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Congressional Research Service issues two reports on Canning decision

Posted in CFPB General

The D.C. Circuit’s January 2013 decision in Noel Canning v. NLRB is the subject of two recently-issued reports by the Congressional Research Service.  The decision held that President Obama’s recess appointments of three individuals to the National Labor Relations Board violated the Recess Appointments Clause of the U.S. Constitution (RAC). 

One report, titled “The Recess Appointment Power After Noel Canning v. NLRB: Constitutional Implications,” analyzes the Canning opinion, discusses the conflicts between Canning and RAC decisions of the Second, Ninth and Eleventh Circuits, and considers Canning’s potential impact on the relationship between the President and Congress. With regard to the conflicts between Canning and the other circuit court decisions, the report notes that “the differences are substantial and may provide a strong justification for the Supreme Court to grant review of this case.”  (The NLRB has indicated that it plans to file a petition for certiorari in the Supreme Court, which is due by April 25.) 

The other report is titled “Practical Implications of Noel Canning on the NLRB and CFPB.”  The report includes the following observations and conclusions: 

  • Section 1066(a) of the Dodd-Frank Act authorized the Secretary of the Treasury to perform “the functions of the Bureau [under subtitle F]” until a CFPB Director was confirmed.  The report states that the plain meaning of Section 1066(a), its location within the structure of Title X of Dodd-Frank, the repeated distinction in Title X between transferred and newly established authorities, the legislative history of Section 1066(a), and the practical concerns the provision seems to address “point to the conclusion that the Secretary is authorized to only exercise the Bureau’s transferred powers, which are effectuated pursuant to subtitle F, and only until a Bureau Director [is confirmed by the Senate].”
     
  • If Director Cordray’s appointment was not valid, the only CFPB rules the Secretary could not ratify are its “larger participant” rules for credit reporting agencies and debt collectors because they “appear to be the only substantive rulemakings issued pursuant to the newly established authorities that seem to be outside the scope of the Secretary’s 1066(a) powers.”     
      
  •   ”Questions about the enforceability and legal validity of [the CFPB's rules] could cause widespread confusion among industry participants and could lead to market instability.”  The report states that to “allay these concerns, the Secretary may have an incentive to ratify the rulemakings issued under Cordray pursuant to the transferred powers.”
     
  • The five enforcement actions that were the subject of consent orders prior to Canning all relied, at least in part, on the CFPB’s authority to prohibit unfair, deceptive or abusive acts and practices, and “without the newly established UDAP arrow in its enforcement quiver,” the Secretary “may not have the negotiating leverage to reach the same terms, if there is an attempt to ratify the orders with the consent of the parties. “  The report observes that rather than attempt to proactively ratify the consent orders or enter into new ones, the CFPB “might choose to wait for the named parties to seek judicial relief from the terms of the orders.”  The report notes, however, that since “all  of the named parties are larger depositories that will remain subject to the Bureau’s regulatory jurisdiction under the direction of the Secretary, they may have practical reasons for not wanting to litigate the matter.”  The report further notes that because these parties did not challenge the validity of Mr. Cordray’s appointment or the CFPB’s authority to bring the enforcement actions when the consent orders were being negotiated, a court might be more likely to uphold the orders under the de facto officer doctrine.  

We note that the uncertainty about Director Cordray’s authority did not deter the four mortgage insurance companies that recently entered into consent orders with the CFPB last week.  However, other companies might not be willing to take the risk that if they sign a consent order and Mr.  Cordray’s recess appointment is subsequently invalidated, the CFPB might not continue to be bound by the order.