Appeals Court Re-opens Lawsuit Against The Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB), which was created as part of the Dodd- Frank and whose very existence has been challenged by conservatives and libertarians since its inception, is once again facing a legal challenge.

In 2012, State National Bank of Big Spring, Texas, along with two D.C. area non-profit organizations, filed suit challenging both the constitutionality of CFPB Director Cordray’s recess appointment, and the CFPB’s authority. Plaintiffs alleged that the Financial Stability Oversight Council (FSOC) created by Dodd-Frank was unconstitutional, and that CFPB’s structure violated the Constitution’s separation of powers.

State National Bank, along with conservatives and libertarians across the land, contend that the Dodd-Frank mandates violate separation of power in that they give the CFPB broad powers, and these powers are largely unchecked by other agencies. It is a bureaucracy without restraints.

In August 2013, the D.C. district court dismissed the lawsuit based on standing and ripeness grounds.

If CFPB thought the challenge was over, they were wrong.

On Friday, July 24, the district court’s decision was reversed by the U.S. Court of Appeals for the D.C. Circuit, when a three-judge panel ruled that the bank does have standing to challenge both the constitutionality of Director Cordray’s recess appointment and the CFPB itself.

The court ruled that State National Bank has the standing to challenge the CFPB’s constitutionality because it is regulated by the DFPB and is thus subject to its authority to impose new restrictions and obligations. The bank alleges that it has been injured by increased compliance costs and a loss of business – directly resulting from the DFPB and the Remittance Rule.

SNB’s standing to challenge the constitutionality of director Cordray’s recess appointment exists for the same reason.

The court noted that Director Cordray was later confirmed by the Senate, but left determination of the significance of that fact to the District Court.

On the Congressional side of the question…

Last week CFPB was the focus of a Judiciary Committee hearing entitled “The Administrative State v. The Constitution: Dodd-Frank at Five Years.”

A number of witnesses testified, among the Professor Neomi Rao of George Mason University School of Law. Professor Rao’s extensive written testimony supports those who believe CFPB is unconstitutional. He stated that “constitutional infirmities have predictably resulted in agency overreach on matters of fundamental importance to the consumer financial marketplace,” and that because of its “super independence and expansive delegated authority, the CFPB’s structure undermines the Constitution’s checks and balances.”

We look forward to a positive outcome from both the lawsuit and Congress. No agency should have unchecked, unregulated powers to create regulations for American citizens – nor should any agency be free from oversight.

Mike Clover

Mortgage Banker

Homewood Mortgage,LLC

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