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by Barbara S. Mishkin
The issue of the CFPB’s constitutionality reemerged last week in court and Congress.
On the judicial front, the U.S. Court of Appeals for the D.C. Circuit, in State National Bank of Big Spring, Texas, et al. v. Lew, et al., reversed the district court and ruled that the bank had standing to challenge the constitutionality of the CFPB and Director Cordray’s recess appointment. The D.C. Circuit did not, however, rule on the merits of the bank’s constitutionality claims. (In January 2014, in the CFPB’s enforcement action against Morgan Drexen, a California federal court rejected on the merits a challenge to the CFPB’s constitutionality.)
The case before the D.C. Circuit was originally filed in June 2012 by State National Bank of Big Spring (SNB) and two D.C. area non-profit organizations that joined SNB as plaintiffs. Eleven Republican state Attorneys General subsequently joined as plaintiffs on the amended complaint filed in September 2012. The original complaint challenged the constitutionality of Director Cordray’s recess appointment. It also alleged that the CFPB’s structure and authority violated the Constitution’s separation of powers and that the Financial Stability Oversight Council (FSOC) created by Dodd-Frank was unconstitutional. The AGs did not join those portions of the amended complaint and instead only joined a newly-added challenge that had nothing to do with the CFPB but dealt with their states’ status as potential creditors of a failed financial institution in the event of an “orderly liquidation” under Title II of Dodd-Frank. In August 2013, the district court granted the CFPB’s and other defendants’ motion to dismiss on standing and ripeness grounds.
The D.C. Circuit’s decision [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance] consisted of the following four rulings:
On the Congressional front, the CFPB’s constitutionality was the focus of testimony given to the Senate Judiciary Committee at a hearing last week entitled “The Administrative State v. The Constitution: Dodd-Frank at Five Years.” Among the witnesses was Professor Neomi Rao of George Mason University School of Law. In his written testimony, Professor Rao provided extensive support for the position that the CFPB is unconstitutional. According to Professor Rao, because of its “super independence and expansive delegated authority, the CFPB’s structure undermines the Constitution’s checks and balances.” He also asserted that the CFPB’s “constitutional infirmities have predictably resulted in agency overreach on matters of fundamental importance to the consumer financial marketplace.” (The written testimony of the other witnesses is available on the Judiciary Committee’s website.)
Read additional articles at Ballard Spahr’s CFPB Monitor
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