Last Friday, the D.C. Circuit ruled on the highly anticipated case of Noel Canning v. NLRB, in which the legality of President Barack Obama’s recess appointments to the National Labor Relations Board (NLRB) was challenged. The appellate court invalidated the recess appointments to the NLRB, ruling that allowing the President to make such appointments as a way around Senate opposition “would wholly defeat the purpose of the Framers in the careful separation of powers structure” they created. According to this recent Alston & Bird advisory, the decision may have serious ramifications for the Consumer Financial Protection Bureau. The following is an excerpt:
The Noel Canning decision is significant because if the NLRB recess appointments were invalid, this also calls into question the recess appointment of Richard Cordray as director of the Consumer Finance Protection Bureau (CFPB). As was the case with the NLRB recess appointments at issue in Noel Canning, Mr. Cordray was appointed as a recess appointment on January 4, 2012, while the Senate was in pro forma session.
This client advisory analyzes the impact of the Noel Canning decision on Mr. Cordray’s appointment, as well as the more challenging issue of how an invalidation of Mr. Cordray’s appointment would impact the various settlements, enforcement actions and regulations implemented by the CFPB since the appointment.
As noted earlier, the appointment of Mr. Cordray as director of the CFPB occurred simultaneously with the appointment of the three NLRB members invalidated in Noel Canning. In light of the fact that CFPB director clearly falls into the category of “Officers of the United States” as that term is used in the Appointments Clause of the Constitution, there does not appear to be any legal basis for differentiating between President Obama’s appointment of the NLRB members and his appointment of Mr. Cordray. Therefore, it seems likely that the same panel of D.C. Circuit judges that decided Noel Canning would likewise find the appointment of Mr. Cordray to have run afoul of the Appointments Clause.
It is still unknown whether the Obama administration plans to appeal the Noel Canning decision, and if it were to, a specific outcome is far from predictable. It should also be noted that President Obama renominated Mr. Cordray on January 24, 2013. However, such a nomination would not have any impact on the legality of the conduct taken by the CFPB since the January 4, 2012, “Recess nomination.”
Although much of the following analysis will be rendered moot if the Noel Canning decision is reversed on appeal, if the D.C. Circuit’s interpretation does stand, the validity of a host of CFPB activity would be in question. For example, all CFPB actions taken against nondepository institutions are arguably void. As stated earlier, the only authority held by the CFPB prior to the appointment of Mr. Cordray was whatever authority was transferred to it from other federal agencies. The power to prohibit unfair, deceptive or abusive acts in connection with consumer financial products and services and the power to supervise non depository institutions were not among those powers transferred to the CFPB.
There are numerous examples of CFPB activities during the past year that are in legal limbo post-Noel Canning, including:
• the CFPB’s recent regulations relating to “qualified mortgages” and mortgage servicing guidelines;
• a CFPB probe into potentially illegal collusion between an insurance company and a mortgage lender; and
• a joint enforcement action with state attorneys general against Payday Loan Debt Solution, Inc., for unlawful fees.
Other CFPB post-appointment activities are arguably on more solid ground based on the fact that they were made jointly with another agency that had some degree of independent authority over the settling entity, including enforcement actions that the CFPB has undertaken jointly with the FDIC and OCC.
Although it is too early to speak conclusively about the validity of particular CFPB activities, much of the activity undertaken by the CFPB over the past year could arguably be described as ultra vires, based on the holding in Noel Canning. While it is obvious that supervisions, enforcements and regulations of nonbanking entities enacted during the subject period would have been outside the scope of the bureau, more interesting is the impact that an invalidation of Mr. Cordray’s appointment would have on consent orders and settlements made during the period. While an argument may be made that such consent orders and settlement agreements were voluntarily entered into, and thus were not ultra vires, an argument may also be made that such agreements were made under a false duress placed upon the settling party. Additionally, parties that do not wish to remove themselves from their earlier agreements with the CFPB might consider obtaining a reaffirmation of the terms of the agreement to ensure its validity going forward.
Click here for the complete Alston & Bird publication.