Eight More States Join Constitutional Challenge to Dodd-Frank Act
WASHINGTON, D.C., February 13, 2013 – In an attempt to protect their pension funds, taxpayers and financial stability, the states of Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas and West Virginia today join a major lawsuit challenging the constitutionality of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
These states are asking the U.S. District Court for the District of Columbia to join the suit in order to challenge the validity of the Orderly Liquidation Authority, established under Title II of Dodd-Frank. If permitted, these states would join the three states already in the lawsuit—Oklahoma, South Carolina, and Michigan — as well as three private plaintiffs: the State National Bank of Big Spring, Texas; the 60 Plus Association; and the Competitive Enterprise Institute.
The 11 state attorneys general are challenging Title II of the Dodd-Frank Act, which gives the Secretary of the Treasury so-called “Orderly Liquidation Authority” (OLA). By abridging the rights that federal bankruptcy laws long have guaranteed to creditors, OLA strips the states of valuable property rights that ensured certainty and the rule of law for States’ investments of taxpayers' revenues and government employees' savings.
Dodd-Frank has created new risks of uncertainty and unequal treatment for investors such as the states. The OLA can liquidate financial companies with no advance warning. It acts in secret, with minimal accountability to Congress, the president or the courts. The government decides how much to give each investor during the liquidation process, and the states have no ability to ensure they recoup the value of their investments at a level commensurate with Wall Street banks, whose too-big-to-fail status gives the Federal Government every incentive to compensate them at full value at the expense of everybody else. Overall, Dodd-Frank perpetuates too-big-to-fail, creating a serious moral hazard, harming community bank capacity to fund the small businesses and job creation and posing an increasing risk of a repeat economic meltdown.
In addition to Title II, the private plaintiffs in the lawsuit are challenging the Financial Stability Oversight Council (Title I), the Consumer Financial Protection Bureau (Title X) and the validity of the Bureau Director’s recess appointment.
Below you will find statements from the eight state attorneys general regarding joining the lawsuit and from CEI General Counsel Sam Kazman.
“Dodd-Frank is an alliance of big government and big business – Pennsylvania Avenue subsidizing Wall Street and suffocating Main Street,” Montana Attorney General Tim Fox said. “Montana’s community banks didn’t cause the 2008 financial crisis, but Dodd-Frank punishes them and our citizens who depend on them for credit to purchase a home, start a business or go to college. It cements the ‘too-big-to-fail’ approach and helps the biggest banks at the expense of consumers.”
“The Dodd-Frank law is bad for banks, harmful to businesses and worse for consumers who want to borrow money,” said Texas Attorney General Greg Abbott. "It gives too much power to the federal government—and puts taxpayer dollars at risk. Under this law, unelected federal bureaucrats can unilaterally liquidate financial institutions in which the state invests taxpayer dollars. The State of Texas could be denied basic due process rights and taxpayers’ dollars could recklessly be put at risk.”
West Virginia Attorney General Patrick Morrisey said: “Title II of the Dodd-Frank Act and the Orderly Liquidation Authority negatively impacts West Virginia and its taxpayers. The Orderly Liquidation Authority allows un-elected Washington bureaucrats to pick winners and losers among affected creditors, entirely abandoning the rule of law.
“Title II deprives West Virginia of its rights under federal bankruptcy laws to be treated fairly and equally. The executive branch, in its discretion, could choose to place the rights of other similarly situated creditors ahead of West Virginia. In addition to directly impacting West Virginia's legal rights, this potentially jeopardizes millions of dollars in state pension funds and other state investments."
“In addition to directly impacting West Virginia's legal rights, this potentially jeopardizes millions of dollars in state pension funds and other state investments," said Sam Kazman, general counsel for the Competitive Enterprise Institute, one of the private plaintiffs in the first lawsuit. “Dodd-Frank claims to be a reform, but in fact it threatens the financial well-being of consumers, small companies, state pension funds and our national economy. The entry of these states into this lawsuit represents a growing recognition of how massive that damage is.”
“Dodd-Frank was sold to the American people as a silver bullet to prevent another financial crisis and safeguard consumers,” said Georgia Attorney General Sam Olens. “In reality, it is a bureaucratic nightmare that puts Georgia taxpayers at risk and introduces more uncertainty into the economy. This is just another example of a power grab by the federal government attempting to dictate the operations of an entire industry.
“Dodd-Frank violates basic principles of separation of powers and government that is accountable to the people," added Olens. "It also gives the federal government the power to pick winners and losers, putting the State of Georgia’s financial assets at risk. “By joining this lawsuit, we are standing up for the Constitution, standing up for our local communities, and protecting our State’s finances.”
“Dodd-Frank shatters some of the most important rights we have in the marketplace and threatens our state’s and our citizens’ investments,” Oklahoma Attorney General Scott Pruitt said. “Our taxpayers could bear enormous burdens in making up for lost assets that were intended for retired state employees or to otherwise fund government services and infrastructure. The law puts at risk the pension contributions and tax dollars that the people have entrusted us to protect.”
The lawsuit was originally filed in June 21, 2012.
- Information on the case and a copy of the filing can be found at cei.org/doddfrank.