Last Thursday, Michigan, Oklahoma, and South Carolina joined a lawsuit filed in June by Competitive Enterprise Institute, a Texas bank and senior citizen’s group, challenging the Dodd-Frank law. The lawsuit claims the 2010 Dodd-Frank law to be unconstitutional in as much as it empowers the Treasury secretary to order the liquidation of failing financial institutions. The complaint, filed in the U.S. District Court for the District of Columbia gained greater importance after the President passed a measure earlier this year, which exempts the appointment of the Treasury secretary from Senate approval.
The Dodd-Frank law, passed in 2010 in response to the financial crises and economic recession empowers regulators with greater authority to oversee financial institutions than ever before. Significantly, Republican presidential candidate Mitt Romney has also pledged to repeal Dodd-Frank.
However, it seems, senior Republicans and states are not waiting around to see that pledge turn to reality, but taking their own steps to check the financial oversight of the Consumer Financial Protection Bureau.
Alan Wilson, the attorney general of South Carolina said, “The new regulations do not stabilize our economy, they create greater uncertainty … Dodd Frank replaces the rule of law with the rule of politics.”
On Friday, Wilson told reporters that state pension funds would be difficult to recover if assets were invested in a business shut down using Dodd-Frank. At the heart of the issues and controversies around Dodd-Frank is a provision that lets the Treasury secretary call for the liquidation of any financial entity, whose failure is deemed to threaten the economic stability of the country. While the apparent goal is to prevent the government from being forced into future business bailouts, states argue that the process would restrict a business and its creditors from being heard.
The initial complaint filed by the Competitive Enterprise Institute and others claim that the Consumer Financial Protection Bureau and the Financial Stability Oversight Council are unconstitutional, because there are insufficient checks over their authorities exercised by other branches of the government.
The lawsuit also brings into question the appointment of Richard Cordray as the CFPB director, which was made by President Obama during a recess, and effectively bypassed mandatory confirmation by the Senate.