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Did Hensarling Force Obama's Hand On "Recess" Appointments?

They called it a "stunt" early last week when House Financial Services Committee Chairman Jeb Hensarling (R-Texas) refused to allow Consumer Financial Protection Bureau (CFPB) director Richard Cordray to testify due to the constitutional cloud over Cordray's appointment. But this "stunt" just may have forced the Obama administration's hand in submitting a brief later in the week urging the Supreme Court to resolve the issue.

In a statement, Hensarling announced that the committee could not "legally accept testimony from Richard Cordray ... until he is validly appointed as the bureau’s director." In the letter that Hensarling sent to Cordray, Hensarling cited the ruling of the U.S. Court of Appeals for the D.C. Circuit in Noel Canning v. National Labor Relations Board that three "recess" appointments to the labor board made the same day and in the same manner as Cordray's appointment were ruled unconstitutional. "It is clear," Hensarling wrote, "as a number of legal scholars have concluded, that your appointment was also unconstitutional."

This is exactly what the Competitive Enterprise Institute, and our co-plaintiffs the 60 Plus Association and the State National Bank of Big Spring (Texas), argue in our lawsuit challenging the constitutionality of the CFPB and other elements of Dodd-Frank, the so-called financial reform law rammed through Congress in 2010. Neither Cordray nor the NLRB officials were valid "recess" appointments, because the Senate was in pro-forma session, gaveling in and out every three days and ready for legislative business should it occur (including changes to payroll tax legislation Congress made during these sessions).

The Obama administration's action was unprecedented. As noted by the nonpartisan Congressional Research Service and reported by Politico, during the 2007-08 pro forma sessions when the Democrats controlled both houses, President Bush “made no recess appointments between [Democrats’] initial pro forma sessions in November 2007 and the end of his presidency." As I asked on OpenMarket on January 4, 2012, the day the recess appointments were made, "If any adjournment or break the Senate takes can be defined as 'recess,' can the president make appointments when the Senate is in formal session and gavels out for the evening?" Or could a recess even be declared when the Senate adjourns for a bathroom break?!

Even after the appeals court declared invalidated the NLRB appointments earlier this year, the administration reacted with a ho and a hum. As my colleague Julia Tavlas writes on our sister site WorkplaceChoice.org. "When the recess appointments were ruled unconstitutional, there was much buzz about what that would mean for all of the NLRB’s decisions. So far, not much." And the administration refused to concede that the ruling had any bearing on the CFPB, despite the fact that Cordray was appointed in the same manner and on the same day as the NLRB officials.

But shortly after Hensarling blocked Cordray from testifying and explained why in his letter, things began to change. Hensarling specifically told Cordray he could not testify "absent contrary guidance from the U.S. Supreme Court." Just a few days later, the Obama administration filed a brief asking for such guidance. And the same administration that pooh-poohed the court decision when it came out, suddenly began seeing it as a grave threat.

“That decision,” U.S. Solicitor General Donald B. Verrilli, Jr., told the Supreme Court, “repudiates understandings of the Recess Appointments Clause that have been maintained and relied on by the Executive for most of the Nation’s history." It's true that the D.C. Circuit court did go further than it needed to in striking down Obama's "recess" appointment. It ruled that only "intersession" recess appointments -- those between sessions of Congress -- were valid. It's unclear if the Supreme Court will go that far, and it doesn't have to invalidate Obama's unprecedented use of the "recess" power.

But it's difficult to see the high Court taking the case, and then refusing to put any limits on the president's power to unilaterally make appointments without the Constitution's required "advice and consent" of the Senate. Senators of both parties do wish to take bathroom breaks without the fear that the president will suddenly declare a "recess" and appoint important officials without their say.

And recent actions of the CFPB have confirmed the worst fears of its critics that lack of accountability results in horrendous policy. It is now insisting on quotas for car loans because it claims that neutral measures of credit such as credit scores can have an "adverse impact" on minority borrowers. As Rep. John Campbell put it yesterday in a Wall Street Journal op-ed: "the agency wants financial institutions to guess your race, ethnicity and gender
based on your name and the address on your application. Put bluntly, they want lenders to profile you."

The CFPB is also raising serious privacy concerns by buying and forcing banks to give it massive amounts of data on consumer transactions. As Senate Banking Committee Ranking Member Mike Crapo (R-Idaho) pointed out at to Cordray at a hearing last week, "Given that the CFPB's inspector general has already identified data security issues at the bureau, how can the consumer be assured that this information is indeed safe?"

And then there is the sheer volume of rules the CFPB is showering on community banks and credit unions. As one credit union official said at a recent hearing, "A seemingly unending rulemaking process stemming from the CFPB, coupled with outdated and duplicative regulations already in statute, result in credit unions spending more resources on compliance and less on other services that benefit our membership."

Rather than Hensarling pulling a "stunt," it is the Obama administration and the CFPB that are doing wild acrobatics with the Constitution and financial regulatory policy. All Hensarling was doing, in the words of the eminent columnist George Will, is simply giving an out-of-control government some much needed "adult supervision." And judging by the Obama White House's reaction, Hensarling is succeeding.