Consumer Financial Protection Bureau Under Legal Attack Over Broad Powers

A small bank and two conservative advocacy groups said on Thursday that they would file a lawsuit against the new Consumer Financial Protection Bureau, challenging what they call the agency's "unlimited regulatory power."

It is unclear how much of a threat the suit is to the agency created by the 2010 Dodd Frank financial reform act to police consumer products such as mortgages and credit cards.

The challenge, brought by the State National Bank of Big Spring, Texas; the Competitive Enterprise Institute; and the 60 Plus Association, will ask the court to invalidate key parts of Dodd-Frank relating to the CFPB's oversight.

The plaintiffs say parts of the law are unconstitutional because Congress does not have direct control over the CFPB's budget, while the president and the courts lack serious oversight of the agency.

"There is no statute anywhere that so combines the power of all three powers in one bureaucrat," said C. Boyden Gray, who was White House counsel under former President George H.W. Bush and is representing the plaintiffs.

The plaintiffs said they expected the suit to be filed later on Thursday, but the CFPB dismissed the arguments out of hand.

"This lawsuit appears to dredge up old arguments that have already been discredited," CFPB spokeswoman Jennifer Howard said. "We're going to keep our focus on the important work Congress created us to do - making markets work for consumers and responsible providers."

Dodd-Frank tasks the CFPB with supervising banks with more than $10 billion in assets, but smaller banks can be subject to its rules.

The plaintiffs argue that the Texas bank, with less than $300 million in assets, will suffer because of rules the agency writes to police mortgages and other consumer products the bank offers.

"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," State National Bank Chief Executive Officer Jim Purcell said in a statement.

"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," Purcell said in a statement. "That is simply unconstitutional."

The suit also targets the Financial Stability Oversight Council, a coalition of existing regulators called for in Dodd-Frank to study risk in the financial system.

The FSOC's designation of certain banks as "systemically important" will raise borrowing costs for smaller banks because the designation will come with implicit government backing, the plaintiffs argue.

They also charge that the FSOC's oversight of the CFPB is nearly "nonexistent."


The CFPB is already under fire from the right for the appointment of its director and the way the agency is structured.

President Barack Obama in January installed Richard Cordray as the CFPB's first director through a recess appointment after Senate Republicans blocked a vote on his nomination in December.

"As it is currently structured, the CFPB is one of the most powerful and least accountable agencies in all of Washington," Republican Congressman Spencer Bachus, chairman of the House Financial Services Committee, said in a statement about the lawsuit.

A bill sponsored by Bachus to replace the CFPB director with a five-member commission passed the Republican-controlled House but has an uncertain future in the Democratically held Senate.

A judge tossed out a court challenge to the president's January recess appointments to another agency, the National Labor Relations Board, in March.

The Texas bank's suit will be filed in the U.S. District Court of the District of Columbia, the plaintiffs said.