House chairman bars consumer bureau chief from testifying

WASHINGTON -- The head of the Consumer Financial Protection Bureau will deliver his semi-annual report to the Senate Banking Committee on Tuesday morning, but he’s not welcome to do the same before a House panel.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said bureau Director Richard Cordray was not legally appointed to the position and therefore the panel cannot accept his testimony.

It was the latest salvo in a long-running battle by top Republicans against the bureau, which was created in 2010.

Republicans argue the bureau is too powerful and poses a threat to the health of banks and the rights of consumers. But the White House, backed by consumer advocates, said it is needed to prevent a repeat of the subprime mortgage meltdown and to keep financial institutions from taking advantage of average Americans.

President Obama installed Cordray in the position in early 2012 using a controversial recess appointment. A federal court has invalidated three other recess appointments Obama made on the same day, calling into question Cordray’s future.

“Absent contrary guidance from the United States Supreme Court, you do not meet the statutory requirements of a validly serving director of the CFPB, and cannot be recognized as such,” Hensarling wrote to Cordray on Monday.

Hensarling, who took over as committee chairman in January, has been an outspoken critic of the bureau. The new agency was the centerpiece of the 2010 Dodd-Frank financial reform law, which Hensarling and every other House Republican opposed.

Nearly all Senate Republicans also opposed the law, and they banded together to block the confirmation of any nominee to head the bureau unless changes were made to reduce its power.

House Republicans forced the Democratic-controlled Senate to limit the length of its recesses in hopes of preventing Obama from making a recess appointment.

But in January 2012, Obama appointed Cordray as well as three members to the National Labor Relations Board, positions Senate Republicans also were blocking. Obama argued the Senate was not really in session at the time and was holding pro-forma sessions simply to prevent him from making recess appointments.

A year later, a panel for the U.S. Court of Appeals for the District of Columbia ruled that Obama’s NLRB recess appointments were invalid. The NLRB is appealing the decision to the Supreme Court.

The panel did not address Cordray’s appointment, but opponents of the agency have said the ruling calls into question its validity as well.

“The court’s unanimous ruling makes it clear that there is no legally appointed director of the CFPB at this time,” Hensarling said. “By law, the committee can receive this testimony only from a director who is appointed in accordance with the Constitution and the Dodd-Frank Act, which created the bureau.”

Rep. Maxine Waters (D-Los Angeles), the top Democrat on the committee, said Cordray should be allowed to testify. A hearing has not been scheduled but had been expected in coming weeks.

“Mr. Hensarling’s own letter concedes that no court has addressed the legitimacy of the president’s appointment of Richard Cordray to be the director of the CFPB,” she said. “I suggest that Chairman Hensarling allow Director Cordray to appear before the committee to deliver his report as required by law.”

Moira Vahey, a spokeswoman for the bureau, also said the court ruling did not address Cordray’s appointment and “it has no direct effect on the bureau.”

“The bureau continues its essential work of protecting American consumers,” she said.

Interestingly, one of the main Republican complaints about the bureau is that Congress does not have enough oversight over its activities.

The bureau gets its funding directly from the Federal Reserve, not through the congressional appropriations process. In light of the court ruling, Hensarling also has questions whether Cordray has the authority to request the funding.

Hensarling said that his committee “intends to continue to conduct rigorous oversight of the CFPB’s activities” and will accept testimony from other bureau officials. He noted the committee on Monday called two bureau officials to testify about mortgage rules at a May hearing.

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