Why D.C. Gridlock Will Keep CFPB Leaderless for Years

WASHINGTON — Barack Obama has missed his chance to see a director of the new Consumer Financial Protection Bureau take office within his first term as president.

Although Obama finally nominated Richard Cordray for the spot two weeks ago, it has become increasingly apparent the stalemate over the pick will be drawn out — not just for weeks or months, as some suggest — but years to come.

Ultimately, the situation may go down as one of the bigger unforced errors in the president's term. Had he nominated someone to lead the agency last year, when the Democrats had control of the House and 59 seats in the Senate, it is likely that person would have been confirmed.

But since that window shut after the mid-term elections, Senate Republicans have dug in deep against any nominee, not just Elizabeth Warren, who was passed over for the job possibly so she could run for Senate in Massachusetts. Forty-four GOP senators have sent a letter vowing to block the nomination unless structural changes are made to the agency.

Any attempt to circumvent that process by making a recess appointment of Cordray, meanwhile, has also been blocked. Both the House and the Senate will remain in pro-forma session during the August break, which ostensibly stops any such appointments.

So what will Obama do? He has three options, none of them terribly attractive and only one of which is likely to happen.

Option #1 — Obama strikes a deal with Republicans

By far the simplest route to getting Cordray confirmed is to cut a deal with Senate Republicans over the structure of the new agency. Sen. Richard Shelby, the lead Republican on the Banking Committee, and his colleagues have made three demands: a) replace the agency's single director with a five-person bipartisan commission, b) give other regulators more power to block or overturn CFPB actions and c) put the CFPB on the appropriations process.

Prior to Cordray's nomination, there was speculation that the White House and Shelby would reach a compromise, perhaps agreeing to the commission proposal, so that a nominee could move forward. Many observers thought that if the administration chose someone other than Warren, that would satisfy Republicans who would drop their objections.

But such speculation has proven wrong. Sources confirm that no negotiations ever took place. Moreover, it's unlikely they ever will.

For starters, Hill sources note that the Republicans have no incentive to compromise. Obama has shown a repeated willingness to agree to GOP demands to get what he wants — the debt deal is a prime example. Would Shelby and others be satisfied with, say, just changing the CFPB's director to a commission? It's doubtful. The president has more incentive to have a CFPB director in place than Republicans do. There's not necessarily a good reason to take "half a loaf," as one senior Hill aide put it.

"This situation will continue until 2013," said Mark Calabria, a former Republican staffer on the Senate Banking Committee who is now director of financial regulation studies at the Cato Institute. "Republicans are unlikely to support anyone until all three of their changes are made. Just keeping the agency around is viewed as a major compromise."

It's not even clear Obama or Senate Democrats want to cut a deal. If they have trouble getting one director past the Senate, why agree to a commission with multiple Senate-confirmed positions? The commission is the most palatable demand by Republicans, but that doesn't mean Democrats want to accept it.

Option #2 — Obama forces a recess appointment

Under House and Senate rules, neither chamber may recess for more than three days without the other's consent. Accordingly, House Republicans have ensured that the Senate must hold pro forma sessions that mean it is never technically on recess.

According to tradition, presidents cannot make recess appointments during a break of less than four days. As a result, Republicans believe they have stopped President Obama from making any recess appointments.

But the constitutionality of that is questionable. John P. Elwood, the former senior deputy in the Office of Legal Counsel, has argued that pro forma sessions are simply formalities and still count as a recess. A court could decide that the Senate is violating the president's constitutional right to make recess appointments.

Some liberal activists are pushing Obama to appoint Cordray, among others, during the August break.

The problem with such a move is that its impact goes well beyond just the CFPB and will infuriate Senate Republicans, who would undoubtedly view it as the president usurping their authority.

Perhaps more problematic from the administration's point of view is that everything the CFPB does would then be under a legal cloud. Every rule the agency finalizes or enforcement action it takes could, at least in theory, be challenged on the grounds that Obama did not have the power to make a recess appointment. Such a court battle could take years to unravel, making it highly unlikely the White House will go this direction.

"I'm not sure the administration really wants to call into question every activity the CFPB does by engaging in a constitutional fight over recess appointments," said Jaret Seiberg, an analyst with MF Global Inc.'s Washington Research Group.

Option #3 — Obama lets the status quo stand

By far the easiest thing to do in this town is absolutely nothing. With a deal unlikely and a constitutional court fight unappealing, President Obama is likely to just let the issue drift along. Why?

It's politically a winner for both political parties.

The CFPB polls very well among the electorate, including Republican voters. As long as Republicans block the agency's director, Obama can continue to paint the GOP as anti-consumer and obstructionist. He may even try to use it as a campaign issue next year against his GOP opponent.

Republicans, meanwhile, can appease the right wing by portraying the CFPB as an agency with few checks and balances on it.

"Each side plays to its base and it's politically beneficial to everybody," said Brian Gardner, a political analyst at Keefe, Bruyette & Woods Inc. "Someone will give at some point. It's just tough to see where the endgame is right now. It's not obvious and it's not imminent."

So how long does it play out? While there are multiple different scenarios, the easy money right now is at least until the start of a Republican administration or Obama's second term.

"There is an 80% chance we will not have a director before January 2013," said Richard Hunt, president of the Consumer Bankers Association.

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