A small Texas bank scored a potentially big victory on Friday, when the U.S. Court of Appeals for the District of Columbia Circuit ruled that it has standing to challenge the constitutionality of the Consumer Financial Protection Bureau.
“The D.C. Circuit’s ruling today opens the door to a court test of the CFPB’s constitutionality,” says Sam Kazman, general counsel for the Competitive Enterprise Institute, a conservative think tank. “Since Dodd-Frank’s enactment five years ago this month, the CFPB has inflicted damage on huge segments of our economy. Its powers are so free-roaming that they are unprecedented in our history. The fact that our standing to challenge the CFPB has been upheld is great news for us, the plaintiffs, and even greater news for the American public.”
In 2012, CEI and the 60 Plus Association joined State National Bank of Big Spring Texas as plaintiffs in the original lawsuit. They were later joined as plaintiffs by the Republican attorneys general of 11 states. The lawsuit challenged the constitutionality of the Dodd-Frank Act’s creation of the CFPB and Richard Cordray's recess appointment as its director.
Key elements of the lawsuit included:
That the agency lacks effective checks and balances to assure the public of accountability.
Congress exercises no “power of the purse” over the CFPB, because the agency’s budget – administered essentially by one person – comes from the Federal Reserve.
The President cannot remove the CFPB Director except under limited circumstances.
Judicial review of the CFPB’s actions is limited, because Dodd-Frank requires the courts to give extra deference to its legal interpretations.
The lawsuit also similarly challenged the constitutionality of the Financial Stability Oversight Council and the Treasury Department's ability to liquidate financial companies if the Federal Deposit Insurance Corporation and Federal Reserve agree such a move is needed.
In an August 2013 opinion, Judge Ellen Segal Huvelle of the U.S. District Court for the District of Columbia, ruled that the plaintiff's had no standing on these and other claims. The crux of her decision was that the plaintiff's, in the absence of any related adverse ruling or enforcement action, failed to adequately prove claims that they were, or would be, harmed.
The appeals court took a more generous view. The bank has standing to challenge the constitutionality of the Consumer Financial Protection Bureau and Cordray’s recess appointment “and that claim is ripe,” the opinion says, reversing the District Court’s judgment.
The appeals court, however, agreed that the bank lacks standing to challenge the constitutionality of the Financial Stability Oversight Council and the government’s orderly liquidation authority.
The bank unsuccessfully argued that FSOC’s designation of GE Capital as a Systemically Important Financial Institution requiring additional regulation indirectly harmed it. According to the bank, “GE Capital receives a reputational subsidy as a result of its designation by the Council for additional regulation, which allows GE Capital to raise money at lower costs than it otherwise could, negatively impacting the Bank’s ability to compete for the same finite funds.”