The attorneys general of eight states asked the U.S. District Court for the District of Columbia this week for permission to join a lawsuit challenging the constitutionality of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
If approved by the court, Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas and West Virginia would join Oklahoma, South Carolina and Michigan in the suit. The suit, originally filed June 21, 2012, also includes the original plaintiff, State National Bank of Big Spring, Texas, as well as the 60 Plus Association and the Competitive Enterprise Institute.
The 11 state attorneys general are challenging Title II of the Dodd-Frank Act, which gives the Secretary of the Treasury so-called "Orderly Liquidation Authority."
The attorneys general claim that by abridging the rights that federal bankruptcy laws long have guaranteed to creditors, OLA strips the states of valuable property rights for states' investments of taxpayers' revenues and government employees' savings. They claim the ability of the federal government to divvy out funds during the liquation process will incent the federal government to compensate Wall Street and big banks at full value, due to their too-big-to-fail status, at the expense of other creditors.
In addition to Title II, the private plaintiffs in the lawsuit are challenging the Financial Stability Oversight Council, the Consumer Financial Protection Bureau and the validity of the CFPB Director Richard Cordray's recess appointment.
As a member of the FSOC, NCUA Chairman Debbie Matz is named as a plaintiff in the suit. The $275 million State National Bank claims in the suit that CFPB regulations have forced it to discontinue products such as mortgage lending and remittances.
The suit gained additional merit Jan. 25 when the same D.C. District Court unanimously invalidated President Barack Obama's recess appointments to the National Labor Relations Board, saying the act was unconstitutional. That appointment occurred the same day as Cordray's in early January 2012, when the Senate was in a pro forma session.
"Dodd-Frank was sold to the American people as a silver bullet to prevent another financial crisis and safeguard consumers," said Georgia Attorney General Sam Olens in a release. "In reality, it is a bureaucratic nightmare that puts Georgia taxpayers at risk and introduces more uncertainty into the economy. This is just another example of a power grab by the federal government attempting to dictate the operations of an entire industry.
If successful, the suit could overturn CFPB regulations that have been finalized since Cordray's appointment. However, NAFCU President/CEO Fred Becker cautioned that credit unions would likely still be required to comply with the rules even if the plaintiffs were victorious.
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