Thomas Ahmadifar

On January 25, 2013, the United States Court of Appeals for the District of Columbia (“D.C. Circuit”) ruled that President Obama’s three January 2012 appointments to the National Labor Relations Board (“NLRB”) were unconstitutional.[1] In Noel Canning v. N.L.R.B.,[2] the D.C. Circuit held that an action by the NLRB against Noel Canning was invalid because three of the five members of the board had been appointed by President Obama during a “pro-forma” session, in which the U.S. Senate is formally in session, often with one senator present, but is practically in recess.[3]  The D.C. Circuit premised its decision on two constitutional bases: (1) in the Recess Appointments Clause (“RAC”) of the U.S. Constitution, “the Recess” refers to the “intersession recess” period in between the two or three sessions the U.S. Senate has per Congress, not the “pro-forma” sessions;[4] and (2) the word “happen” in the RAC connotes an event occurring rather than existing, meaning that the vacancy must arise during the periods in between when the U.S. Senate is in session.[5]  In the process, the D.C. Circuit differed from other Federal courts of appeals that had found “the Recess” allowed for intra-session recess appointments where the U.S. Senate may have officially been in session, but was not conducting business.[6] The other circuits had also found “happen” to simply mean “exist” during a recess.[7] Thus, the D.C. Circuit held that any filling of a vacancy under the RAC “must be done during the same recess in which the vacancy arose.”[8]

For the NLRB, the D.C. Circuit holding meant that the three board members who were intra-session recess appointments of President Obama on January 4, 2012 were unconstitutional and thus board actions, such as the Noel Canning decision, were invalid for lack of quorum.[9]  However, the ramifications of the Noel Canning decision could reach far beyond the NRLB, and could directly affect the financial lending industry. President Obama also appointed the current director of the U.S. Consumer Financial Protection Bureau (“CFPB”), Richard Cordray, on January 4, 2012 through an intra-session RAC appointment.[10]  While the Noel Canning decision itself only directly affects the NLRB, the D.C. Circuit set the stage for litigation against Director Cordray to potentially wipe out any or all of his prior actions under the same constitutional bases as in Noel Canning.[11]

The jurisdiction and power of the CFPB over the consumer financial lending industry is broad.  The CFPB has the authority to implement and enforce Federal consumer financial protection laws by monitoring, supervising, and taking enforcement action against qualifying lenders.[12]  Qualifying lenders that fall within the CFPB’s jurisdiction include nondepository lenders, insured deposit institutions or insured thrifts with assets over $10 billion, and even some banks, thrifts and credit unions with assets less than $10 billion.[13]  The director of the CFPB is responsible for authorizing enforcement actions and organizing the structure of the CFPB.[14]  In the wake of Noel Canning, CFPB actions against lending institutions since the beginning of 2012 could potentially be overturned if challenged.  In addition, it might cripple the CFPB’s future ability to regulate the country’s consumer financial product markets because only the CFPB director can exercise most of the agency’s regulatory powers.[15]  Thus, the CFPB would not be able to fully operate until it gets a validly appointed director, which might not occur in the near future.[16]

However, under the D.C. Circuit’s rule for recess appointments in Noel Canning, the recess appointment of CFPB Director Cordray potentially has an additional dimension that could factor into a challenge to his appointment.  Because Director Cordray is the first director of the CFPB, his vacancy “happened” upon the creation of the CFPB and not from a former Director leaving.[17]  A court may view the circumstances of Director Cordray filling an original opening of a new agency differently under the meaning of “happen.”  However, until such court ruling or even perhaps beyond it, the Noel Canning decision has thrown the CFPB and the regulation of consumer financial product markets into a state of uncertainty.