Sorry Cato, A CFPB Recess Appointment Has Full Regulatory Powers

It’s rare we get to see a necromancer right-wing think-tank intellectual create a zombie idea – the kind that never dies, but lurches on and on in the right-wing media no matter how much it gets hit – in real-time.  But that’s what we are seeing with Mark Calabria, director of financial regulation studies at the Cato Institute, arguing that the recess-appointed director of the Consumer Financial Protection Bureau, Richard Cordray, won’t have full powers because of how the Dodd-Frank Act is written.

To start, Carter Doughtery at Bloomberg has a great article, Cordray Appointment Activates Full Powers of New Consumer Bureau, which has many experts explain that “President Barack Obama’s decision to install Richard Cordray as director of the Consumer Financial Protection Bureau activates the full authority granted to the agency by the Dodd-Frank regulatory overhaul.”

However there’s a dissent in the piece from Mark Calabria.  That dissent is based on his post at Cato’s website, Obama’s Constitutional Gamble on Consumer Finance Nomination (my bold):

More importantly the “recess” appointment of Cordray doesn’t solve the President’s problem.  The Dodd-Frank Act is very clear…that authorities under the Act remain with the Treasury Secretary until the Director is “confirmed by the Senate”.  A recess appointment is not a Senate confirmation.  Now don’t ask me why Dodd and Frank included such unusual language, they could have just given the Bureau the new authorities, but they didn’t.  So even with this appointment, the CFPB won’t be able to go after all those non-banks…

Daniel Foster links to it at National Review, and I’m sure the contagion is spreading far and wide.

Hmmm.  “Confirmed by the Senate”.  Are we sure the language maybe didn’t say something in addition to that?  Did someone accidentally delete something that came after “Confirmed by the Senate”?  Let’s go to the Dodd-Frank Act, Section 1066, which is where he pulls the language (my bold):

SEC. 1066. INTERIM AUTHORITY OF THE SECRETARY.

(a) IN GENERAL.—The Secretary is authorized to perform the functions of the Bureau under this subtitle until the Director of the Bureau is confirmed by the Senate in accordance with section 1011.

Huh.  “Confirmed by the Senate” is actually “confirmed by the Senate in accordance with section 1011.”  What’s section 1011?  The following (my bold):

SEC. 1011. ESTABLISHMENT OF THE BUREAU OF CONSUMER FINANCIAL PROTECTION….

(b) DIRECTOR AND DEPUTY DIRECTOR.—
(1) IN GENERAL.—There is established the position of the Director, who shall serve as the head of the Bureau.
(2) APPOINTMENT.—Subject to paragraph (3), the Director shall be appointed by the President, by and with the advice and consent of the Senate.

To be in accordance with Section 1011, or be in accordance with the section Cato left out of the picture, goes with ordinary “by and with the advice and consent of the Senate”, the stuff that is in the Constitution.  Which means that recess appointments are totally appropriate for full responsibilities taking over – to be in accordance with the language of Dodd-Frank is just normal procedure for the Senate and appointments.  Nothing special here, just ordinary language on how the Senate deals with appointments.  Nothing special here, unless you lop off half a sentence of the Act’s language in Section 1066.

I checked in with David Arkush of Public Citizen, who emailed me the following about Cato’s argument:

Sec. 1011 says the director is appointed by the president, with the “advice and consent” of the Senate. This doesn’t look like anything but a recitation of the Constitution’s advice and consent requirement for such an appointment. Then, sec. 1066 grants Treasury interim powers “until the Director of the Bureau is confirmed by the Senate in accordance with section 1011” (emphasis added). Sure, it says, “confirmed by the Senate.” But it also says “in accordance with section 1011” – meaning that it’s not adding any requirements over and above what sec. 1011 says. Rather, it refers to the same process of installing a director as that outlined in section 1011.

Indeed all of the commentary I’ve ever seen on this has indicated that a recess appointment would give full powers to the CFPB.  Here’s Congressional Research Services’ May 2011 report Limitations on the Secretary of the Treasury’s Authority to Exercise the Powers of the Bureau of Consumer Financial Protection, footnote #3:

P.L. 111-203 § 1011. Although the CFP Act requires the CFPB Director to be confirmed by the Senate, the President could appoint a Director temporarily without Senate confirmation through his constitutionally provided power to make recess appointments. See U.S. Const., art. II, § 2, cl. 3 (“The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.”). A recess-appointed Director likely would be considered to have all of the authorities that would be held by a Senate-confirmed Director. CRS Report RL33009, Recess Appointments: A Legal Overview, by Vivian S. Chu.

