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CFPB Weekly Update: A Second Federal Court Holds that Intrasession Recess Appointments Are Unconstitutional, the CFPB Clarifies Recently Proposed Rules and Announces a Spanish Website

May 17, 2013

1.         As you may recall from our February 1, 2013 weekly update, the United States Court of Appeals for the District of Columbia Circuit in Canning v. Nat'l Labor Relations Bd. held that President Obama’s intrasession recess appointments of board members for the National Labor Relations Board were unconstitutional because intrasession recess appointments are unconstitutional.  (See the February 1, 2013 weekly update here.  In our February 1, 2013 weekly update, we analyzed how the Canning decision may affect the constitutionality of the intrasession recess appointment of CFPB Director Richard Cordray and all of the activities (rulemaking, enforcement actions, memoranda of understanding) in which the CFPB has engaged under Director Cordray.

The big news of this week is that another federal court has held that intrasession recess appointments are unconstitutional.  On May 16, 2013, the United States Court of Appeals for the Third Circuit (which encompasses the states of Delaware, New Jersey and Pennsylvania, and the U.S. Virgin Islands) held in Nat’l Labor Relations Bd. v. New Vista Nursing & Rehabilitation that “[NLRB Board] Member Becker was invalidly recess appointed to the Board during the March 2010 intrasession break. This means that the delegee group had fewer than three members when it issued the August 26 Order.  Consequently, the delegee group acted without power and lacked jurisdiction when it issued the order.  Our holding makes it unnecessary to interpret the word happen in the Recess Appointments Clause.”  The Third Circuit used about 30 pages of the 157 page opinion to explain its decision.  In the decision, the Third Circuit analyzed the plain language, judicial interpretations and history of the Recess Appointments Clause.  I will cut to the chase and get to the Court’s analysis.  If you are the type that likes to read 157 page judicial opinions, bless you.  In any event, here is a synopsis of the Court’s analysis:

(a)        The Recess Appointment Clause states that the term of a person appointed during a Senate recess shall expire at the end of the Senate‘s next session.  The Third Circuit stated:  “A session of the Senate, everyone agrees, begins at the Senate‘s first convening and ends either when the Senate adjourns sine die or automatically expires at noon on January 3 in any given year.  The expiration of [the appointees’] terms at the end of the next session implies that their appointments were made during a period between sessions.”
(b)        The duration of the appointee’s term is limited in the manner set forth above to allow “the time needed for the president and the Senate to have the opportunity to undergo the normal [nomination] process.”
(c)        “So if recess includes intrasession breaks, then we would expect the recess-appointment term to last only until the end of that session.  This is because once the Senate returned from its break there would be an opportunity to undergo the normal process. Yet the Constitution provides that the term would last until the end of the next session. This suggests that the durational provision contemplates a meaning of recess that means intersession breaks only.”

 

The Third Circuit cited the Canning and Evans v. Stephens decisions (we also analyze Evans in our February 1, 2013 weekly update.)  While the majority opinions in Canning and Evans interpreted the meaning of the word “happen” in the Recess Appointments Clause (in reaching opposite decisions), the Third Circuit did not analyze the meaning of the word “happen” in the Recess Appointments Clause.  (See our February 1, 2013 weekly update for the Cliffs Notes analysis of the word “happen”.)  The Third Circuit held that it did not need to interpret the word “happen” because its analysis and interpretation of the durational limitations of a recess appointment rendered an analysis of the word “happen” unnecessary.

So what does this mean for the CFPB and the intrasession recess appointment of Director Cordray?  Because the Canning decision has already laid the groundwork for a potential holding from the United States Supreme Court that Director Cordray’s recess appointment was unconstitutional, nothing has changed.  This new decision only means that the United States Supreme Court will have yet another case to analyze when it determines the constitutionality of intrasession recess appointments.  The real question is whether the Supreme Court will agree with Canning and New Vista Nursing & Rehabilitation—or Evans.  As we have seen over the past few months, the CFPB will not stop its rulemaking activities, investigations, examinations or enforcement actions simply because a federal court (now two) has held that intrasession recess appointments are unconstitutional. 

2.         On May 16, the CFPB issued a final rule clarifying and making technical amendments to the 2013 Escrows Final Rule that it had issued in January 2013.  The 2013 Escrows Final Rule amends a previously existing rule concerning assessments of a consumer’s ability to repay and prepayment penalties on certain “higher-priced” mortgage loans.  The 2013 Escrows Final Rule, however, is ambiguous and could be construed to eliminate the prior rule concerning a consumer’s protections with respect to the ability to repay and prepayment penalties on certain “higher-priced” mortgage loans before the new rules take effect.  The final rule that the CFPB issued on May 16 establishes a temporary provision to ensure existing protections remain in place for higher-priced mortgage loans until the expanded provisions take effect in January 2014.

The CFPB also clarified how to determine whether a county is “rural” or “underserved” for purposes of applying an exemption in the 2013 Escrows Final Rule.  The CFPB uses currently applicable Urban Influence Codes or HMDA information to determine whether a county is “rural” or “underserved.”  The CFPB  has used the changes and clarification to compile the final 2013 rural or underserved counties list.

3.         On May 15, 2013, the CFPB announced that it has launched a Spanish version of its website, http://www.consumerfinance.gov/es/.  In making this announcement, the CFPB stated that it accepts complaints in English, Spanish and over 180 other languages.

That is all for this week.  Have a good weekend and remember that all of our prior weekly updates are on our website, www.cfpaguide.com/weeklyupdates.

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