Lawsuit Challenging CFPB Expands to Include 11 States
On February 13, 2013, eight more states joined the lawsuit challenging the constitutionality of portions of the Dodd-Frank Wall Street Reform Act as well as the existence of the Consumer Financial Protection Bureau (CFPB), bringing the total number of states challenging the Act to 11. The suit originated in Texas, and was filed on behalf of a Texas-based community bank (State National Bank of Big Spring) and two conservative political groups. Three states, Oklahoma, South Carolina, and Michigan, were already part of the lawsuit, having joined through the filing of an amended Complaint in September 2012. The lawsuit contends that both Dodd-Frank and the CFPB give too much power to federal officials, allowing unelected bureaucrats to “unilaterally liquidate financial institutions in which the state invests taxpayer dollars … [therefore depriving states] of basic due process rights and [placing] taxpayers’ resources at risk.”
On Wednesday, through the filing of an amended complaint, eight new states joined the suit: Alabama, Georgia, Kansas, Montana, Nebraska, Ohio and West Virginia. Oklahoma, South Carolina and Michigan were already participants in the lawsuit. The states also hope to invalidate the appointment of CFPB Director Richard Cordray, the former Ohio Attorney General, whose installation by President Barack Obama without U.S. Senate consent was called into question by the D.C. Circuit last month. That ruling called similarly made recess appointments to the National Labor Relations Board “constitutionally invalid.”
Several of the state Attorneys General who joined the lawsuit spoke out about their decision to join the lawsuit:
- “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."
- “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 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.”
About Troutman Sanders
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation practice group has successfully litigated a wide variety of individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB.