WASHINGTON (Legal Newsline) – The 11 state attorneys general who are challenging 2010’s Dodd-Frank Wall Street Reform and Consumer Protection Act filed their appellate brief Tuesday, as did three private organizations doing the same.
The states AGs -- including West Virginia's Patrick Morrisey -- are alleging a part of the law regarding liquidation of troubled financial institutions, while the three private organizations claim the law lacks effective checks and balances to assure the public of accountability.
Title II of the act creates the Orderly Liquidation Authority and provides a process to liquidate a complex financial company that is close to failing as an alternative to bankruptcy.
The Federal Deposit Insurance Corporation is appointed as a receiver to carry out the liquidation and given several years to finish the process.
“Some creditors may come out ‘winners’ in a particular liquidation; others may come out losers – but regardless of who wins or loses dollars in any single liquidation, all of the creditors have lost the statutory right that long undergirded the market’s transparency and rule of law,” the states argue in their brief, which was authored by Oklahoma Attorney General Scott Pruitt’s office.
“Because the State Plaintiffs invest many millions of dollars in the bonds issued by large banks and financial companies, they were among the creditors whom Dodd-Frank stripped of their statutory rights.
“The States are not arguing that it is unconstitutional for Congress ever to amend laws, or even to abridge statutory rights. But when Congress does pass an Act to strip away creditors’ statutory rights, the creditors suffer a very real injury from its enactment, and thus they have standing to litigate the merits of their constitutional claims against the new Act.”
In August, U.S. District Judge Ellen Segal Huvelle, of the District of Columbia district, ruled the states did not have standing to challenge the act.
She wrote that a series of contingencies must occur before the states can allege they have suffered any actual harm.
“It is true that Dodd-Frank empowers the FDIC to treat creditors’ claims somewhat differently than they are treated in traditional bankruptcy proceedings, but no one can know if this will ever happen,” she wrote.
“Thus, the States do not face a future harm that is ‘certainly impending.’”
The AGs challenging Dodd Frank are: Morrisey, Alan Wilson of South Carolina; Pruitt of Oklahoma; Luther Strange of Alabama; Derek Schmidt of Kansas; Sam Olens of Georgia; Bill Schuette of Michigan; Tim Fox of Montana; Jon Bruning of Nebraska; Mike DeWine of Ohio; and Greg Abbott of Texas.
In February 2013, Morrisey said Title II allows “un-elected Washington bureaucrats to pick winners and losers among affected creditors, entirely abandoning the rule of law.”
The three private organizations that first brought the lawsuit in 2012 are the State National Bank of Big Spring, Texas, the Competitive Enterprise Institute and the 60 Plus Association.
Their suit, which alleged there are no effective checks and balances in the law, also took issue with the CFPB, which was created by the law and is headed by former Ohio Attorney General Richard Cordray.
CEI attorney Hans Bader has said Cordray’s role “is like a czar.”
“He is not accountable to anyone and can’t be fired even if voters elect a president with different ideas about how to protect consumers,” Bader has said.
Cordray has since been confirmed as the bureau’s director.
The groups argue they have pled “concrete and present injuries” caused by the act.
In particular, State National Bank contends the formation and operation of the Consumer Financial Protection Bureau has “substantially increased” its compliance costs, imposed new costs on the management of its outstanding mortgages, and forced it to exit from two profitable lines of business.
As consumers of services offered by financial institutions that are subject to the act, the CEI and 60 Plus members argue they have experienced increased service costs and decreased services as a direct result of the regulatory burdens imposed by the act.
Dodd-Frank was signed into law in July 2010 and aimed to regulate the financial industry.
From Legal Newsline: Reach editor John O’Brien at email@example.com.