Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jan 5, 2012

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When it comes to protecting the public from poor personal loans and predatory lenders, what are we, as a nation, willing to sacrifice? Despite what the individual’s opinion may be, the president has answered that question for us this week with a disturbing response: personal loan protection should be granted at the cost of our government’s checks and balances.


During a short break in which the Senate did not meet, the president evoked a constitutional right that allows him to appoint an individual into a position of power without the need for Congressional approval.


Richard Cordray, the newly appointed director of the Consumer Financial Protection Bureau (CFPB), assumed his position, and in his wake there is an army of fuming Republicans outraged at the president’s actions.


What is the CFPB?

The CFPB came to fruition as a result of the Dodd-Frank Act and was established in 2010 in response to the housing bubble implosion. The purpose of this bureau is to protect borrowers from abusive and predatory lending practices, particularly in the arena of home loans. But it’s not exclusive to the mortgage loan arena, as it is also designed to monitor payday loans, auto loans, and other forms of borrowing—it basically oversees any and all types of personal loans.


This sort of financial protection agency sounds like exactly what the country needs—particularly as we stand in the wake of a ruined economy, hurling blame at the rich, the poor, and everybody in between. But the Republicans in Congress have been blocking the president’s nomination for a director of the CFPB from being appointed. As seen earlier this month, the Senate struck that nomination down in a majority vote of 53 to 45.


But it’s not the personal loan protection the country would receive that Senate Republicans fear.


“This notion that we’re against consumer protection, that we’re trying to gut the CFPB is just silly,” said Sen. David Vitter in a report by the Los Angeles Times.


Rather, certain congress members are concerned over the fine print that awards this organization power.


A study sponsored by the U.S. Chamber of Commerce was conducted earlier this year, gauging the public’s response to the creation of the CFPB when some of those fine print clauses were revealed to them. An alarming 64 percent of the population said they would be less likely to support the creation of the bureau—despite the fact that the CFPB is supposed to be rewarding them with personal loan protection.


What the survey revealed to its testing population was that the CFPB’s director would be granted a startling amount of unchecked power.


For instance, the director has the sole discretion over half a billion dollars of government money and needs no congressional approval over how to spend that money. That means a single person has the authority to spend $500 million of the taxpayers hard-earned money without any sort of oversight whatsoever.


Additionally, the director also has the unchecked ability to ban full products or features of products that he deems unfair. This would ultimately allow the director and whoever stands by his side the full authority to rid their competitors from the market. When a single man has such authority, lobbyists will begin making his life one of royalty in no time at all. It should come as little surprise when personal loan practices of those with the most money are upheld by the all powerful director.


As the Senate Republican Leader Mitch McConell explained in a public statement, “The CFPB is poised to be one of the least accountable and most powerful agencies in Washington… it is subject to none of the checks that independent agencies normally operate under, and will have an unprecedented reach and control over individual consumer decisions.”


When Something Stands in Your Way… Go Around It


Despite the fact that Senate Republicans have been voting against the nominated director from taking position, President Obama bypassed the need for any future vote and performed what’s known as a recess appointment.


According to Article II of the Constitution, the president is permitted to “fill up all Vacancies that may happen during the Recess of the Senate, by granting Commissions which shall expire at the End of their next Session.”


In Article I, Section 5, clause 4 of the Constitution, it states “Neither House, during the Session of Congress, shall, without the Consent of the other, adjourn for more than three days.” Citing this section, some would say a recess only occurs after three days of congressional inactivity.


According to Rep. Jim Jordan of Ohio, “Both the Clinton and Obama administrations have acknowledged that recess appointments are not allowed if Congress has met in the last three days,” alluding to the fact that President Obama agrees (or agreed at one time) with the three day definition.


While the constitution doesn’t definitively define what a “recess” is, or how long the senate must be out of session in order for a recess to have started, history has set precedent. According to an article on recess appointments done by the Senate in December of 2011, “The shortest recess during which appointments have been made during the past 20 years was 10 days.” This industry standard points at the 10 day mark for defining a recess.


Whether a recess is defined by three days or 10 days or more, it matters not… The Senate met the day before the recess appointment of Cordray.


“I Refuse to Take No for an Answer”


A recess appointment after one day of Senate inactivity raises a red flag to those monitoring the executive branch—particularly given the fact that the Senate has already voted against this measure and gave a proposed list of reforms they wanted to see applied to the CFPB before they would change their vote.


“President Obama, in an unprecedented move, has arrogantly circumvented the American people by ‘recess’ appointing Richard Cordray as director of the new CFPB,” said Republican Sen. Leader Mitch McConnell in a public statement. “This recess appointment represents a sharp departure from a long-standing precedent that has limited the President to recess appointments only when the Senate is in a recess of 10 days or longer.”


Jay Carney, President Obama’s press secretary, presented a rebuttal, saying, “When the Congress refuses to act, the president will,” according to a Bloomberg article.


But Congress did act: it voted against the nominee.


“We are left to wonder why the president is unwilling to work with Congress,” said Sen. John Cornyn, a member of the Senate Finance Committee, in a public statement.


“It’s clear the president would rather trample our system of separation of powers than work with Republicans to move the country forward,” said John Boehner, Speaker of the House.


But the President appears to have little concern for such worries, as after the recess appointment he told an audience of 1,274 people, “I refuse to take no for an answer.”


The Heart of the Matter


With the country in financial shambles, the reason why the president wanted the director to be instated was so the CFPB could begin its duty of shielding the country’s citizens from predatory personal loans. That’s understandable, and commendable. But the problem, and the real heart of this matter, is that he circumvented the branch of government that serves as a check and balance to his own branch. In order to afford the public protection from unscrupulous lenders and poor personal loans, the president shunned the Senate’s vote and concerns, and exploited a loophole in the Constitution—successfully defiling the very heart of our government and democracy as a whole.


Rather than recess appointing his own nominee after a mere 24 hours of Senate inactivity, the correct course of action would have been to listen to both parties’ ideas and come to some sort of mutual agreement on what to do with the current structure of the CFPB. That way, the public would receive its financial protection, disclosure protection, and personal loan protection from an organization that both parties of the government condoned and established together.


While the country received a director of an organization that’s meant to keep subprime lending practices and bad personal loans to a minimum, we relinquished the very thing that makes our country what it is—the democratic process of voting.