Senate GOP Move Likely to Force Recess Appointment at CFPB

WASHINGTON — Senate Republicans' vow not to confirm any permanent director for the Consumer Financial Protection Bureau unless changes are made to the agency's structure and funding is likely to push the Obama administration to make a recess appointment to the job.

In a joint letter to the president, 44 Senate Republicans — more than enough to maintain a filibuster of a nominee — said they would not support any candidate unless Congress enacted legislation that would replace the agency's director with a commission, subject the bureau to the appropriations process and allow banking regulators the power to override the CFPB.

The letter leaves the president with virtually no other option than to recess-appoint a CFPB director.

"This guarantees that we are going to have a recess appointment of a CFPB director," said Jaret Seiberg, an analyst for MF Global Inc.'s Washington Research Group. "Even if the administration wanted to work on legislative changes to the CFPB to address some of these concerns, there is not close to enough to time to really get something done and get a nominee confirmed prior to the Independence Day recess."

Mark Calabria, a former top aide to Sen. Richard Shelby, the top Republican on the Banking Committee, agreed. "What it means to me is that [the administration] is going to go the recess route," said Calabria, now director of financial regulations studies at the Cato Institute. "It forces the administration's hand."

Ironically, the move may have had made it easier to put Elizabeth Warren in the job — at least temporarily. Warren, the administration's point person in setting up the new agency, is widely expected to be nominated soon, although it's clear the administration has been having second thoughts about doing so.

In choosing Warren, the administration would have set itself up for a very difficult confirmation fight. But the Republicans' vow to oppose any nominee, regardless of whether it was Warren or someone else, effectively frees up the administration. Since it knows any nominee is doomed unless it agrees to GOP demands, there is no need to try and find a more politically acceptable candidate.

"Essentially what the Republicans are doing with a statement like this is not daring the president to do a recess appointment, but giving the president every reason to do so," said Rick Fischer, a partner at Morrison & Foerster LLP. "If he wants to do it anyway, but he's been told that would not go over well, this provides him both the opportunity and the excuse to do so."

A recess-appointed director can serve only until the end of the current legislative term, and this move will punt the confirmation of a CFPB director until 2013, Seiberg said, at which point Republicans hope to have won back the White House and regained the majority in the Senate. For now, Seiberg said, they are flexing their political muscle to rein in the CFPB before it officially assumes its authority, on July 21.

"This is a basic demonstration of political power," he said. "The administration is going to have to moderate its goals if it wants to have somebody put into the director's job on a permanent basis."

Senate GOP members are in effect refighting a battle they lost during the Dodd-Frank debate, when Shelby and others attempted to put restrictions on the CFPB, including allowing bank regulators more leeway to overrule its decisions.

In the letter, Republicans said Dodd-Frank failed to provide any real check on the director's power. And while the Financial Stability Oversight Council may overrule the bureau's decisions, Republicans said the circumstances under which they may do so are "so narrow as to make this check illusory."

In particular, Republicans want to replace the director with a commission. They also say Congress should oversee the CFPB's budget. Under Dodd-Frank, the agency is funded by the Federal Reserve Board.

"This is about accountability," Shelby said in a press release. "The bureau, as currently structured, lacks any semblance of the checks and balances inherent in the Constitution. Everyone supports consumer protection, but we should never entrust a single person with this much power and public money. We are simply asking the president to support common-sense reforms that provide the accountability absent in the current structure."

But Senate Banking Committee Chairman Tim Johnson said Republicans were trying to rewrite history.

"Republicans fought the creation of a strong consumer watchdog from the start, and now they are at it again," the South Dakota Democrat said in a press release. "The truth is this bureau is already subject to greater checks and balances than any other financial regulator and this is just another attempt by Republicans to delay and derail these critical new protections."

A White House spokeswoman said that "last year, the president signed into law the strongest consumer protections in history and the consumer agency's sole mission is to protect American families and provide the tools they need to make smart financial decisions.

"For far too long, American consumers have fallen victim to fraud, misleading claims, and powerful special interests and the President believes that American families who were the hardest hit by this financial crisis deserve an independent watchdog to protect consumers and prevent predatory lending and other abuses in the future," said Amy Brundage, the White House spokeswoman.

Consumer groups were outraged that Republicans would seek to use the nomination process in such a way. "It's an absurd position to take, saying, 'We will refuse your right as president to choose a nominee unless you rewrite legislation enacted last year,' " said Ed Mierzwinski, the consumer program director for the U.S. Public Interest Research Group. "I just cannot believe what kind of demand that is. I've never seen that kind of demand before."

Travis Plunkett, a legislative director for the Consumer Federation of America, called the move shocking. "What they appear to be doing is holding the nomination hostage in return for concessions that would cripple the agency," he said. "I didn't expect that. It's a brazen effort to renegotiate legislation that's in place and being implemented."