In late July, the U.S. Court of Appeals for the District of Columbia Circuit issued an opinion upholding a Texas bank’s standing to challenge the constitutionality of the CFPB. The bank filed suit in 2012, raising three challenges to the Bureau’s authority over it.
First, the bank challenged the constitutionality of the CFPB itself on the basis that the Bureau is headed by a single director, rather than multiple members, and that the Dodd-Frank Act’s broad delegation of authority to the Bureau violates the non-delegation doctrine, which limits Congress’s ability to delegate its legislative powers to federal agencies.
Second, the bank contested President Obama’s 2012 recess appointment of CFPB Director Richard Cordray, arguing that the appointment – and therefore Cordray’s actions before his confirmation by the Senate in 2013 – were unlawful because the appointment took place during a congressional recess of insufficient length.
Third, the bank challenged the constitutionality of the Financial Stability Oversight Council, which was created by the Dodd-Frank Act with the authority to promulgate additional regulations governing financial companies deemed “too big to fail.”
Reversing the U.S. District Court for the District of Columbia, which had concluded that the bank lacked standing to assert its claims, the D.C. Circuit concluded that the bank had standing to assert its first two claims, but not the third. The court explained that “there is ordinarily little question that a regulated individual or entity has standing to challenge an allegedly illegal statute or rule under which it is regulated,” and concluded that because “there is no doubt” that the bank is regulated by the CFPB, it had standing to challenge the Bureau’s constitutionality and Cordray’s recess appointment.
The only remaining question, the court concluded, is when the bank could bring such a challenge: Must the bank wait for the CFPB to commence an enforcement action and assert its constitutional challenge as a defense, or could it bring that challenge in a pre-enforcement lawsuit? Relying on the Supreme Court’s decision in Abbott Laboratories v. Gardner, 387 U.S. 136 (1967), the D.C. Circuit concluded that the bank was not obligated to wait for a CFPB enforcement action to assert its claims, but that it was free to do so in its own pre-enforcement action. As the court put it: “[I]t would make little sense to force a regulated entity to violate a law (and thereby trigger an enforcement action against it) simply so that the regulated entity can challenge the constitutionality of the regulating agency.” Although the court did not address the merits of the bank’s claims, its holding is significant because it affirms the ability of entities regulated by the CFPB to challenge the Bureau’s constitutional authority.
The court, however, rejected the bank’s standing to bring its third claim challenging the Financial Stability Oversight Council because the bank itself was not a “too big to fail” entity and therefore not subject to its authority. The Court also rejected claims by several states, also plaintiffs in the case, challenging the government’s ability to conduct “orderly liquidation” of troubled financial entities concluding that their claims were not yet ripe. Accordingly, the court remanded the case to the district court for further proceedings on the merits of the bank’s first two claims.