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Dismissal Arguments Heard In CFPB Constitutionality Challenge
WASHINGTON (6/12/13)--Oral arguments were heard yesterday on a motion that could end a case that challenges the constitutionality of the Consumer Financial Protection Bureau.  The U.S. District Court for the District of Columbia heard arguments on a motion by the U.S. Department of Justice (DOJ) to dismiss the case. 

The suit, which was filed by State National Bank of Big Spring (Texas), the 60 Plus Association, and Competitive Enterprise Institute last year in federal court in Washington, D.C., also seeks to overturn the appointment of CFPB Director Richard Corday and the challenges the constitutionality of the Financial Stability Oversight Council (FSOC).

National Credit Union Administration Chair Debbie Matz and Cordray are among the nine federal officials named as suit co-defendants because the officials are members of FSOC.  The case does not seek to challenge NCUA separately.

Michigan, Oklahoma and South Carolina last year joined the suit, challenging the orderly liquidation authority that was granted to the federal government as part of the Dodd-Frank Act. Eight states in February filed a motion asking a federal district court to allow them to also join the suit.

As the court heard argument on the motion to dismiss the case, questions turned to whether State National Bank has been injured by the Dodd-Frank Act or the CFPB in such a way as to have constitutional standing to challenge the law, and whether those injuries are "ripe" or developed enough to be currently ready for a federal court to address them. 

State National argued that it was injured because it has incurred compliance costs in connection with the CFPB's mortgage servicing rule, because it has exited the market for issuing new mortgages due to the qualified mortgage rule and general uncertainty around the mortgage marketplace, and because it has exited the market for remittance transfers due to the CFPB's remittance rule.  The bank noted that its compliance costs included staff time and spending approximately $10,000 to join a bank "Compliance Alliance" to keep up with CFPB actions and developments in the regulatory landscape. 

The DOJ argued that none of these injuries are sufficient for standing to sue. The department noted that the bank falls within the CFPB's small servicer exemption from the mortgage servicing rules, precluding any injury from compliance efforts for that rule.  DOJ also argued that the bank's decision to exit the markets for remittance transfers and new mortgages cannot be fairly "traced" to the CFPB's actions, as opposed to some other business decision.

The constitutionality of Cordray's appointment as CFPB director was also discussed.

Earlier this year, the U.S. Court of Appeals for the D.C. Circuit ruled that President Barack Obama's recess appointments to the Equal Employment Opportunity Commission (EEOC) were unconstitutional.  This ruling could be precedent for the case heard Tuesday because the EEOC appointments occurred on the same date that the president appointed Cordray to his role, although that ruling is limited to the EEOC, not to the CFPB. 

The court again focused on whether State National has been injured by Cordray's appointment, as this is the only way in which State National can properly pose a challenge.  The DOJ has asked the U.S. Supreme Court to review the EEOC determination, while the court has not yet decided the motion to dismiss in the CFPB case heard yesterday, meaning that the status of Cordray's appointment is likely to remain in limbo for some time.

CUNA's Assistant General Counsel for Special Projects Robin Cook attended for CUNA to monitor the case for credit unions. He observed that the case makes a wide-ranging challenge to the Dodd-Frank Act and that the original complaint states that "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."


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