Consumer watchdog’s actions as interim appointee upheld

Andrew Harris

The Consumer Financial Protection Bureau and director Richard Cordray defeated a legal challenge to actions taken by the agency while he was a 2012 recess appointee of President Barack Obama, with a judge delaying her decision on more resonant questions about the CFPB’s powers under the U.S. Constitution.

U.S. District Judge Ellen Segal Huvelle in Washington said she would hold off on that decision until a separate suit raising the same constitutional issue is resolved by the U.S. Court of Appeals for the District of Columbia. A three-judge appellate panel heard arguments in April in that case brought by New Jersey mortgage services company PHH Corp.

The CFPB was born out of the 2010 Dodd-Frank financial reform legislation. Cordray, its first director, was appointed while the the U.S. Senate was in recess.

State National Bank of Big Spring, Texas, which first filed suit in 2012, challenged five lending-related regulations taken by Cordray during that interim period. The director formally ratified those acts after his confirmation by the Senate in 2013.

“Plaintiffs raise three arguments to dispute the effectiveness of Director Cordray’s ratification,” Huvelle wrote in her ruling Tuesday, “none of which is persuasive.

Bank attorney Greg Jacob, a partner in the Washington office of O’Melveny & Myers LLP, said the decision will be appealed.

“Judge Huvelle’s holding that Director Cordray could ratify literally thousands of invalid actions, including invalid rulemakings, by publishing three perfunctory sentences with no accompanying process at all cannot be right, and we are confident we will prevail on appeal,” Jacob said by email.

Moira Vahey, a CFPB spokeswoman, declined to comment on the court’s decision.

The Big Spring bank contends the agency’s director operates as a “mini-president of consumer finance” without being accountable to the president or Congress. PHH makes a similar argument, saying the CFPB director’s role violates the Constitution’s separation of powers principle.