Critics of the CFPB and the “recess appointment” of Richard Cordray as the Bureau’s Director may finally have their day in court. Late last week, a Texas Bank and two advocacy groups filed a lawsuit in the United States District Court for the District of Columbia challenging “the unconstitutional formation and operation” of the CFPB and the Financial Stability Oversight Council (FSOC). The suit also challenges Cordray’s “recess appointment” as unconstitutional. The suit, however, may be short-circuited by its own deficiencies, including a lack of standing to pursue these claims.
The suit, State National Bank of Big Spring, Texas, et al. v. Geithner, et al., No. 1:12-cv-01032-esh., filed by the State National Bank of Big Spring, Texas, the Competitive Enterprise Institute (a public policy organization), and the 60 Plus Association (a conservative advocacy group for seniors) contends that the powers granted to the CFPB and FSOC are overly broad and not subject to any checks and balances in violation of the separation of powers doctrine.
The plaintiffs allege that Title X of the Dodd-Frank Act grants the CFPB “unlimited rulemaking, enforcement, and supervisory powers over ‘unfair,’ ‘deceptive,’ or ‘abusive’ lending practices,” and “eliminates the Constitution's fundamental checks and balances that would ordinarily limit or channel the agency's use of that power.” Plaintiffs counsel C. Boyden Grey—former White House counsel under George H. Bush—explains that “Dodd-Frank aggregates the power of all three branches of government in one unelected, unsupervised and unaccountable bureaucrat.”
Similarly, the plaintiffs allege that “Title I of the Dodd-Frank Act establishes FSOC, an interagency ‘council’ with sweeping power and effectively unbridled discretion.” Specifically, the plaintiffs object to the FSOC’s “unprecedented discretion” to identify which nonbank financial companies are “systemically important,” and purportedly gives those companies an “unfair advantage over competitors in attracting scarce, fungible investment capital.” The plaintiffs further object to Title I’s prohibition against judicial review of “whether the FSOC's actions are ‘in accordance with law.’”
Finally, the Plaintiffs challenge Cordray’s “recess appointment” on the grounds that the appointment “is unconstitutional because the Senate was not in ‘recess,’ as required to give effect to the President's power to make recess appointments.”
In response, CFPB spokeswoman Jennifer Howard dismissed the complaint as “dredg[ing] up old arguments that have already been discredited.” White House spokeswoman Amy Brundage remarked that “[t]The President fought to put into law the strongest consumer protections in history, and he will continue to fight any effort from our opponents to weaken the CFPB or water down its ability to protect middle class families." Deepak Gupta, former senior counsel to the CFPB, called the lawsuit “more a political stunt than a serious legal challenge” to the Dodd-Frank Act.
Jonathan Turley, a constitutional law expert at George Washington University, believes that the suit has a good chance of overturning Cordray's appointment. Turley, who believes that Cordray's appointment was unconstitutional, explained that "Presidents have gradually expanded their claimed ability to appoint officials during recesses to the point that it's become perfectly absurd.” Turley expressed doubts that a broader challenge to the CFPB and FSOC would be successful. Turley explained that "[t]he courts tend to leave these questions to the political process to work out. I think [the plaintiffs] have plausible arguments, but the advantage on that question still rests with the administration.”
The Court, however, may never reach these issues because it is not clear that the plaintiffs actually have standing to pursue their claims. Specifically, the plaintiffs’ claims of injury, which are required under the “case or controversy” clause of the Constitution, seem dubious at best.
State National Bank of Big Spring (Bank) alleges that it has been injured in two ways. First, the Bank alleges that a rule imposing new disclosure and compliance requirements with respect to international remittance transfers promulgated by the CFPB increased its costs in providing these services and caused the bank to cease providing them altogether. The complaint, however, is devoid of any allegations that the bank actually lost any money when it ceased offering these services. Moreover, these compliance costs, which are normally passed on to customers, would arguably impact all banks equally. Thus, the Bank’s alleged injury is not direct, but generalized, and, therefore, does not necessarily confer standing on the Bank.
Second, the Bank claims that it ceased its residential mortgage lending business in October 2010 due to the “regulatory uncertainty” caused by the broad authority granted to the Bureau. The Bank’s exit, however, was not mandated by any action of the CFPB and appears to have occurred at least a year before the CFPB began regulating residential mortgages. Additionally, nearly all businesses that are subject to the authority of any regulatory agency operate under a certain level of uncertainty and, therefore, the Bank’s purported injury is, again, generalized and does not necessarily establish standing. Remarkably, the plaintiffs fail to advise the Court that, due to its size, the Bank is not generally subject to scrutiny by the Bureau.
The injuries alleged by the Competitive Enterprise Institute and the 60 Plus Association are even more attenuated. They both claim that regulations promulgated by the CFPB now and in the future threaten certain investment programs, bank accounts, credit cards, and insurance by increasing their costs and reducing their availability. As with the Bank, these plaintiffs do not allege that they have actually suffered any injury. Moreover, the plaintiffs’ alleged injuries are not particularized, but could be assert by any individual or business who is directly or indirectly subject to any regulation from any regulatory agency, and, therefore, does not necessarily confer standing on these plaintiffs.
Additionally, it is not clear that the plaintiffs would have standing to challenge Cordray’s “recess appointment” because none of the plaintiffs can allege any direct or particularized injury caused by an act of the CFPB. Instead, it appears that the plaintiffs are simply alleging that the Cordray’s appointment was not in accordance with the law. The United States Supreme Court, however, has consistently held “that an asserted right to have the Government act in accordance with law is not sufficient, standing alone, to confer jurisdiction on a federal court.” Allen v. Wright, 468 U.S. 737 (1984).
Regardless of the plaintiffs lack of standing, their complaint is based on several arguments that may not withstand judicial scrutiny. For example, the plaintiffs assert that the Dodd-Frank Act violates the separation of powers doctrine by taking the “power of the purse” out of Congress’s hands and “authorizes the CFPB to fund itself by unilaterally claiming funds from the [Federal Reserve Board].” This argument fails because it is unlikely that a Court will overturn Congress’s decision to take the “power of the purse” out of its own hands. This argument also fails because several regulators, including the Federal Reserve, the FDIC, and the OCC, are also independently funded and free from the congressional appropriations process.
The plaintiffs also complain that "Judicial review of the CFPB's actions is limited, because Dodd-Frank requires the courts to give extra deference to the CFPB's legal interpretations." This requirement, however, merely complies with the United States Supreme Court’s ruling in Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984), which held that courts should defer to agency interpretations of statutes, unless they are unreasonable.
The CFPB’s answer is due at the end of the month, and it is expected that it will seek to dismiss the case.