Recess Appointments Actually Weaken CFPB and NLRB

Feb 1, 2012

Today, the House Oversight and Government Reform Committee held a hearing to discuss the consequences of the President’s January 4th recess appointments. 

By using an unprecedented maneuver to seat these appointees, the President has nearly ensured that the appointments will be challenged on constitutional grounds. 

His own Office of Legal Counsel acknowledged that the appointments present a “novel” question, and “the substantial arguments on each side create some litigation risk for such appointments.”

This is important, because by essentially inviting a challenge, the President has actually weakened the Consumer Financial Protection Board (CFPB) and National Labor Relations Board (NLRB) by calling into question every action taken while lawsuits work their way through the system.  And if a challenge is ultimately successful, the appointments are invalidated, and therefore all their work is invalidated. 

We’ve seen this happen recently, and coincidentally at the NLRB, the beneficiary of the President’s other three questionable appointments, where the U.S. Supreme Court held that the agency had acted for more than two years without a quorum, and as a consequence, more than 500 Board decisions were thrown out after the fact. 

So what would be the practical effect of this kind of mass nullification of the CFPB’s work?

  • Gaps in consumer protection:  punishments imposed on fraudsters will be overturned; new regulations designed to protect consumers will be null and void.
  • Confusion and uncertainty for legitimate business:  what businesses want is clarity regarding the rules of the road.  But they will have exactly the opposite:  Should they comply with the rules that applied prior to the unlawful appointment?  Should they comply with the Bureau’s standards notwithstanding their invalidation?  With the director’s appointment invalidated, who will make the decisions regarding what businesses should do? There will be a prolonged period of uncertainty.
  • Duplicative compliance costs:  to the extent new rules become invalid and businesses are obligated to comply with a previous regulatory regime, or new rules are replaced with different standards once a director is appointed lawfully, legitimate businesses will be forced to incur unjustified and excessive costs – resources that could have been used to create new jobs will be wasted.

Today’s hearing also provided examples of how the uncertain status of the NLRB appointees will harm the agency’s statutory mission of promoting industrial peace and stability in labor relations. For example, imagine that the Board orders a manufacturer to close a facility and open it in another state. Consider the dramatic impact this would have on the business that has invested perhaps millions of dollars in investment in one location only to be forced to spend millions more to comply. Employees will be out of work and many would likely suffer from loss of income and benefits while they seek other work.  If that decision is later reversed because the appointments are invalid, that does nothing to help the employer or employees who have suffered under the Board’s unlawful acts. Likewise, consider the implications if the Board certifies a new union – the employer will not know if the certification is valid or whether it has a legal obligation to bargain with the union. A contract might be agreed to requiring all employees to pay union dues and fees and significantly changing working conditions. What are the implications if the certification is later invalidated? Will the contract nevertheless stand? Could employees who opposed the union seek a secret ballot decertification vote?  

It’s hard to understand why the President would take the extraordinary step of making these recess appointments, knowing full well that he was jeopardizing the functionality of the agencies.  In effect, he traded a half a loaf (the CFPB was unquestionably able to carry out many of its responsibilities before Mr. Cordray’s appointment) for nothing – nothing substantive at least.  Consumers, businesses, and the economy will suffer from the incredible uncertainty created by this political stunt.  

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