Block Party: GOP Out to Stop Recess CFPB Move

WASHINGTON — Republicans are strongly considering using a rare procedural move to prevent President Obama from making a recess appointment to install a director of the Consumer Financial Protection Bureau.

Forty-four GOP senators signed a letter last week vowing to block any nominee absent several significant changes to the bureau, a move that political analysts said all but guarantees the president will use his recess appointment powers. But Republican lawmakers are weighing tactics to make that option much less appealing or prevent it altogether by leveraging their power over other financial services nominees.

"If they were to go the recess-appointment route, I believe Senate Republican leadership would use every tool at their disposal and there would be a major response from Senate Republicans," a Republican Senate staffer said Friday. "It could result in costs to other nominees, and I think it would ultimately affect the legitimacy of whoever is recess-appointed to run the CFPB."

Republicans are attempting to box Obama in, preventing him confirming a permanent director to CFPB or allowing a temporary one to be put in place. Under the Dodd-Frank law, the CFPB is limited in what actions it can take unless it has a formal director. (While Elizabeth Warren, the architect of the agency, has been its de facto head since last year, she is an administration appointee and does not technically count as its director.)

Republicans are eyeing a tactic first employed by Democrats when President Bush was in power to hold "pro forma sessions" — short sessions during which no business is conducted — that prevents the Senate from being considered in "recess." Republicans used the tactic successfully last year after agreeing to confirm 54 of the president's nominees, but preventing him from making any recess appointments.

It's not clear whether such a move would pass constitutional muster if challenged, but Republicans were hopeful last week that it may not come to that. Sen. Richard Shelby, the top Republican on the Banking Committee, rejected the idea that the letter compels the president to make a recess appointment.

"The president is not being forced to do anything but work with Republicans to provide some semblance of accountability to this massive new bureaucracy," Shelby said in an email.

Asked whether he thought Obama would negotiate, the Alabama Republican said it is the president's decision.

"We are willing to talk, and we certainly hope he is," Shelby said. "Republicans are simply calling for some modicum of accountability — in the nomination process and in the bureau's operations. If President Obama does not support accountability, then that's his position and we'll go from there."

If Obama were to recess-appoint a CFPB director, Republicans could also hold up any other financial services nominees. A slate of several nominations, including the heads of the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, is expected soon.

Although Obama has opposed the CFPB changes the Republicans are seeking — including putting the agency through the congressional appropriations process and giving bank regulators the power to overrule the bureau — GOP members note that the president has reversed course in the past on other issues, including tax cuts.

Political observers said a compromise is unlikely but feasible. Some speculated the administration could find one Republican demand palatable: that the director be replaced by a commission.

"Is this something that the administration might be able to live with? I would say yes, but there some costs involved in this," said Mark Calabria, a former top aide to Shelby. "The trade-off might be that, at the end of the day, Shelby sits down with the administration and says, 'Well, make it a board, and in exchange we'll let Elizabeth Warren be the chairman.' "

Brian Gardner, a political analyst for KBW Inc., agreed.

"I haven't heard anybody float it, but it seems to me that if you're looking for an endgame, there's a deal to be made," Gardner said, adding that Republicans would be unlikely to negotiate that sort of deal in public.

Still, while a commission structure might be acceptable, it's less likely Obama would allow the CFPB to be placed under the congressional appropriations process. All the other banking regulators are independently funded, and those agencies that are subject to the process frequently find lawmakers playing politics with their budgets. If the CFPB's budget were subject to congressional oversight, Republicans likely would seek to give it relatively little money to ensure its power remained limited.

"The proposed changes on funding and oversight probably go further than the administration would be willing to accept," said Jean Noonan, a partner at Hudson Cook LLP.

President Obama may also be able to challenge Republicans' legal authority to block a recess appointment.

In 2006, Democrats began using a political maneuver to recess for three days, hold a short pro forma session, and adjourn. In theory, the period of adjournment is short enough that the Senate is not technically in recess, thus recess appointments are not allowed.

"It certainly is possible," said Robert Dove, a former Senate parliamentarian and public policy specialist at Patton Boggs LLP. "It's totally up to Senate Majority Leader [Harry] Reid. He decides whether the Senate is going to take a recess or not. And if they're not, the way they do it is to come in every three days."

Some congressional experts have urged the administration to challenge this procedure, arguing it is unconstitutional.

John P. Elwood, former senior deputy in the Office of Legal Counsel, said the pro forma sessions are simply formalities. Because the Senate doesn't conduct any business during these breaks — and is not capable of acting on nominations — the chamber remains in "recess" for the purpose of recess appointments.

He said a court may decide that the Senate is violating the president's constitutional right to make recess appointments. But even the threat of this procedural move may put off the White House.

"I think it would make it that much less likely that the president would recess-appoint someone, because it's more clearly a confrontation with the Senate," Elwood said. "It just kind of raises the stakes."

Some Republicans have noted that Dodd-Frank restricts CFPB powers to a "Senate-confirmed" director; Elwood said a recess appointment would meet that definition.

"For the most part, the executive branch under administrations of both parties has taken the position that it is unconstitutional to draw distinctions between recess-appointed officers, because it burdens the president's recess authority," he said.

Democrats are also looking for ways to prevent pro forma sessions from being held. Some sources said Friday that Republicans cannot filibuster an adjournment proceeding, and noted that the last time pro forma sessions were held, it was under an agreement with Reid. It's unclear if Republicans can force the Senate, which is still controlled by Democrats, to engage in pro forma sessions.

Political analysts and industry observers said there are some upsides to the Republican strategy. Calabria said they were able to shift the conversation from Warren to their concerns about accountability at the CFPB.

Oliver Ireland, a partner at Morrison & Foerster LLP, said there is nothing unusual about one party spelling out what they want, and flexing their political muscle to get it.

"One thing you sometimes see is people making a lot of noise before they make a deal," Ireland said. "I think that's what's going on. Both sides have things they want to do and both sides are playing their cards to get them. I think that's business as usual."

Jo Ann Barefoot, a co-director at Treliant Risk Advisors, said Republicans may feel more confident after the last election.

"They might welcome the fight," Barefoot said. "They might feel they will either win it or gain something by waging it."

But others say they are convinced that the strategy will backfire.

Michael Barr, a professor at the University of Michigan and a former Treasury assistant secretary in the current administration, said the move may help Republicans raise campaign funds, but that he doesn't see it getting them anywhere on the CFPB.

"If they want to decide to run against the president on consumer protection, I just think that's a horrible place to be," Barr said. "If that's what they want, they are entitled to do that. I think that will work as well for them as the Ryan Medicare budget plan."

Noonan said forcing the bureau to begin without a director would be bad for consumers and the industry, and wouldn't sit well with the American public.

"That is crippling the government without any cost savings," she said. "It's one thing when one party is willing to shut down the government over budgetary differences, and even that hasn't proved popular. But to refuse to fill any vacancy would be irresponsible."