A lawsuit that challenged the authority of Dodd-Frank to regulate the financial services industry was dismissed Aug. 1 in Washington, D.C. in U.S. District Court.
According to Judge Ellen Segal Huvelle, the plaintiffs did not adequately demonstrate the alleged financial injury they would suffer under the act.
The suit, filed in June 2012, was brought by the $275 million State National Bank of Big Spring, Texas, and the Competitive Enterprise Institute, a Washington-based policy group that promotes limitations on government oversight. Eventually, 11 states joined the suit, including Alabama, Georgia, Kansas, Michigan, Montana, Nebraska, Ohio, Oklahoma, South Carolina, Texas and West Virginia.
The suit challenged the constitutionality of provisions of the act, claiming Dodd-Frank and the Consumer Financial Protection Bureau, created to execute its mandates, fell under limited government oversight, which all but eliminated the checks and balances needed to assure public accountability.
The suit also challenged Title II, which gives the Secretary of the Treasury what the law called “Orderly Liquidation Authority.” The attorneys general claimed that OLA stripped states’ property rights for investments of taxpayers’ revenues and government employees’ savings. The ability of the federal government to divvy out funds during the liquation process would incent it to compensate Wall Street and big banks at full value, due to their too-big-to-fail status, at the expense of other creditors, the plaintiffs said.
Had the suit succeeded, the CFPB and its mandates to date would most likely have been rendered null and void.
C. Boyden Gray, lead counsel for the plaintiffs, called the court’s decision “deeply flawed.” Dodd-Frank’s “complex regime” of unchecked regulations will not guarantee that consumers will be made whole in the event of another financial crisis, Gray said.
“Instead, Dodd-Frank creates a ‘star chamber’ procedure that provides states and other creditors with no notice of impending bank ‘liquidations’ until after they have begun, after which Dodd-Frank denies the states meaningful judicial review to protect their rights and their financial investments--including the states’ pension funds,” Gray said in a formal statement after the ruling was handed down. “We will file a notice of appeal.”