Let’s go to CRS Report RL33009, Recess Appointments: A Legal Overview, by Vivian S. Chu to follow that citation:

As a fundamental matter, a recess appointee possesses the same legal authority as a confirmed appointee.[71]

[71] See also Hogue, supra note 3, at 4; Swan v. Clinton, 100 F.3d 973, 987 (D.C. Cir. 1996) (recess appointment is not an “inferior” procedure to appointment with Senate confirmation); Designation of Acting Solicitor Labor, 2002 WL 34461082 (2002) (distinguishing between an temporary designation under the Vacancies Reform Act and a recess appointment—“An acting official does not hold the office, but only ‘perform[s] the functions and duties of the office.’[citation omitted] He is not ‘appointed’ to the office but only ‘direct[ed]’ or authorized to discharge its functions and duties, and thus he receives the pay of his permanent position, not of the office in which he acts. [citation omitted]  A recess appointee, on the other hand, is appointed by one of the methods specified in the Constitution itself, [citation omitted]; he holds the office; and he receives the pay.”).

Is that enough to take down the zombie?  Did we hit the brain, or just the jaw?  I’m scared to go inspect the body….

(Bonus:  “The President shall have Power to fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.”  -Art. II, § 2, cl. 3.  I like how libertarians at Cato are all about the Constitution, with grants the President the power to fill up vacancies, until they aren’t.)

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14 Responses to Sorry Cato, A CFPB Recess Appointment Has Full Regulatory Powers

  1. Mike Stern says:

    As a literal matter, the Act appears to give the Secretary the power until such time as a Director is confirmed by the Senate, which has not happened yet. The argument would have to be made that reading the Act in this literal fashion would give rise to a substantial constitutional question (ie, by effectively depriving the President of the recess appointment power). This might be a strong argument. Hard to tell since you have provided insult comedy instead of, say, legal authority.

  2. adam says:

    Umm, but a recess appointment isn’t “by and with the advice and consent of the Senate.” A recess appoint is an exception to advice and consent. And notably section 1066 specifically says “confirmed by the Senate in accordance with section 1011,” indicating that actual confirmation is required. “In accordance with 1011″ simply means that the President has to appoint first.

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  4. Jon says:

    CATO is wrong for a different reason as well. The quoted language contains the qualification “under this subtitle.” The subtitle in question is subtitle F (relating to the transfer of authority from the FTC/OCC/etc to the CFPB). The director’s new powers are not in subtitle F — they are all over the act (such as in subtitle A).

    So even if “confirmed by the Senate” in 1066 somehow does not include recess appointments, all that would happen is that the treasury secretary would have the subtitle-F authority, while the director would have the rest of the authority (including all the new authority). There would be no reduction in the agency’s power at all.

  5. Jeff Perlman says:

    Great post. This definitely clears this fake issue up.

    Sadly, NPR totally got duped when reporting this story on their “Marketplace” program. Link: http://www.marketplace.org/topics/economy/richard-cordray-head-consumer-protection-bureau

    Tess Vigeland, hosting the program, asks Rob Blackwell, Bureau Chief for American Banker, about the constitutionality of naming Richard Cordray as head of the CFPR. Mr. Blackwell says this:

    “It’s fairly clear, the statue — if you look at it, it says has to be confirmed by the Senate. And Richard Cordray — even if he’s recess appointed — he’s not confirmed by the Senate. What you’re going to hear is — the Obama White House is going to say: “Look, there’s no difference between a Senate confirmed and a recess appointment.” But a lot of Republicans and a lot of — privately — Democrats think that’s not true. And they worry that anything that Cordray does as CFPB director could be challenged in a court of law and could be overturned.”

    Obviously Blackwell is wrong (I guess he didn’t read the statute either!) and NPR clearly failed in it’s journalistic duties to know the law and follow up. In fact, the tone of the entire segment seems designed to make the listener doubt the legality of Obama’s recess appointment….and NPR wonders why I no longer donate…

  6. wetcasements says:

    Cato, huh? Isn’t that the one Buttman belongs to?

