Bench Memos

Dodd-Frank Is Unconstitutional

A group of plaintiffs, including a community bank in Texas and the Competitive Enterprise Institute, have filed a lawsuit (complaint here) challenging the constitutionality of Dodd-Frank. The plaintiffs are represented by former White House counsel Boyden Gray, one of the law’s most outspoken critics.  (He first outlined his legal arguments against Dodd-Frank in this Federalist Society white paper.)

The lawsuit, which has been filed in the U.S. District Court for D.C., challenges the structure of the Financial Stability Oversight Council (Title I) and the Consumer Financial Protection Bureau (Title X). The plaintiffs allege that “Titles I and X of the Dodd-Frank Act comprise unprecedented violations of ‘the basic concept of separation of powers and the checks and balances that flow from the scheme of a tripartite government.’” Indeed, the law attempts to shield the CFPB’s director from accountability to Congress, the president, and the courts, in a way that I don’t think any other agency has ever been shielded.


The complaint zeroes in on the impact the law will have on consumers, and I thought this particular excerpt was worth sharing:

Title X’s open-ended grant of power to the CFPB, combined with the absence of checks and balances limiting the CFPB from expansively interpreting that grant of power, creates a cloud of regulatory uncertainty that forces banks to censor their own offerings—a chilling effect that, for example, left the Bank with no safe choice but to exit the consumer mortgage business and not return until the CFPB’s authority and discretion are defined with greater specificity, transparency, and accountability.

That’s right.  Dodd-Frank gives this one agency such vast and unchecked power that community banks may be exiting the consumer mortgage business altogether for fear that they might end up on the wrong side of Richard Cordray’s vast discretion. Anyone who followed the U.S. Fish and Wildlife Service’s raids of Gibson Guitar plants has an idea of how ruthlessly and arbitrarily such discretion can be employed by agencies that are subject to congressional oversight.  So imagine what an agency could do if it was insulated from congressional oversight, accountability to the president, and meaningful review by courts?


I will continue to report on the case as it develops, and look forward to joining Mr. Gray and others in the effort to educate the public about the impact this law could have on our economy and on our system of government.

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