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Challenging Dodd-Frank: State National Bank of Big Spring v. CFPB

Title

Challenging Dodd-Frank: State National Bank of Big Spring v. CFPB

Docket number: 
No. 13-5247
Case status: 
Court level: 

The Competitive Enterprise Institute, the 60 Plus Association, and the State National Bank of Big Spring, Texas are challenging the constitutionality of the Consumer Financial Protection Bureau (CFPB). The CFPB is a regulatory agency that has used its enormous, unchecked power to restrict and drive up the cost of financial products like mortgages and credit. 

The lawsuit, currently before the U.S. District Court for the District of Columbia, argues that the structure of the CFPB violates the Constitution's separation of powers because the agency is insulated against meaningful checks by the legislative, executive, and judicial branches of government.

For example, unlike other agency heads, the CFPB’s director can only be fired by the president for specified causes. Normally, agency heads serve at the will of the president, an arrangement that makes an appointee more responsive and accountable to the president and, by extension, the American people.

Also, unlike other regulatory agencies, Congress has no power to approve or disapprove the CFPB's budget. Instead, the CFPB budget is taken from the budget of the Federal Reserve, which is the central banking system of the United States. That funding arrangement means the CFPB is not subject to Congress’s “power of the purse,” and it renders the agency unaccountable to both the president and Congress. In effect, the CFPB functions like a fourth branch of government unauthorized by the Constitution.

The lawsuit was originally filed on June 21, 2012, and challenged the constitutionality of several major provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act: the CFPB, the Financial Stability Oversight Council, and the Liquidation Authority.

In August 2013, a federal judge dismissed the lawsuit in a flawed decision that ignored the very real harm Dodd-Frank has inflicted on the plaintiffs and on many Americans who depend banks to provide loans for everything from their home to their small business.

Subsequently, the plaintiffs appealed the decision, and a hearing was held in November 2014, before a panel of the U.S. Court of Appeals for the District of Columbia Circuit.

On July 24, 2015, the D.C. Circuit Court affirmed that CEI, 60 Plus Association, and the State National Bank in Big Spring, Texas, had standing to challenge the constitutionality of the CFPB and President Obama’s 2012 recess appointment of its director, Richard Cordray. On those issues, the court remanded the case back to the district court for a ruling on the merits of the case. Unfortunately, at the same time, the appeals court also upheld other parts of the district court’s decision regarding the lack of standing of eleven states to challenge other Dodd-Frank provisions.

As of December 2016, we are awaiting a ruling by the U.S. District Court judge on the constitutional questions concerning the CFPB’s powers.

Meanwhile, the constitutional status of the CFPB has been the subject of another court case: PHH Corp. v CFPB. In October 2016, the U.S. Court of Appeals for the District of Columbia found the CFPB’s structure to be unconstitutional because its director could not be removed at will by the president. CEI is hopeful that the PHH ruling will play a major role in imposing accountability on the CFPB and will strengthen CEI’s own case.

>> Read our related Brief of Amicus Curiae in PHH Corp v. CFPB.