Court Decision Calls CFPB Mortgage Authority into Question

Upon the reappointment of Richard Cordray to lead the Consumer Financial Protection Bureau, a court ruling has called into question his directorship as well enforcement of the rules made by the agency under his watch—including rules that are slated to have a major impact on the mortgage lending industry. 

Because Cordray was named director of the CFPB through a recess appointment by President Obama, if that recess appointment is questioned, so will the rules made under Cordray’s watch as director. 

That’s just what happened Friday, when a U.S. Circuit Court of Appeals in Washington D.C. ruled three recess appointments to the National Labor Relations Board by President Obama were unconstitutional because of the circumstances surrounding the “recess” during which they were made. That ruling may set precedent for the CFPB’s leadership as well. 


Those recess appointments, similar to the appointment of Cordray, were made in January 2012 during a 20-day Senate recess, but during which the Senate held ongoing pro forma sessions to keep the Senate in session. 

The recess appointment was made following scrutiny over whether the CFPB wielded too much power under a single director, a concern made very public by house Republicans as well as members of the Senate. Further, the CFPB only holds authority over non-banks if it has a director, as specified by Dodd-Frank.  

“Regarding the CFPB, while I respect Richard Cordray as a substantive person who has shown thoughtfulness in writing regulation up to now, I still have reservations about the CFPB’s structure, namely the lack of a board to help ensure sound policy and accountability,” said Sen. Bob Corker (R-Tenn.) following the NLRB decision. 

President Obama has said he will reappoint Cordray, but the question remains what would—or will—become of all the CFPB’s enforcement capabilities including changes to loan originator compensation, home appraisals, mortgage servicing and others. It has led to widespread uncertainty in the market pending a resolution. 

The White House is expected to appeal the ruling. In the meantime, the decision has spawned a flurry of concern in Washington about what it means for these agencies and the government overall. 

“Time is not the friend of the CFPB with this situation hanging out there,” says Chris Willis, partner with Ballard & Spahr LLP. “Right now, everybody is thinking: ‘ Can we challenge everything because the agency doesn’t have an appointed director?’ It gives entities opportunities to challenge anything they want to on the basis that there isn’t a proper director in place. The longer it persists, the worse off the agency is.”

Questions remain, too, about the future of the agency’s leadership as well as the past recess appointments that have been made. 

“Obama renominated Cordray Jan. 24, but the chances that the Senate will confirm him are slim to none, which is why Obama sought to bypass the Senate in the first place,” wrote Bloomberg View editorial board member Payla Dwyer of the ruling. “…For now, the Consumer Financial Protection Bureau and the labor-relations board are essentially decapitated. The future of the recess appointment as used by past presidents is also in doubt.”

“The decision is novel and unprecedented,” said White House Press Secretary Jay Carney. “…it contradicts 150 years of practice by Democratic and Republican administrations. We respectfully but strongly disagree with the ruling.”

View the ruling.

Written by Elizabeth Ecker

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  • What a waste of everyone’s time and money. Majority Leader Harry Reid and his colleagues, including this President, started this policy in 2007 to obstruct any recess appointments by then President George W. Bush.

    In his great wisdom our current President decided it was up to him to determine which Senate sessions were valid and which were not. It seems the Courts do not agree with his determination.

    What is incredible is that the President could have put his former nominee through at several points before Senate Republicans put their version of pro forma sessions in place. What did he do? He waited until the second half of his first Administration to put Director Cordray into office as if to defy Senate Republicans.

    If the situation in the mortgage industry is in turmoil now imagine how things will be if the appointment of now Director Cordray is ultimately found to be unconstitutional by the Supreme Court. It could undo all of the appointments, regulations, rulings, reports, and other work of the CFPB which either required a Director or was authorized by the Director. The President does not have the majorities he had when Dodd-Frank was originally passed.

    It no doubt will soon be in the hands of the Roberts Court.

  • “a court ruling has called into question his directorship as well enforcement of the rules made by the agency under his watch” How does this affect all the hefty fines paid over the last year by financial institutions?

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