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  8. Adam says:

    Calabria’s talking about stuff he knows nothing about. He’s an economist, not a lawyer and therefore misses a really elementary legal point: the Constitution trumps any Congressional statute. Congress cannot restrict the President’s recess appointment power by statute.

    The real question is whether this was in fact a recess appointment, not whether the President can make a recess appointment. That’s a trickier issue, as “recess” is not defined in the Constitution. Is a weekend a recess? A 3-day or 4-day holiday weekend? What is one to do about “pro forma” sessions, where the Senate doesn’t conduct any actual business? What about the fact that roll call votes are not required (and if no one challenges quorum, hmmm…). I think the Senate resolution on Terry Schiavo was passed by all of two Senators in a voice vote in the middle of the night.

  9. Pingback: A Response to Konczal on Cordray Recess Appointment | Cato @ Liberty

  10. Brad says:

    What I really don’t understand is how everyone is just skipping past the initial issue, which is whether or not this is a recess appointment. It clearly is not a recess appointment, and there requires the ‘advice and consent’ of the Senate. The President can argue til he is blue in the face that they Senate isn’t ‘really’ in session, but I do not recall anytime in the past (or section of the Constitution) when the President has had the power to declare or decide whether or not the Senate is in session. The Senate opened session pro forma the DAY before the President announced and made this appointment.

    If the President can declare when the Senate is in session, and therefore declare when he does and does not require the advice and consent of the Senate, then that provision within the Constitution is meaningless. Surely, no one would argue such a thing. Least of all Senators Harry Reid and Barack Obama circa 2007-2008 when they did the same tactic. And certainly not Obama’s justice department (Justice Kagen ridiculed the concept in a brief).

    Think about it this way…. EVEN BUSH COULDN’T BRING HIMSELF TO DO THIS. So why should it be ok for Obama to do it?

  11. Pingback: Another Round On CFPB Powers in Light of a Recess Appointment | Rortybomb

  12. mark t says:

    I am not going to comment on the merits of your Constitutional interpretation, which I have not studied. I will say your tone seems a little cocky relative to what seems on the face to be a pretty dense issue, but I know you are an advocate and you’re hardly alone.

    I do want to note that, if the Constitutional passage you quote means what it says, Cordray loses his job in less than a year as do the NLRB folks Obama appointed. So absent a 60 vote Democratic bloc in the Senate (unlikely) the CPFB is going to be a pretty rudderless unit for a good deal of the next few years.

  13. B-Rob says:

    You cannot reasonably argue that the Senate is not in recess when (a) none of the senators are in town, save the one guy who gavels in and gavels out 30 seconds later; (b) the Senate as a whole, the subcommittees, the caucuses, etc. are ALL out of session until late January; and (c) this is a four year old “tradition” to have “pro forma” sessions of the Senate (required by the House, which is also not functioning at all but in “pro forma session”, refusing to recess) in order to keep Obama from making recess appointments. Four years . . . not forty or one hundred and forty . . . but four years.

    Now I admit that it has been a long time since I read the Constitution. But I do not recall the phrase “pro forma session” anywhere in the document. This is a session in name only, one that, in theory, could last 364 days. So at what point would we all be able to agree that a “pro forma session” is not a real session of the Senate? Well, the “tradition” is a three day break in action, as the Kagen memo noted . . . but that, too, is nowhere mentioned in the Constitution.

    Finally, mark t. alludes to the idea that the CFPB will be “rudderless” after Cordray’s one year stint is up. Uh, maybe. Conceivably, a GOPer president elected in November would not name anyone to the agency to which the GOPers are so hostile. But it is just ask likely that they would try to name a pro-pay day loan industry stooge into the position and try to undo every reform that Cordray puts in. And if Obama is re-elected, he certainly will fill the position, via recess appointment or otherwise, not screwing around for a year, the way he did this time, trying to cajole the GOPers into either confirming or rejecting a nominee.

    • mark t says:

      The point you make at the end about Obama making another recess appointment won’t be possible once the New Congress convenes (it won’t be in recess, even under your definition).That is why it could go back into rudderless mode again. And yes he could make a 2d recess appointment somewhere in 2014. I don’t think Obama was “screwing around”. I think he realized a guy whose party sustained a large shellacking does not have a lot of leverage once the opponent has over 40 seats. For the same reason I don’t think you will see a anti consumer director appointed if Romney or whoever wins.I think the most realistic forecast is, like the Eurozone, a period of politi drifting within political constraints.

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