Another Round On CFPB Powers in Light of a Recess Appointment

Mark Calabria of Cato has a response on yesterday’s post.  He doesn’t address the problems I brought up with his argument or any new legal language, but simply reasserts that these problems exist in Dodd-Frank, so now might be a good time to reiterate the argument.

To clarify, Calabria argued yesterday that “that authorities under the Act remain with the Treasury Secretary until the Director is “confirmed by the Senate.'”

There are two problems with this statement, which is generated off Section 1066 of the Dodd-Frank Act.  The first, which we didn’t discuss yesterday, is that “authorities under the Act” isn’t in the language – it’s “to perform the functions of the Bureau under this subtitle” in Dodd-Frank.  This references the powers in Subtitle F of the Consumer Financial Protection Agency.

This isn’t all authorities of the CFPB director.  And the non-bank powers are not in Subtitle F, which is about transferring already existing regulations over.  Calabria refers to Senate confirmation being necessary for “the additional powers over non-banks in place” but hasn’t made the case on how to handle the Subtitle F issue.  It’s clear why subtitle F is there – it’s to make sure the CFPB can get started with staffing and setting up offices and transferring existing powers in case of a nasty, protracted confirmation battle for the Director that lasted over a year.

The other problem, the one we addressed yesterday, is that Section 1066 requires “confirmed by the Senate in accordance with section 1011.”  Section 1011 requires: “the Director shall be appointed by the President, by and with the advice and consent of the Senate.”  Advice and consent of Senate is how normal appointments go, which means there’s no special requirement that necessitates a confirmation but not a recess appointment to take over powers in the Dodd-Frank language.

Calabria addresses the second argument in the post in two ways.  He argues that “Mike sees [advice and consent of the Senate] as meaningless boilerplate” language, which I certainly do not.  In fact, I think it is really important language that requires people who argue the Director doesn’t have full powers need to address.  Advice and consent has been consistent with recess appointments for a long time, and Calabria needs to argue how 1066 overrules 1011, or that the 1011 language necessitates a Senate confirmation for full powers, or how to get around the Subtitle issue, which he doesn’t.

Calabria then argues that he and other Congressional aides did the language right when they created HERA, which unlike Dodd-Frank would have avoided these problems:

During my service on the Senate Banking Committee, when we were drafting language to create the new regulator for Fannie and Freddie, we were very aware of this danger…We didn’t wish to have a similar problem, so we crafted language to avoid it (see Section 1101 of HERA).  The problem is that Dodd-Frank did not include such language (one of many drafting errors in the bill).

Section 1101 of HERA (my bold):

SEC. 1101. ESTABLISHMENT OF THE FEDERAL HOUSING FINANCE AGENCY…

‘(a) ESTABLISHMENT OF POSITION.—There is established the position of the Director of the Agency, who shall be the head of the Agency….

‘‘(1) APPOINTMENT.—The Director shall be appointed by the President, by and with the advice and consent of the Senate, from among individuals who are citizens of the United States…

‘‘(5) TRANSITIONAL PROVISION.—Notwithstanding paragraphs (1) and (2), during the period beginning on the effective date of the Federal Housing Finance Regulatory Reform Act of 2008, and ending on the date on which the Director is appointed and confirmed, the person serving as the Director of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development on that effective date shall act for all purposes as, and with the full powers of, the Director….

“by and with the advice and consent of the Senate” – it’s the same exact language in (1) as Dodd-Frank.  Nothing special here, expect that (5), which automatically makes a specific individual a Director when the bill passes.

To add (5) to the CFPB’s Director position, as Calabria suggests should have been done, would have necessitated making someone the acting Director of the CFPB the day after Dodd-Frank passed.  I don’t see why that’s a good idea or a necessary idea and I find it somewhat inappropriate, though I understand why it may have made sense for HERA.  Dodd-Frank follows the normal, appropriate procedures for the appointment of Directors, which should have a public debate and Congressional say in it.  If Dodd-Frank forced a director on the first day I can’t imagine Calabria calling it good policy but instead arguing that it pushes the boundaries of the Constitution and the power of the Senate against the Executive branch (even though the Senate would have passed it).

My favorite meta-argument on this, from commenter Jon Shields at the Volokh Conspiracy:

I don’t see anywhere in the statute that prohibits the bureau from having any powers prior to Senate confirmation of the Director. Rather, the statute simply grants power to a director (without which the agency does not have). The statute also grants a subset of that power to the Treasury Secretary, and the Treasury Secretary has that power until the director is confirmed. (That is the power being used to run the agency today.)

To be specific, I see the words “confirmed” and/or “Senate” mentioned in two relevant places. The first is in Subtitle A, section 1011. It says:

“(b) (2) IN GENERAL– The Office shall be headed by a Director, who shall be appointed by the President, by and with the advice and consent of the Senate.”

It would seem to me that this can be read to allow a recess appointment. This language is used all over the place in all kinds of laws, and if it is read any other way, I would guess that hundreds of previous recess appointments (and all associated executive actions) would be called into question. It would also mean that there could never be a recess appointment — it does not distinguish between the first appointment and subsequent appointments.

The second relevant use of the word “Senate” appears in Subtitle F (the “transfer of authority” section). The section describes how authority is transferred from the pre-existing agencies to the CFPB. (This is only a subset of the ultimate power of the CFPB — other subtitles outline new power no previous agency had, such as the ability to regulate non-bank instititions, abusive practices, etc.)

In Subtitle F section 1066, it says:

“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.”

If this is read to distinguish between a confirmation and a recess appointment (as you propose), I don’t think it matters. This would just mean that the Secretary will still have the powers under subtitle F, even if there is a recess-appointed director. In any event, the new powers the director have do not appear in subtitle F; they appear in other subtitles (such as subtitle A). That provision cannot possibly be read to affect the new powers of the Director outside of subtitle F (that the Secretary of the Treasury never had).

I haven’t seen anything that addresses this argument directly.

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