A small bank in Texas plans to file a lawsuit in federal court today claiming that the 2010 Dodd-Frank Act, which overhauled financial regulation, is unconstitutional, C. Boyden Gray, a lawyer for the bank, said in a conference call.
The lawsuit, aimed in particular at the Consumer Financial Protection Bureau, alleges that the law violates the U.S. Constitution because Congress does not appropriate its budget, the president has limited ability to remove its director and the courts face restrictions in reviewing its actions.
“As a whole, Dodd-Frank aggregates the power of all three branches of government in one unelected, unsupervised and unaccountable bureaucrat,” Gray, founder of law firm Boyden Gray & Associates, said in a statement.
Gray served as White House counsel to President George H.W. Bush and is a member of the board of directors of the Federalist Society, a conservative legal group.
The lawsuit could not be confirmed in court records.
Dodd-Frank was enacted in 2010 to curb the kinds of transactions that led to the 2008 financial crisis. In addition to creating the CFPB, it imposed new rules on derivatives, limits the ability of banks to trade on their own account and imposes an array of new rules for mortgages.
The lawsuit, which was to be filed by the State National Bank of Big Spring, Texas, argues that the structure of the CFPB violates the principle of separation of powers.
Deepak Gupta, a Washington-based appellate lawyer and former CFPB official, called the lawsuit “more a political stunt than a serious legal challenge” to Dodd-Frank.
“There remains sharp disagreement over the agency, but not every disagreement can be constitutionalized,” Gupta said in an e-mail.
President Barack Obama “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,” White House spokesman Amy Brundage said in an e-mail. “Whether it be cracking down on misleading tactics from debt collectors and credit card companies or increasing resources for military families, the CFPB has already made great progress on increasing protections for American consumers, and we will oppose any efforts to stand in their way,” she said.
Gray portrayed the lawsuit as coming on behalf of smaller banks, which have argued that it is expensive to comply with federal regulations. State National Bank had $294 million in assets as of March 31, according to data published by the Federal Deposit Insurance Corp.
The bank is a member of the Independent Community Bankers of America, a trade association, according to its president, Camden Fine. Fine said his group has about 6,000 member banks, and “as far as we can tell, no other bank in the nation is involved.”
Representative Spencer Bachus, an Alabama Republican, highlighted the lawsuit in a statement without endorsing it.
“House Republicans have worked to change the bureau’s structure to make the CFPB more effective, less politicized and more accountable,” Bachus said after the lawsuit was announced.
Gray said the bank has standing to bring the lawsuit since it must follow CFPB rules. It quit offering mortgages in the face of the agency’s ability to regulate the home finance market.
“Rather than trying to anticipate the un-anticipate-able, they left the market,” Gray said. “That is a serious harm.”
Gupta called the argument “a very dubious and speculative theory of standing” in his e-mail.
“There’s a good chance that the court will throw the case out for lack of injury and will not even reach the constitutional challenge,” he said.
The lawsuit also includes challenges to the Jan. 5 recess appointment of Richard Cordray, the former Ohio attorney general, to head the bureau.