Regulations created by the new Consumer Financial Protection Bureau (CFPB) under its current director could be challenged on the basis of a recent ruling from the U.S. Court of Appeals for the D.C. Circuit. On Friday, January 25, 2013, a three-judge panel held in Canning v. National Labor Relations Board that three recess appointments made to the National Labor Relations Board (NLRB) while the U.S. Senate was in pro forma session are unconstitutional because the Senate was not in recess. In pro forma sessions, the Senate is technically in session, but does nothing more than gavel in and gavel out – i.e., formally meet but conduct no business. The three appointments gave the NLRB a quorum, which was necessary to conduct business. However, because the three appointments are invalid, no quorum existed and any actions by the Board are unenforceable.
This ruling could have implications for the CFPB whose director, Richard Cordray, was appointed at the same time as the three board members. A challenge to that appointment is pending before the U.S. District Court for the District of Columbia in State National Bank of Big Spring, et al. v. Geithner, et al. Among the recent regulations promulgated by the CFPB, which could be implicated, include recent rules that lay out requirements for mortgage-servicers to meet before requiring customers to pay for force-placed insurance.
But this is not the end of the road. The panel’s opinion itself notes that there is a circuit split on the issue of how to interpret Article 2, Section 2, Clause 3 of the U.S. Constitution. This article gives the President power to make recess appointments. This makes it a compelling case for the Supreme Court to grant a writ of certiorari and decide. Furthermore, even if the CFPB director’s appointment is held unconstitutional, regulations made during his tenure will not necessarily be invalid. As discussed in U.S. v. Ryder, 515 U.S. 177 (1995), under the de facto officer doctrine, the actions by an officer whose appointment is illegal may be left intact in order to prevent a lot of confusion and considerable litigation. However, it should be noted that the three-judge panel did not discuss nor apply this doctrine to the NLRB case and specifically denied the NLRB’s petition to enforce the board’s actions.