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Friday, February 1, 2013

Federal appeals court ruling may impact CFPB

In light of an appeals court ruling that President Barack Obama's Jan.4, 2012, recess appointments of three new members to the National Labor Relations Board were unconstitutional, the appointment of Richard Cordray to helm the newly formed Consumer Financial Protection Bureau is now under question. If Cordray's appointment, which occurred on the same day the other appointments were made, is eventually ruled unconstitutional, the CFPB's actions to regulate the financial services industry, including the prepaid card sector, may be invalidated.

On Jan. 25, 2013, the United States Court of Appeals for the District of Columbia Circuit ruled in a dispute between a labor union and a bottler and distributor of Pepsi-Cola products that the collective bargaining agreement the two parties had entered into was unenforceable. The three-judge appeals court panel reached this decision based on the make up of the five-member NLRB, which had previously ruled that the collective bargaining agreement was valid.

The appeals court said Obama did not follow the dictates of the U.S. Constitution when he appointed Sharon Block, Terence F. Flynn and Richard F. Griffin to the NLRB. Since the Constitution also mandates that any federal governing body must have a quorum (a minimum majority) to conduct business, the court ruled that the NRLB did not have a quorum because three of its five members were unconstitutionally appointed.

Recess or not

The appeals court judges said the NRLB appointments were unconstitutional because Obama made them when Congress was in session. The Constitution only allows the president to make appointments without the U.S. Senate's approval when Congress is in recess, which the judges interpreted as meaning when Congress is not officially in session. On Jan. 3, 2012, the day before Obama made the appointments, the 112th Congress officially began its session.

The Constitution stipulates that, while Congress is in session, the president must get approval from the Senate to appoint government officials the president has nominated to positions. The Obama administration claims that the definition of "recess" in the Constitution means any break in Congress' business while it is otherwise in session.

On Jan. 4, 2012, the Senate, which confirms or denies the appointment of presidential nominees, was not conducting business, as Senate Republicans had employed a procedure that kept the Senate in session but didn't allow business to be conducted. The procedure was reportedly employed to block Obama from making appointments.

On the same day Obama appointed the three NLRB members, the president also named Cordray to Director of the CFPB. Senate Republicans had vowed to block Cordray's appointment because they believed the CFPB would wield too much regulatory power over the financial services industry; by blocking Obama from appointing a director, the CFPB would not be able to implement changes to financial services.

What about Cordray?

Now that the appeals court has ruled that Obama's NLRB appointments were unconstitutional, it calls into question Cordray's appointment as well. While a separate case is underway that challenges the constitutionality of Cordray's appointment, the NLRB case will likely end up before the United States Supreme Court. It is expected that the decision by the highest court in the land will hinge on how the Supreme Court judges interpret the Constitution's recess appointment stipulation.

If the Supreme Court agrees with the appeals court, Obama's NRLB appointments will be voided. What would then happen to Cordray's appointment is open to debate. If Cordray's appointment to the CFPB is also finally ruled unconstitutional, the measures the bureau has taken in the last year to bring apparent reforms to financial services, including the prepaid card industry, could theoretically be nullified. end of article

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