The state attorneys general for Michigan, Oklahoma and South Carolina have joined a suit by a Texas bank and two nonprofits that have challenged the constitutionality of the Consumer Financial Protection Bureau and Richard Cordray’s appointment as director of the Bureau.
In March, Cordray addressed the National Association of Attorneys General. In his speech, he called for the AG’s to lay the groundwork for information sharing and cooperation with the CFPB by signing a Memorandum of Understanding. “We want to expand on what you already do so well – and we want you to take advantage of new resources we bring to the arena, including new analytical tools and insight into market trends,” Cordray said.
The response has not been exuberant. Of the 50 state AG’s invited, only 11 Democratic AG’s and one Republican AG have signed, according to the Bureau.
Filed at the U.S. District Court for the District of Columbia on September 20, the AG’s motivation for joining the suit comes from the Dodd Frank Act. The financial reform law provided powers to the FDIC and the Treasury Department that endanger state pension funds, according to these AG’s.
In particular, the complaint focuses on the powers given to the Treasury Secretary to liquidate a financial company in secrecy, with no advance warning, and without legislative, executive or judicial oversight. These powers put state pensioners at risk, the AG’s argue, because state pension funds are creditors of the financial companies. If the company is liquidated, the taxpayer takes a loss.
Originally filed in June by the State National Bank of Big Spring, Texas, along with The 60 Plus Association and The Competitive Enterprise Institute, the initial suit focuses on the CFPB’s structure: its immunity to the Congressional appropriations process, the limited ability the president has to remove the director and the restrictions on courts in reviewing CFPB actions.
While the $294 million-asset bank is not large enough to be regulated directly by the CFPB, the bank claims that the Bureau has pushed it out of mortgage lending. A review of the bank’s loans on the FDIC shows the bank’s portfolio does not focus on mortgage loans. The bank’s argument for damages is mostly based on missed opportunity caused by its absence from the mortgage business.
New rules from the Bureau, such as the remittance rule (which CFPB Journal covered here), could give new credence to the community bank’s suit. Indeed, the more the Bureau writes rules which trickle down to small banks, the more the Texas bank’s argument will bolster.