On Friday, a Texas bank received a victory when a federal appeals court revived a lawsuit that challenged the constitutionality of the Consumer Financial Protection Bureau (CFPB).
According to multiple media reports, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the bank had legal standing to proceed with a lawsuit arguing the structure of the CFPB is unconstitutional.
The State National Bank of Big Spring in Texas is arguing against the formation and operation of the CFPB, the Wall Street Journal reported. The bank's arguments also include a claim that independent government agencies must be headed by multiple members, not by a single director, as is the case at the CFPB.
"As a small community bank out in West Texas, we’ve always felt pretty vulnerable to the regulatory burdens imposed on us by Washington, D.C.," said Jim Purcell, Chairman of the Board and CEO of the State National Bank of Big Spring, Texas and lead plaintiff in the case. "In recent years, that threat was epitomized for us by the Consumer Financial Protection Bureau, an agency which was alarmingly free of traditional checks and balances. We never quite understood why the Bureau objected to having its constitutionality tested in court. On behalf of the bank, its customers, and the American public, we’re extremely gratified that we’ll now have the chance to put this agency to that test."
The court ruled unanimously and found the State National Bank of Big Spring "is not a mere outsider asserting a constitutional objection to the bureau" and is subject to the bureau's rulemaking powers, according to CNBC.
A CFPB spokesman told CNBC that the agency was reviewing the decision.
"There is no doubt that the Bank is regulated by the Bureau," the ruling said. "The Bank therefore has standing to challenge the constitutionality of the Bureau."
The CFPB was created by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the financial crisis. Its main function is to protect consumers from unlawful lending practices by banks, credit card companies, auto lenders, and more.
CNBC adds, "Since its creation, however, there have been efforts both by Republicans and by the industry to undercut its authority, largely driven by concerns about the bureau's structure and its powers over a wide array of financial products," Hurley and Lynch wrote. "The bureau is led by a single director, Richard Cordray, and is not subject to congressional appropriations."
A three-judge panel reversed parts of a trial judge’s ruling that threw out the lawsuit, Kendall noted. The appeals court stated that the bank could continue with its challenge to the CFPB because it is subject to regulation by the bureau. The court also added that it was permissible for the bank to challenge the legality of the CFPB in a pre-enforcement lawsuit.
But Friday's ruling was not a complete win for the Texas bank. The court did not consider the merits of the bank’s constitutional claims and suggested a trial court should consider them first, both the WSJ and CNBC said.
The appeals court did reject a third request by the bank to challenge the constitutionality of the Financial Stability Oversight Council, another body created by Dodd-Frank that polices for emerging market risks, citing that the court said the bank does not have standing for that challenge, WSJ said. In addition, the court also rejected a separate challenge filed by a group of state attorneys general over the constitutionality of Dodd-Frank's orderly liquidation provisions, citing they did not have legal standing to do so.
Competitive Enterprise Institute (CEI) General Counsel Sam Kazman also issued a statement in regards to the lawsuit, stating that the court's ruling opened the door to a court test of the CFPB's constitutionality.
"Since Dodd-Frank’s enactment five years ago this month, the CFPB has inflicted damage on huge segments of our economy," Kazman said. "Its powers are so free-roaming that they are unprecedented in our history. The fact that our standing to challenge the CFPB has been upheld is great news for us, the plaintiffs, and even greater news for the American public."