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Cordray’s power stymied by 2010 law that created his new agency

President Barack Obama says he has used his executive authority to make Richard Cordray the director of the new Consumer Financial Protection Bureau, an agency that Democrats claim will protect Americans from the nation’s huge financial-services industry.

But an obscure paragraph in the 2010 law that created the bureau may keep Cordray in check unless the Senate formally approves of his hiring — an approval Obama sought to circumvent by making him a so-called “recess” appointment.

Section 1066 of the law says many of the bureau’s new powers are to be held by the secretary of the Treasury “until the Director of the Bureau is confirmed by the Senate.”

That legal technicality ensures that Cordray’s power will be legally crippled, said Roger Pilon, the founder and director of the Cato Institute’s Center for Constitutional Studies.

“I don’t think he would have the authority to act” because he still hasn’t been confirmed by the Senate, Pilon said. “As soon as he did [try to impose a decision], it would be challenged [in court] by one of the people or entities that is affected.”

Among the powers reserved to a confirmed director are oversight over non-bank financial companies, such as payday lenders and debt collection firms.

The CFPB does not regulate Wall Street stock brokerages, which remain under the supervision of the Securities and Exchange Commission.

The SEC, like other government agencies, failed to recognize and stop the growth of bad mortgage debt in the past decade. That’s partly because the agencies were already pressuring mortgage companies to lend hundreds of billions of dollars to Americans who lacked the means to pay the money back.

In 2007, a routine economic slowdown collapsed the agency-created house of cards, sending real estate prices and Wall Street stock values tumbling. (RELATED: Full coverage of the Consumer Financial Protection Bureau)

The Section 1066 legal problem compounds Obama’s controversial effort to use his recess-appointment authority to install Cordray while the Senate was not technically in recess.

The text of the Constitution says the House and Senate — not the White House — determine how the Senate and House operate.

“I don’t think [Obama’s] ‘recess appointment’ will stand up,” because the Senate was not in recess when Obama declared the appointment, Pilon said.

Progressives and White House officials have not addressed the obstacle presented in Section 1066, but they have said Obama’s political needs justify his controversial decision to appoint Cordray.

On Thursday, White House spokesman Jay Carney declined to provide a legal justification for the appointment, but he did says a GOP push-back would prove publicly unpopular.