WASHINGTON (2/15/13)--Eight states filed a motion asking a federal district court to allow them to join a lawsuit that challenges the constitutionality of the Dodd-Frank Wall Street Reform Act, particularly the formation of the Consumer Financial Protection Bureau (CFPB) and Financial Stability Oversight Council (FSOC) and the establishment of their Orderly Liquidation Authority, which allows the government to liquidate the largest banks if they failed.
The addition will bring the total of states involved in the lawsuit to 11. If the court approves the motion, joining the original states--Michigan, Oklahoma and South Carolina--will be: Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas and West Virginia. Also suing are three private entities: the State National Bank of Big Spring, Texas; the 60 Plus Association Inc., a seniors advocacy group in Alexandria, Va.; and the Competitive Enterprise Institute, a public interest organization in Washington, D.C.
The states are challenging only the government's liquidation authority part of the lawsuit.
The proposed amended complaint for declaratory and injunctive relief, which was filed Wednesday in the U.S. District Court for the District of Columbia, claims the formation of CFPB, the appointment of CFPB Director Richard Cordray, and the formation of the FSOC violate the U.S. Constitution, specifically its provisions for separation of power.
"Title X of the Dodd-Frank Act delegates effectively unbounded power to the CFPB, and couples that power with provisions insulating the CFPB against meaningful checks by the Legislative, Executive and Judicial Branches," the complaint said.
The FSOC, it added, violates the separation of powers with "sweeping and unprecedented discretion to choose which nonbank financial companies to designate as 'systemically important' (or, 'too big to fail'). That designation signals that the selected companies have the implicit backing of the federal government--and, accordingly, an unfair advantage over competitors in attracting scarce, fungible investment capital."
The act's provision "empowers the Treasury Secretary to order the liquidation of a financial company with little or no advance warning, under cover of mandatory secrecy, and without either useful statutory guidance or meaningful legislative, executive or judicial oversight."
The suit claims the liquidation authority also violates the Fifth Amendment's due process clause and a requirement that bankruptcy laws throughout the U.S. be "uniform."
The states maintain that they have pension funds with investments in institutions that would qualify as falling under the liquidation authority.
The suit names as defendants a number of federal agencies, including the National Credit Union Administration.