Dodd-Frank’s Frankenstein Creeps Forward

This past week, a unanimous panel of the D.C. Circuit (Judges Kavanaugh, Pillard, and Rogers—Judge Kavanaugh writing) held that State National Bank of Big Spring, Texas (“SNB”) may proceed with its lawsuit challenging the federal Consumer Financial Protection Bureau’s authority on various constitutional grounds. The CFPB owes its existence and presumed authority to an excretion called the Dodd-Frank Act—which, by sheer fortuity, celebrated its fifth anniversary just this week. The Court also held that neither the bank nor various other plaintiffs (including several states) had “standing” to challenge other pieces of Dodd Frank (the Financial Stability Oversight Council and the Orderly Liquidation Authority. Don’t even ask.) The opinion is here. Disclosure, again: I serve on the Board of the Competitive Enterprise Institute (CEI), which is a co-plaintiff in this case and, moreover, played a lead role in engineering it.

The Court’s dismissal of the government’s objections to its jurisdiction takes all of three pages. “The Supreme Court,” Judge Kavanaugh writes, “has stated that ‘there is ordinarily little question’ that a regulated individual or entity [such as SNB] has standing to challenge an allegedly illegal statute or rule under which it is regulated. [Rote cite to Lujan v. Defenders of Wildlife.] So it is in this case.” There remains the argument that the suit isn’t “ripe” because it is a pre-enforcement challenge (as opposed to a defense against a pending prosecution). Blah: “[I]t would make little sense to force a regulated entity to violate a law (and thereby trigger an enforcement action against it) simply so that the regulated entity can challenge the constitutionality of the regulating agency.” Basic Ex Parte Young stuff. The usual AdLaw cites, dutifully proffered by Judge Kavanaugh, are Abbott Labs and Free Enterprise Fund v. PCAOB (another CEI case, as it happens). Some cases really are that easy.

So why did the CFPB and its co-defendant try this stuff? One, government agencies can produce jurisdictional defenses at zero marginal cost. They just dump the contents of the appropriate file drawer on the plaintiffs—who then have to pay their lawyers to respond. Two, litigating the jurisdictional jazz takes time—in this case, over three years. In the interim the regulatory regime becomes entrenched; regulated industries of needs accommodate themselves; and the agency has clear sailing.

That dynamic is particularly acute here. The Circuit’s order is a remand to the District Court, which will now entertain the merits arguments on its own good time. There’ll be another appeal to the D.C. Circuit. And the separation-of-powers issues are sufficiently intricate and novel to require the Supreme Court’s intervention at some point. We’re talking years.

The CFPB exercises breathtaking authority over a vast range of financial industries. It decides—by regulation or prosecution, as it sees fit—what constitutes an “abusive” financial practice. Unlike other “independent” agencies, the CFPB is headed by a single Director—currently, Richard Cordray, whose term expires in 2018. Come 2016, a new President may have different ideas about financial regulation. However, he cannot remove the Director except for cause—meaning not at all, unless he steals the table silver. Nor can the President or even the Congress control the CFPB’s budget: the agency is funded through a mandated transfer of funds from the Federal Reserve. So far as the financial sector is concerned, then, it’s President Cordray. And, oh: Mr. Cordray will remain in office unless and until Congress confirms a successor. Over Senator Elizabeth Warren’s dead body.

All this is by design. In Dodd Frank, a temporary Democratic majority in Congress managed to institutionalize Senator Warren’s desired reign of regulatory harassment and to protect it against political vicissitudes—a change in the presidency, and a change in any future Congress. The question is whether that makes any sense, and whether it’s constitutional. Pending a definitive judicial disposition, maybe President Trump can solve the Cordray conundrum in his customary fashion: “You‘re fired.”

Reader Discussion

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on July 29, 2015 at 11:54:09 am

Perhaps someone of the competence of Michael Greve might don the mantle of Richard Armey and undertake the design of a Judicial function ancillary to (1) the oversight responsibilities of Congress; and, (2) the "defense funds" suggested by Charles Murray in his "By The People."

Congress has the powers to create additional courts of particular jurisdiction.
There is, for example, a Court of Claims. There are bankruptcy courts (or courts "sitting" in bankruptcy).

The existing legal system is clogged with matters of the operations of the Federal Administrative State; the blockages of those remedies serve as an instrument for administrative malfunctions of multiple origins.

Congress can create a Court that, upon submissions, can supply what should be the execution of appropriate oversight by Congress - just like "base closings," that the political process stymies. Such a Court could be given that much jurisdiction and power subject only to legislative "veto" (up or down- no revisions) within a stipulated period (120 days? or the Court's rule is final, no appeal, equivalent to legislative remedy).

The Court's jurisdiction shall concern the actual (and demonstratively prospective) effects of the forms and conditions of enforcements (without regard to existing judicial precedents of a general nature) in specific instances. It shall have full injunctive authority through the District Courts and may suspend or terminate any part or all of any regulations or "guidelines & interpretations" etc.. It may terminate an agencies exercise of any and all powers, or particular powers, or set enforceable conditions for their exercise; discipline or remove agency personnel, authorities and any contracting parties.

Only Congress, within stipulated periods of time (which might be in different schedules for different determinations) can set aside (but not modify) its decisions.

This Court might be administered in circuits. Conflicts amongst circuit judgments would be resolved by Congressional action.

Most important, parties affected (even prospectively) would have immediate access; an option to by-pass "agency reviews and the APA (heart by-pass anyone), and apply for injunctive relief.

It will take some time; care for details; but supplant some of the deficiencies in Congress's responsibilities - and begin to throttle back rampant regulatory metastasis.

It could begin to revitalize our legal system and timely public access for private litigation.

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R Richard Schweitzer
on July 29, 2015 at 12:11:52 pm

A "Watchdog" Court.

These will answer:

quis custodiet ipsos costodes?

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Image of R Richard Schweitzer
R Richard Schweitzer
on July 29, 2015 at 18:52:27 pm

Ah, "standing" and "ripeness", two fundamental principles spelled out right there in Article III!

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Image of Roger
on July 29, 2015 at 20:05:13 pm

Heck, I thought ripe equated to "low hanging fruit" - apparently not for the Black Robes who prefer the mush of over-ripe fruit.

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Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.