A U.S. District Court in Washington, D.C., has dismissed a lawsuit brought by 11 states and a Texas bank challenging the authority of Dodd-Frank to regulate the financial services industry.
According to U.S. District Judge Ellen Segal Huvelle, who dismissed the suit last week, 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 State National Bank of Big Spring, Texas, and the Competitive Enterprise Institute, a 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 challenges the constitutionality of provisions of the act, formally known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CEI-led suit alleged that the act and the Consumer Financial Protection Bureau, created to execute its mandates, fall under limited government oversight, which all but eliminates the checks and balances needed to assure public accountability.
Had the suit succeeded, the CFPB and its mandates to date would most likely have been rendered null and void.
"No other federal agency or commission operates in such a way that one person can essentially determine who gets a home loan, who can get a credit card and who can get a loan for college," said State National Bank CEO Jim Purcell in a CEI news release at the time of suit's filing.
"Dodd-Frank effectively gives unlimited regulatory power to this so-called Consumer Financial Protection Board, also known as CFPB, with a director who is not accountable to Congress, the president or the Courts. That is simply unconstitutional," Purcell said then.
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," said Gray in a formal statement after the ruling was handed down. "We will file a notice of appeal today."
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