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Agency Protecting Borrowers Dealt Blow

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Last week the U.S. Circuit Court of Appeals for the D.C. Circuit nullified President Barack Obama’s three recess appointments to the National Labor Relations Board made late last year, declaring them unconstitutional. The three-judge panel determined that the president can only make a recess appointment if the Senate is formally adjourned between sessions of Congress.

The court’s decision also casts doubt on the validity of President Obama’s recess appointment of Ohio Attorney General Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB), a newly created federal agency charged with protecting consumers against financial fraud and abuse. Obama appointed Cordray during a congressional recess back in January 2012 over Republican objections.

Nearly all Senate Republicans have pledged to block the confirmation of Cordray to head the CFPB. They want the single director position to be replaced by a bipartisan board similar to those that run most other government agencies.

Last week, a group of 43 Republican senators — led by minority leader Mitch McConnell of Kentucky, and Idaho Senator Mike Crapo, who is the top Republican on the Senate Committee on Banking, Housing, and Urban Affairs  — said the CFPB lacks congressional oversight.

“We have serious concerns about the lack of congressional oversight of the agency and the lack of normal, democratic checks on its sole director,” the senators wrote to President Obama on Feb. 1, 2013. “As currently organized, the CFPB is insulated from congressional oversight of its actions and its budget. Far too much power is vested in the sole CFPB director without any meaningful checks and balances.”

The Republican senators want three reforms:

1)    Replace the single director with a bipartisan board to oversee the CFPB.
2)    Subject the CFPB to the annual congressional appropriations process, similar to other federal regulators.
3)    Establish a safety-and-soundness check for the prudential financial regulators who oversee the safety and soundness of financial institutions.

Created by the 2010 Dodd-Frank Act, the CFPB wields oversight and regulatory powers over mortgages, credit reporting, debt collection and payday loans, among other consumer financial products and services. It has a budget of $448 million from the Federal Reserve and a staff of about 1,000.

The court ruling against the Obama administration has cast a cloud over the fate of the CFPB. Its future could be determined in the next few weeks, because a small community bank, State National Bank of Big Spring, Texas, has filed a lawsuit that questions the constitutionality of Cordray’s recess appointment.

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