WASHINGTON/CLEVELAND A defiant President Barack Obama said he will bypass Congress and install Richard Cordray as head of the country's new consumer financial watchdog, escalating an election-year fight with Republicans, who questioned the legality of the move.
The recess appointment, which Obama announced in a campaign-style rally at a high school gym in a Cleveland suburb, is being cheered by Democrats and liberal advocacy groups who want tougher oversight of Wall Street and other financial players.
In a separate statement on Wednesday, Obama said he would also use recess appointments to fill three vacant seats on the National Labor Relations Board.
Obama's appointment of Cordray and the NLRB nominees is part of a broader White House strategy to portray Obama as an activist president confronted with a "do nothing" Congress that has stymied his economic agenda.
Obama used recess appointments to install Sharon Block, Terence Flynn and Richard Griffin at the NLRB after the Senate failed to move on them, which left the five-member board without enough representation to fully conduct its business in 2012.
Last month, Republicans blocked a vote on whether to confirm Cordray.
"We know what would happen if Republicans in Congress were allowed to keep holding Richard's nomination hostage. More of our loved ones could be tricked into making bad financial decisions," Obama told a cheering crowd.
Obama's decision to appoint Cordray, a former Ohio attorney general who frequently took on big banks, without a Senate vote, is likely to face a legal challenge because Republicans contend the Senate is still technically in session.
"This is an extraordinary and entirely unprecedented power grab by President Obama," House Speaker John Boehner said in a statement. "I expect the courts will find the appointment to be illegitimate."
The Consumer Financial Protection Bureau (CFPB) was created by the 2010 Dodd-Frank financial oversight law, enacted in response to the 2007-2009 financial crisis, to police the market for consumer products such as credit cards and mortgages.
Democrats have heralded the bureau, which opened its doors in July, as a way to protect consumers from abusive lending practices like the type of home loans that were made in the years leading into the financial crisis.
Republicans have charged the agency is a virtually unchecked government body that will hurt lending and put small banks out of business.
NOT SHY ABOUT TAKING ON A FIGHT
Hammering populist themes that show him to be a champion of the middle class, aides say, the president will keep taking steps to show voters he will make moves on his own to help the economy if Congress refuses to act.
Before delivering his speech, with Cordray at his side, Obama stopped in a snow-covered working-class neighborhood to meet an elderly couple who had almost lost their home when a mortgage broker took advantage of them.
"It's a good example of the trickery and abuse in the non-bank financial sector that we're going to be able to do something about," Obama said as they sat around the dining room table in a modest 2-story house with peeling paint.
Republicans have made clear they do not oppose Cordray but want changes made to the bureau's structure before they allow the Senate to confirm anyone to lead the CFPB.
As attorney general, Cordray was not afraid to file legal challenges against banks, including Bank of America Corp. The banking industry and Wall Street are worried about how the bureau will crack down on lending practices.
"You've got someone who is not shy about taking on a fight," Ed Mills, a financial stock analyst at FBR Capital Markets & Co, said of Cordray.
Some analysts said Cordray's appointment may not have an immediate impact on the lending industry.
They said much of the bureau's time over the next year, whether Cordray was in the director's chair or not, would be spent building up its operations.
"I don't think this changes much at the CFPB because the agency is going to be overwhelmed in 2012 with Dodd-Frank rulemakings and setting up and strengthening its bank supervision program." said Jaret Seiberg, policy analyst at Guggenheim Securities.
Cordray's appointment will, however, allow the bureau to begin focusing on lenders outside the banking industry.
Under the Dodd-Frank law, without a director in place the CFPB can supervise banks but it cannot regulate the "shadow banking" industry such as payday lenders and certain student loan providers.
On Wednesday, Cordray told Reuters that moving to supervise these lenders will be his first order of business.
"We're going to be working to expand our program to non-banks, which is an area we haven't been able to touch until now," he said on the tarmac in Cleveland, after flying with Obama on Air Force One.
Regardless of whatever political dividends the White House believes the move will pay, it also will come with a price.
Republicans are likely to now block Obama's picks for other high-profile financial regulators, with vacancies at the Federal Reserve and Office of the Comptroller of the Currency.
This would leave the White House to decide whether to simply appoint them as well or leave key agencies without confirmed leaders for at least another year.
As a recess appointee, Cordray also can only serve through 2013 instead of a full five-year term, according to the Congressional Research Service.
Republicans are portraying the move as a break with tradition and possibly illegal, but the White House said its lawyers believe the move is allowed under the constitution.
David Hirschmann, an official at the U.S. Chamber of Commerce, told Reuters the group would not dismiss the option of a lawsuit.
At issue is what authority Obama has to put Cordray in the job as a recess appointment.
The president has the authority to make such a move when the Senate goes on a recess. Republicans, however, have forced the Senate to technically stay in session to try to prevent Obama from making such a move.
Republicans contend that because of these pro-forma sessions, no recess appointments can be made, a view the White House is now challenging by installing Cordray as director of the CFPB.
Democrats said Republicans forced the president to make the move by blocking a vote on Cordray.
Barney Frank, the lead Democrat on the House Financial Services Committee and co-author of Dodd-Frank, said "Republicans' complaints about the President's decision to make this recess appointment are equivalent to objections leveled by arsonists at people who use the fire door to escape a burning building."
(Reporting By Dave Clarke and Matt Spetalnick; Additional reporting by Alister Bull, Richard Cowan, Laura MacInnis and Alexandra Alper in Washington and David Henry in New York; Editing by Gerald E. McCormick, Tim Dobbyn, Gary Hill)