West Virginia joins challenge of law that regulates financial industry

WASHINGTON – Eight state attorneys general, including West Virginia’s Patrick Morrisey, have joined a lawsuit that challenges the constitutionality of certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The move comes more than four months after three other AGs joined the suit, which was originally filed in June by the State National Bank of Big Spring in Texas, the 60 Plus Association and the Competitive Enterprise Institute.

The plaintiffs allege there are no effective checks and balances in the law. Dodd-Frank was signed into law in July 2010 and aimed to regulate the financial industry.

The suit challenges the constitutionality of the Consumer Financial Protection Bureau, which was created by the law and is headed by former Ohio Attorney General Richard Cordray. CEI attorney Hans Bader 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 said.

Cordray’s employment could soon become a question following a court ruling that invalidated appointments made by President Barack Obama to the National Labor Relations Board. Obama characterized them as recess appointments, but Republicans claimed they were holding sessions.

Cordray was appointed at the same time.

Morrisey specifically cited Title II of the act, which creates the Orderly Liquidation Authority. It 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.

“Title II of the Dodd-Frank Act and the Orderly Liquidation Authority negatively impacts West Virginia and its taxpayers,” Morrisey said.

“The Orderly Liquidation Authority allows un-elected Washington bureaucrats to pick winners and losers among affected creditors, entirely abandoning the rule of law.”

He added that it “deprives West Virginia of its rights under federal bankruptcy laws to be treated fairly and equally. The executive branch, in its discretion, could choose to place the rights of other similarly situated creditors ahead of West Virginia.

“In addition to directly impacting West Virginia's legal rights, this potentially jeopardizes millions of dollars in state pension funds and other state investments."

The states that joined the lawsuit in October were South Carolina, Oklahoma and Michigan.

Joining the lawsuit on Feb. 13, in addition to West Virginia, were Montana, Texas, Georgia, Alabama, Kansas, Nebraska and Ohio.

The plaintiffs also filed a motion to stay briefing on the defendants’ motion to dismiss, as a second amended complaint will soon be added.

As for the director of the CFPB, Bader says a 1926 U.S. Supreme Court decision allows a president to fire department heads at will and the CFPB, unlike independent commissions, is covered by the rule because it is a single-leader agency not subject to collegial oversight.

“Unlike the Chairman of an independent agency like the SEC, who can be outvoted by fellow commissioners if he oversteps his authority, the CFPB’s director is accountable to no one,” Bader said.

“He is not accountable to the democratically-elected President, unlike cabinet secretaries, who can be removed at will by the President. If the CFPB’s sole director can be given immunity from removal, so, too, could cabinet secretaries, who could be given life tenure, enabling them to thwart the very changes that a newly-elected President was elected to carry out.”

CEI also says judicial review of the bureau’s actions is limited because the Dodd-Frank law requires courts to give extra deference to the bureau’s legal interpretations.

Other gripes with the bureau include funding that comes from the Federal Reserve and not Congress, resulting in approximately $400 million that Congress can’t regulate; and unelected bureaucrats wielding “unrestrained power” over the lives of U.S. citizens without public accountability.

From the West Virginia Record: Reach John O’Brien by email at jobrienwv@gmail.com.