The Internet is alive with the breaking news that President Obama has decided to make a “recess appointment” to name Richard Cordray as the Director of the CFPB.  Unless the appointment is successfully challenged, this move would open up a whole range of powers to the Bureau, including the power to regulate non-bank players and the authority to act under the “unfair, deceptive, or abusive” provisions in the Dodd-Frank Act.

There are two issues that come to mind as we contemplate this unusual appointment.  First, as Keith Fisher noted, there are some serious constitutional issues that make a court challenge to Cordray’s appointment possible.  But how, practically, will such a challenge come about?  It seems unlikely that any of the large financial institutions regulated by the CFPB would undertake such a move, and I suspect there would be political sensitivity to this issue from the major consumer financial services trade associations.  It seems more likely to me that one or more members of the Senate might challenge the appointment in court.  Or, perhaps, a smaller non-bank lender might be motivated to do so.  It will be interesting to see if the constitutional issues surrounding this appointment will be litigated, either in an offensive way in the near future, or later in time as a defensive measure by a target of the CFPB’s regulatory or enforcement efforts.

The second issue is raised by Adam Levitin over at Credit Slips.  He believes that the CFPB and Mr. Cordray will feel the need to “walk on eggshells so as not to rile Congressional Republicans and draw continued scrutiny.”  I certainly believed that the CFPB was acting in this manner over the last six months, but with the appointment of Cordray now made, I am not so sure the CFPB will feel restrained by political considerations.  Rather, given the rather controversial manner in which the President has appointed the Director, I believe that the administration believes that its political goals are better served by taking a hard-line, confrontational stance with respect to the CFPB.  If there is to be a political payoff to the administration from taking this risk, it would seem to require the CFPB to be visibly active in rulemaking and enforcement activity this year. Indeed, the official White House announcement of the appointment trumpets the President’s “decisive” action and states that “the American people will have a consumer watchdog fighting tooth and nail on their behalf.”  So, although I hope Professor Levitin is right, I am not sure I agree with his assessment that the CFPB will feel restrained in its near-term activities.