The Consumer Financial Protection Bureau (CFPB) will come into existence on July 21. It likely will not be able to exercise any of the new powers that Congress granted it in the Dodd-Frank Act. This anomalous situation arose from a combination of the administration’s indecision and effective partisan opposition by Republican senators. Consideration of the possible steps to resolve this impasse revolves around the president’s constitutional authority to make recess appointments and the ability of a Senate minority to counteract his power.
Congress created the CFPB to address its frustration with the failure of the bank supervisory agencies to use their rulemaking and enforcement authorities more aggressively to protect consumers. In the Dodd-Frank law, Congress stripped the existing powers from the banking agencies and centralized them in a specialized agency whose only function would be consumer financial protection. Congress simultaneously granted the CFPB significant new powers to respond to abuses that had occurred during the real estate bubble, including enforcement authority modeled on the Federal Trade Commission’s program. Under Dodd-Frank, in case the office of director is vacant on July 21, the existing statutory powers being transferred to the CFPB from other agencies can be exercised by the secretary of the treasury. However, the new powers granted by that statute, including the crucial responsibilities to issue consumer protection regulations and to take enforcement actions against those who violate the law, cannot be exercised until the first director of the agency takes office. Accordingly, until the current vacancy is filled, the new Dodd-Frank authorities are essentially a dead letter.