White House dismisses high-stakes legal defeat

Neil Munro White House Correspondent
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White House spokesman Jay Carney on Friday tried to dismiss the court decision that has torpedoed President Barack Obama’s efforts to rewrite financial and labor regulations.

“The court decided a case brought by a company, and the decision applies to that case [and] does not apply more broadly,” Carney insisted during his Jan. 25 daily press briefing.

But the decision could invalidate hundreds of controversial rules and regulations issued since January 2012 by the National Labor Relations Board and the Consumer Finance Protection Board.

“This decision now casts serious doubt on whether the president’s ‘recess’ appointment of Richard Cordray to the Consumer Financial Protection Bureau … is constitutional,” said a statement from Sen. Mitch McConnell, the Republican Senate leader, who has supported the lawsuit against Obama’s appointments.

“The decision is novel and unprecedented,” Carney countered. “It contradicts 150 years of practice by Democratic and Republican administrations, [and] we respectfully but strongly disagree with the ruling.”

Carney did not say if the administration will appeal.

A three-judge panel of the U.S. Appeals Court in D.C. on Friday declared that President Obama’s attempted appointments in January 2012 of three people to National Labor Relations Board violated the Constitution’s rule that gives the Senate sole authority to declare when it is in session.

In January 2012, Obama said he could appoint the officials without getting Senate confirmation, because the Senate was in recess at the time. The Constitution allows the president to make short-term appointments when the Senate is out of session.

If the court’s decision stands — it is likely to be reviewed at some point by the U.S. Supreme Court — all of the board’s 2012 decisions will be vulnerable to lawsuits that argue the board’s decisions were based on votes by people who were never confirmed to the board.

More importantly, the court’s decision suggests that regulations issued in 2012 by the Consumer Finance Protection Board are also invalid. That’s because Obama also claimed in January 2012 to have appointed Richard Cordray to run the bureau.

Cordray’s appointment allowed the bureau — whose processes and decisions are largely immune from congressional or judicial oversight — to issue a series of regulations on the financial sector that subordinate their profit-seeking goals to the federal government’s political agenda.

For example, the bureau has issued a rule which disadvantages banks that charge higher interest rates to unreliable borrowers. Without that basic ability to raise or lower interest rates, banks will try to protect their shareholders by minimizing lending to risky borrowers, or by raising interest rate on all borrowers, including diligent and reliable borrowers.

Cordray’s appointment is especially sensitive to lawsuits, because the law which established the bureau said its primary regulatory powers would only be activated when the Senate confirms the first director.

Free-market advocates cheered Obama’s regulatory setback.

“The voluminous rules the CFPB has issued — affecting everything from mortgages to small businesses — also now are under a constitutional cloud,” said John Berlau, a senior fellow for finance and access to capital at the Competitiveness Enterprise Institute.

“The illegality of Cordray’s appointment casts serious doubt on the legality of CFPB actions implemented since his appointment,” said a statement from C. Boyden Gray, former White House counsel to President George H.W. Bush, who has filed cases against Obama’s regulation of finance companies.

“We’re confident that Mr. Cordray’s appointment will meet the same fate as those NLRB members,” said Sam Kazman, co-counsel for the CEI, which supported the lawsuit. The four improperly appointed officials “will be remembered as the Not-So-Fab-Four of the Appointments Clause,” he added.

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