Just days after President Obama touted the supposed achievements of the Dodd-Frank financial reform law on its fifth birthday, a unanimous judicial panel—including an Obama appointee—dealt the administration a major defeat in its defense of the law. If the co-plaintiffs in the case—the Competitive Enterprise Institute, the 60 Plus Association, and a courageous Texas community bank––ultimately prevail, it will be a huge victory for American consumers and entrepreneurs being strangled by the red tape of Dodd-Frank and its Consumer Financial Protection Bureau (CFPB).
Today, a three-judge panel of the D.C. Circuit Court ruled unanimously that State National Bank of Big Spring, Texas, had standing to challenge the constitutionality of the Consumer Financial Protection Bureau, the massive bureaucracy created by Dodd-Frank with virtually no accountability to Congress. The decision, written by Judge Brett Kavanaugh, a George W. Bush appointee, was joined by Clinton appointee Judith Rogers and Obama appointee Nina Pillard.
The Democrat-leaning panel criticized the D.C. federal district court for its bizarre ruling that, despite the fact that State National Bank was directly subject to the CFPB’s edicts, it somehow didn’t suffer injuries serious enough to have standing to challenge the Bureau. (Bank president Jim Purcell testified before Congress that the bank even had to stop issuing new mortgages and wire transfers because of CFPB rules.)
“The Supreme Court has stated that ‘there is ordinarily little question” that a regulated individual or entity has standing to challenge an allegedly illegal statute or rule under which it is regulated,” states the D.C. Circuit’s opinion. “So it is in this case”
The court said this is particularly true when the constitutionality of an agency, rather than a particular rule, is challenged, as it is in this case. The D.C. Circuit ruling cited a Supreme Court case in which CEI served as co-counsel, Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477, a challenge to the operation of an agency governing public companies created by the Sarbanes-Oxley Act. In that case, the Supreme Court wrote that courts should not “require plaintiffs to bet the farm” by breaking laws to challenge the constitutionality of the regulating entity.
Now that a court has affirmed State National Bank’s standing to challenge the constitutionality of the CFPB, the district court will hear the merits of the challenge. We argue that there are multiple constitutional defects of the CFPB that cause it to lack the meaningful oversight the Constitution’s framer envisioned for government bureaucrats.
- It is not subject to Congressional accountability because it is not subject to Congressional appropriations—that is, Congress cannot wield the power of the purse over agency.
- It lacks the multi-member leadership of other independent agencies.
- And its head was initially appointed by a “recess” process similar to one that the Supreme Court declared illegal for the National Labor Relations Board.
This will be a long process, but it could go a long way toward freeing Americans not just of economic burdens but of new NSA-like threats to privacy from the massive database the CFPB is building.
This is a major victory, but it wasn’t a sweep. Unfortunately, the court also ruled that the bank and the 11 states that joined the case did not have standing to challenge Dodd-Frank’s Financial Stability Oversight Council and its Orderly Liquidation Authority. We are evaluating our options in that regard. But this is a major victory nonetheless. And a as a plus, the makeup of the panel suggests there may be bipartisan agreement for at least some accountability for the entities created by Dodd-Frank.