WASHINGTON -- A Texas bank and two free market advocacy groups have filed a lawsuit challenging the constitutionality of the Consumer Financial Protection Bureau.
The suit alleges that the agency, created as part of the 2010 Dodd-Frank financial reform law, was given too much power and that President Obama's recess appointment of Richard Cordray as its director was unconstitutional.
The suit also challenges the law's creation of a panel of regulators, the Financial Stability Oversight Council.
"The Consumer Financial Protection Bureau and the Financial Stability Oversight Council's constitutional violations are not merely the stuff of law-school debates. They pose a direct threat to economic recovery," two key figures behind the lawsuit, C. Boyden Gray and Jim R. Purcell, wrote in a Wall Street Journal opinion article Thursday night.
Purcell is chief executive of State National Bank of Big Spring, Texas, which filed the suit along with the 60 Plus Assn., a senior citizen advocacy group in Alexandria, Va., and the Competitive Enterprise Institute, a Washington, D.C., public policy group. Gray, who was White House counsel to former president George H.W. Bush, is the lead attorney for the groups.
The suit, filed in U.S. District Court in Washington, D.C., says Congress violated the Constitution in granting the CFPB broad powers over any financial products or services it deems to be "unfair, deceptive or abusive," a term undefined in the law.
In addition, Obama's January recess appointment of Cordray as director was unconstitutional because the Senate was not in a recess, the suit says. In appointing Cordray, Obama said that the Senate's short pro-forma sessions were masking a de facto recess.
The suit seeks to overturn the creation of the consumer bureau and the financial oversight panel, as well as to prevent Cordray from using any of his powers of his job.
The White House defended the creation of the CFPB and said it would fight the suit.
“The President fought to put into law the strongest consumer protections in history, and he will continue to fight any effort from our opponents to weaken the CFPB or water down its ability to protect middle class families," said White House spokeswoman Amy Brundage.
"Whether it be cracking down on misleading tactics from debt collectors and credit card companies or increasing resources for military families, the CFPB has already made great progress on increasing protections for American consumers, and we will oppose any efforts to stand in their way,” she said.
Cordray's controversial appointment was expected to spark a lawsuit. Many financial and business groups, along with most congressional Republicans, opposed creation of the agency and were outraged by Obama’s recess appointment.
The agency needed to have a Senate-confirmed director to exercise important new powers, and nearly all Senate Republicans had vowed to block any appointment unless Obama agreed to water down the agency’s authority. The recess appointment allowed the agency to function fully.
Jen Howard, a spokeswoman for the CFPB, said lawsuit "appears to dredge up old arguments that have already been discredited."
"We’re going to keep our focus on the important work Congress created us to do – making markets work for consumers and responsible providers,” she said.
The suit's main focus is on the consumer bureau. But it also says that the Financial Stability Oversight Council violates the Constitution's separation of powers principle by giving the panel "sweeping and unprecedented discretion" to decide which financial firms are "systemically important."
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