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Texas bank challenging Dodd-Frank, consumer bureau in court
A Texas community bank and two advocacy groups are filing suit in U.S. District Court to challenge the constitutionality of the Dodd-Frank financial reform law.
In particular, the suit will contend that the Consumer Financial Protection Bureau (CFPB), created by the law, lacks sufficient checks and balances and, in the words of the CEO of State National Bank, is "simply unconstitutional."
“No other federal agency or commission operates in such a way that one person can essentially determine who gets a home loan, who can get a credit card and who can get a loan for college,” said bank head Jim Purcell. “Dodd-Frank effectively gives unlimited regulatory power to this so-called Consumer Financial Protection Board, also known as CFPB, with a director who is not accountable to Congress, the President or the Courts."
Two conservative groups, the Competitive Enterprise Institute and the 60 Plus Association, have also signed on to the suit, which will be filed against the nation's financial regulators.
C. Boyden Gray, who served as White House Counsel under President George H.W. Bush, will represent the plaintiffs in court.
The FSOC is being challenged on the grounds that once it begins designating systemically significant institutions, it will create a two-tiered financial system where smaller banks will put at a disadvantage, according to Gray.
Many expected the CFPB would face legal challenges after President Obama's January decision to recess appoint Richard Cordray to be its first director. The move came after Republicans in Congress had shot down the nomination of the Ohio Attorney General, and despite the fact that the GOP had been holding regular, brief "pro forma" sessions of Congress in an effort to prevent recess appointments.
The White House justified its decision, arguing that the sessions, which last minutes, do not constitute substantial work and can be ignored for appointment purposes.
Gray called that analysis "flawed," and said the suit will focus on the appointment in part.
"We think there was no recess. We think only Congress can decide when it was in recess," he said.
The CFPB has been a major hot-button issue surrounding the contentious Dodd-Frank law, as Republicans maintain the bureau is unaccountable and too powerful. Numerous bills have been introduced to bring its budget under the control of appropriators -- currently it receives its funding directly from the Federal Reserve, and to alter its structure so that it is run by a bipartisan board instead of a single director.
House Financial Services Committee Chairman Spencer Bachus (R-Ala.) used the court challenge to renew the push for a board of directors.
"There is no question the Consumer Financial Protection Bureau – by the design of Dodd-Frank Act supporters – lacks accountability and transparency," he said in a statement. "A bipartisan commission would help ensure that CFPB rules are balanced, fair and reasonable...This is a structure that has worked well for nearly every other regulatory body in this country and will work for the CFPB."
Backers of the CFPB have maintained that such moves are merely attempts to defang the agency, which has broad power over the financial products marketed to consumers by banks, payday lenders, and others.
The CFPB was dismissive of the lawsuit, calling it a distraction.
"This lawsuit appears to dredge up old arguments that have already been discredited," said bureau spokesperson Jennifer Howard. "We’re going to keep our focus on the important work Congress created us to do – making markets work for consumers and responsible providers.”
This post updated at 4:00 pm.
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