The Carroll Standard

Major lawsuit challenges the constitutionality of Dodd-Frank

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With the Supreme Court poised to rule on the constitutionality of Obamacare, a suit filed today challenges the constitutionality of the other signature legislation of President Obama’s first term: Dodd-Frank. Brought in the U.S. District Court in Washington, D.C., the case is styled State National Bank of Big Springs and others v. Timothy Geithner and others.

The other defendants include the Treasury Department, the Consumer Protection Bureau, the Board of Governors of the Federal Reserve, the Federal Deposit and Insurance Corporation, and the Financial Oversight Council.

The lawsuit’s major claim is that the formation and operation of the Consumer Financial Protection Bureau (CFPB) violates the constitution because its director (or czar) is not accountable to Congress or the President, and the decisions of the agency are not even subject to judicial review. The CFPB escapes meaningful congressional oversight because its budget – some $400 million – comes from the Federal Reserve. As for the president, he cannot overrule actions taken by the CFPB, and can only remove the director “for cause,” e.g., inefficiency, neglect of duties, or malfeasance, not disagreement over substance. Finally judicial review is limited because courts are required by the legislation to defer to the CFPB regarding the meaning or interpretation of any provision of federal consumer financial law.

These features of Dodd-Frank raise obvious concerns about separation of powers and checks and balances, i.e., accountability. The plaintiffs point out that Dodd-Frank grants the CFPB sweeping authority over consumer financial product and services firms. For example, the CFPB has the open-ended power to determine which lending practices are “unfair,” “deceitful,” or “abusive” under the Act. It can also unilaterally exempt any class of covered persons from rules it promulgates.

Dodd-Frank also grants the CFPB aggressive investigative and enforcement powers. It can issue subpoenas, conduct hearings and adjudicative proceedings, and file lawsuits.

Because, as noted above, the CFPB can exercise these regulatory, investigative, and enforcement powers free from checks and balances, the lawsuit alleges that its formation and operation is unconstitutional.

The lawsuit also challenges the constitutionality of the way in which Richard Cordray was appointed director of the CFPB. Readers will recall that Cordray received a recess appointment at a time when the Senate was not in recess, as clearly it must be for such an appointment to be valid. The plaintiffs contend that the Senate was not in recess because (1) it had declared itself to be in session, (2) the House had not consented to a Senate adjournment of longer than three days, as it must, and (3) the Senate passed significant economic legislation during the session in which the president claimed it was in recess.

I’m happy that the lawsuit includes this challenge to the Obama administration’s patent unwillingness to abide by the rules, and for this executive’s disregard for a co-equal branch of the government.

When the constitutionality of Obamacare was challenged in court, liberal commentators pooh-poohed the lawsuits. Now they are praying that the Supreme Court doesn’t strike down some or all of that legislation, amidst a consensus (for whatever that’s worth) that the Court will do just that.

No one should pooh-pooh today’s challenge to the constitutionality of Dodd-Frank.

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