Caveat Vendor

Domino Effect? How A Ruling On The National Labor Relations Board Could Cripple The Consumer Financial Protection Bureau

February 09, 2013

Amanda Jabour Kowalski

A recent decision by the Court of Appeals for the D.C. Circuit has invalidated President Obama’s appointment of three members to the National Labor Relations Board (“NLRB”) and has once again called into question the constitutionality of the president’s appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau (“CFPB”).

On January 4, 2012, the president made several recess appointments to fill vacancies at the NLRB and the CFPB, pursuant to his authority to make such appointments under Article II, Section 2, of the U.S. Constitution. Although presidents since George Washington have made recess appointments, President Obama’s appointments raised unique concerns, partly because of their political implications and partly because of the unusual circumstances surrounding the appointments. Specifically, it was unclear whether Congress was actually in recess at the time of the appointments because during the congressional holiday break, the Senate continued to conduct periodic pro forma sessions, ostensibly for the purpose of preventing recess appointments.

The D.C. Circuit case, Noel Canning v. NLRB, No. 12-1115 (D.C. Cir. Jan. 25, 2013), arose out of an NLRB decision related to a dispute between Noel Canning, a Washington state canning and bottling company, and its local Teamsters union. The NLRB ruled in favor of the Teamsters, and Noel Canning appealed to the D.C. Circuit. On appeal, Noel Canning essentially argued that the NLRB decision was invalid because President Obama’s recess appointment of three members to the NLRB was invalid, and therefore there was no NLRB quorum authorized to make a decision in the case. The court agreed, ruling that because the Senate was in a pro forma session at the time of the appointments, Congress was not in recess and therefore the NLRB appointments were “invalid from their inception.”

Although Noel Canning did not address the president’s appointment of the CFPB Director, the decision has strong implications for the agency and its existing rulemakings. CFPB Director Richard Cordray was appointed at the same time and under the same recess appointment authority as the members of the NLRB, and the D.C. Circuit opinion raises questions as to the impact of the case on the CFPB and the entities it regulates. Critically, as Kevin Petrasic and Michael Hertzberg’s recent article analyzing the CFPB’s qualified mortgage rule points out, the CFPB’s regulation of banks may be impacted and non-bank organizations may now be in a state of “legal limbo” regarding the applicability of the CFPB’s rules.

There is currently at least one challenge to Richard Cordray’s appointment in federal court, State National Bank of Big Spring v. Geithner, but the case is unlikely to be resolved in the near future. Until a federal court weighs in on the issue of Cordray’s appointment as Director, or until a presidential appointee to the position is confirmed by the Senate, there may be no clear path forward for the CFPB and its regulated entities. (Mr. Cordray was recently nominated to fill the term on a more permanent basis, but his prospects for success are uncertain.)

Check back soon for another post addressing the potential impact a challenge to Richard Cordray’s appointment could have on CFPB rulemakings and CFPB-regulated entities.