D.C. Circuit Revives Bid to End Consumer Agency

(CN) - The D.C. Circuit on Friday revived a Texas bank's constitutional challenge to the federal agency charged with protecting consumers in their dealings with banks, credit card companies and other financial institutions.

In a unanimous decision, a three-judge panel of the appellate court found that the State National Bank of Big Spring, Texas "is not a mere outsider asserting a constitutional objection" to the existence of the Consumer Financial Protection Bureau, but an entity that is subject to the bureau's rulemaking powers.

"The bank therefore has standing to challenge the constitutionality of the Bureau," wrote U.S. Circuit Judge Brett Michael Kavanaugh on behalf of the court.

It also held that State National Bank can challenge the validity of the recess appointment of the new agency's director, Richard Cordray.

In a complaint filed in June 2012, State National Bank and others claimed the creation of the agency, and another entity, the Financial Stability Oversight Council, were "unprecedented violations" of the concept of separation of powers at the heart of the U.S. Constitution.

The Bureau is a new regulatory body created by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Its mission is to protect consumers from predatory lending practices. The council is authority tasked with designating certain "too big to fail" financial companies for additional regulation in order to minimize the risk that such company's financial distress will threaten the stability of the American economy.

A federal judge dismissed the lawsuit in 2013 after finding that while the bank might be subject to the bureau's powers, it has not been the subject of any enforcement action.

As a result, U.S. District Judge Ellen Segal Huvelle concluded, the bank had not suffered "an injury-in-fact" ... redressable by the Court."

The case was remanded back to the lower court for further proceedings. However, in reviving the case, the D.C. Circuit also narrowed it, holding that State National Bank does not have standing to challenge the existence of the Financial Stability Oversight Council.

The bank acknowledged that it is not subject to additional regulation as a "too big to fail" entity, but asserted it was indirectly harmed by the fact one of its competitors, GE Capital, was so designated.

Kavanaugh said there simply is no precedent suggesting that a party has standing to challenge a regulation that imposes enhanced burdens on one of its competitors.

"Any harm to State National Bank is simply too attenuated and speculative to show the causation necessary to support standing," he wrote.

A spokesman for the Consumer Financial Protection Bureau said the agency is reviewing the court's opinion.

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