Well, I tend to agree that, you know, the test of this is going to come when this agency embarks on what it has said is a top priority, which is the regulation of non-bank financial companies, which, again, have never fallen under federal regulation before, are areas where many consumer advocates believe that there are extensive abuses.

Practices that wouldn’t be possible inside a regulated bank happen every day outside the confines of that sort of regulated area. And now, for the first time, there’s a federal agency that has the authority to go deal with that. As it does so, I think it’s inevitable that some of those companies are going to go to court and say, you don’t have this authority, you can’t do this to us.

JEFFREY BROWN: Now, David, it’s impossible to talk about this without putting it in the context of what we were just talking about, the political campaign.


JEFFREY BROWN: And Judy looked at that in her piece. There was President Obama doing this in Ohio.

DAVID HAWKINGS: That’s exactly right.

And long before this plays out in the courts, if it does, it’s going to play out on the campaign trail. This is a perfect melding for the president, I think, of his two themes of the year, which is, one, we can’t wait, is his sort of mantra, we can’t wait for Congress to act, Congress is dysfunctional, Congress is hopelessly partisan, the Republicans won’t cut me a fair shake, they won’t even give any of my nominees to some of these jobs an up-or-down vote.

So he gets to drive home the theme that Congress is so dysfunctional that he has to do this extraordinary move. And his other theme, of course, is, I will be the president who is more interested in expanding opportunities for the middle class and giving the middle class a better shake, and putting Richard Cordray on the job helps me do that.

JEFFREY BROWN: Now, Binyamin, you talked about what hasn’t happened without a director. In spite of the politics, he comes in and he is now the director, right? So what happens? What might they — how quickly do they start taking some of the actions that they were avoiding before?

BINYAMIN APPELBAUM: Well, this agency has actually been up and running for about half-a-year now. And even before that, for almost a year under Elizabeth Warren, it was gearing up and starting to investigate some of these practices and to consider what types of actions it might take.

So I think you may now actually see them move pretty quickly. They’ve been getting ready for this moment for a while. This kind of flips the switch on a machine that’s already been built and pointed in the direction that it wants to go. We have seen some indications of what this could look like.

One early focus for them under their existing authority has been an overhaul of the forms that you get when you apply for a mortgage loan. I think anyone who’s been through that process has found it thoroughly confusing. And they have been testing out a number of simplified forms that would it make it easier for people to compare the prices of loans offered by different lenders to understand those terms.

They created a Web that allowed people to sort of interact with the forms and make suggestions and to create an improved form. You may see them fairly quickly move to start doing that kind of thing with respect to other financial products.

JEFFREY BROWN: And you would expect all of to play into the continuing politics of…

DAVID HAWKINGS: No, I absolutely do. And as a matter of fact, it was only about an hour or two after this announcement was made formally that Cordray got his first — it wasn’t quite a subpoena, but it was an urgent demand for him to come up and testify to the Republicans on the House Government Oversight Subcommittee that supervises the banking industry.

The Republicans are eager for this fight. They think they will be the winners on this. They think that they will be able to portray the president as overreaching, as asserting his authority in inappropriate ways, and that what they really want, however, is — as a little bit of a policy matter, is what this ultimately a fight about from the Republicans’ view is, they want the ability to control the purse strings of this new agency.

The law is written in such a way as that they don’t get control over the budget for this agency. Sen. Shelby alluded to this in the clip that you played, that they want the power to subject this agency to spending increases or decreases, depending on how they view the agency.

JEFFREY BROWN: All right, David Hawkings and Binyamin Appelbaum, thanks very much.