A conservative policy group has challenged the constitutionality of the Dodd-Frank Act on grounds that the law's creation of the Consumer Financial Protection Bureau exceeds Congress's authority, a line of reasoning almost identical to a legal challenge of the Sarbanes-Oxley Act that went all the way to the U.S. Supreme Court.
The group, the Competitive Enterprise Institute, filed its lawsuit in federal district court in Washington, D.C., on Thursday. Its co-plaintiffs were State National Bank of Big Spring, Texas, and the 60 Plus Association, another conservative group that bills itself as “the conservative alternative to the AARP.”
The suit's main points are that the CFPB was established with too much independence—that Congress cannot set the CFPB budget (its funding is determined as a total portion of the Federal Reserve's budget); that the president cannot remove the CFPB director except in special circumstances; and that the courts must give CFPB decisions extra deference.
“As a whole, Dodd-Frank aggregates the power of all three branches of government in one unelected, unsupervised and unaccountable bureaucrat,” said former White House Counsel C. Boyden Gray, attorney for the plaintiffs and founder of Boyden Gray & Associates.
“Dodd-Frank is to financial reform like a tsunami is to a slightly dry lawn—all-enveloping, hugely destructive, and pretty much unaccountable to whoever unleashed it,” said Sam Kazman, CEI's general counsel.
The CEI is attempting via litigation what Republicans in Congress have so far failed to achieve via legislation. The GOP has complained since the start of Dodd-Frank that the CFPB's budget should be set by Congress, and as recently as this month the House supported legislation to amend the Dodd-Frank Act as such. The chance of that idea surviving in the Senate, however, is—as usual with the Senate—unlikely.
The CFPB's budget is currently in the neighborhood of $350 million, although by law it is entitled to 10 percent of the Federal Reserve's funds up to a maximum of $548 million this year and $598 million in 2013. Its director, Richard Cordray, was tapped for the job in January via recess appointment after Republicans had blocked President Obama's desired choice, Elizabeth Warren, and then vowed to block anyone else unless the CFPB's budgetary freedom was curtailed.
The CEI's lawsuit is quite similar to that of the Freedom Enterprise Fund, which relentlessly challenged the Sarbanes-Oxley Act in the late 2000s. That lawsuit's central argument was that the Public Company Accounting Oversight Board violated the Appointments Clause of the Constitution, because the president could neither appoint nor remove members of the PCAOB; members were named by the Securities and Exchange Commission, and no clear mechanism for a PCAOB board member's removal existed at all.
The Free Enterprise Fund lost one decision in federal court after another, but kept appealing until the case was heard by the Supreme Court two years ago. The court ultimately dodged the question of constitutionality by empowering the SEC to remove, as well as appoint, PCAOB members.