The Supreme Court and the CFPB: A test of executive power

The Department of Justice is asking the Supreme Court to decide a case that will have important ramifications for the validity of CFPB rules. On April 26, 2013, the Department of Justice filed a petition asking the United States Supreme Court to decide whether President Obama’s recess appointment of three members of the National Labor Relations Board (“NLRB”) is constitutional.

The Department of Justice is asking the Supreme Court to answer two questions:

(1) Whether the President can make a recess appointment during a recess that occurs while the Senate is in session; and

(2) Whether the President can use his recess-appointment power only to fill vacancies that arise during a particular Senate recess.

These questions bear directly on the validity of President Obama’s recess appointment of Richard Cordray as head of the CFPB. This blog has previously covered questions about Mr. Cordray’s appointment here and here.

This appeal comes after the United States Court of Appeals for the District of Columbia Circuit ruled that the President can only use the recess-appointment power during inter-session recesses. The inter-session recess will only occur between the dates when Congress adjourns sine die, or without specifying a date for return, and January 3. For example, if Congress adjourns on December 17, 2011, and does not specify that it will return prior to January 3, 2012, then Congress will be in an inter-session recess. In contrast, an intra-session recess is much more common. The intra-session recess occurs whenever the House or Senate adjourns for a specified period of time. These adjournments often occur to give Senators and Representatives time to work or return to their districts.

Since the Civil War, the President and Senate have generally agreed that the President has the authority to fill vacancies during either inter- or intra-session recesses. However, the D.C. Circuit disagreed with the historical practice and the United States Court of Appeals for the Eleventh Circuit and concluded that the Constitution only permits the President to make recess appointments during inter-session recesses.

In addition, the D.C. Circuit held that the President can only fill vacancies that arise during an inter-session recess. These holdings compelled the D.C. Circuit to conclude that the President did not have the authority to fill three vacancies on the NLRB, thereby invalidating at least one decision of that body. More detailed coverage of the NLRB case can be found at our employment law blog here.

The Department of Justice appeal will have significant ramifications for financial institutions. If the Supreme Court grants the Department of Justice’s petition, then the Court’s decision could confirm or invalidate the President’s recess appointment of Richard Cordray as head of the CFPB. This will have significant ramifications for the CFPB, since only the CFPB’s director has the authority to issue rules. If Richard Cordray’s appointment is invalid, then virtually everything the CFPB has done will be called into question.

However, the Supreme Court must first decide to grant the Department of Justice’s request for an appeal. There is no way to know exactly when the Justices will consider the Department of Justice’s request, or how quickly they will act. The Supreme Court is unlikely to hear the case during its present term, particularly because doing so would require extraordinary scheduling. If the Supreme Court does decide to hear the case, arguments will most likely be set for the October 2013 term. This blog will continue to monitor the progress of the case, and the potential implications for financial institutions.