Court revives challenge to consumer protection agency

By Sam Hananel
Associated Press

WASHINGTON (AP) — A federal appeals court last Friday revived a legal challenge to the Consumer Financial Protection Bureau, the federal office created to protect consumers in financial dealings with banks, lenders and credit card companies.

The federal appeals court in Washington ruled that a Texas bank could challenge the constitutionality of the watchdog agency’s powers even though the bank’s conduct has not been subject to any enforcement.

A federal district judge had dismissed the lawsuit in 2013 after finding the bank had no legal standing to bring the claims.

The independent agency was created in 2010 by a sweeping law that overhauled financial regulations following the 2008 financial crisis. Wall Street interests and Republicans in Congress fiercely opposed the agency.

The appeals court sent the case back to the lower court to consider the challenges.

Eleven states had joined the lawsuit filed by State National Bank of Big Spring, Texas, to argue that Congress delegated too much power to the bureau. They also argue that it should not be headed by just one person and that President Barack Obama illegally appointed the agency’s director, Richard Cordray, during a congressional recess. Cordray was later confirmed by the Senate.

A three-judge panel of the appeals court said those arguments could proceed. Judge Brett Kavanaugh said the bank did not have to intentionally violate the law in order to launch a constitutional challenge.

But Kavanaugh said the bank could not challenge the constitutionality of the Financial Stability Oversight Council, created by the financial overhaul law to designate certain financial companies deemed “too big to fail” for additional regulatory oversight.

The court also rejected the bank’s challenge to part of the law that allows the Treasury secretary to order liquidation of a failing financial company that poses a risk to the financial stability of the U.S. government.

The government has argued that the bureau’s structure and powers are constitutional.