Small Texas bank winning big fight against CFPB

Court of Appeals upholds bank’s challenge to regulator

A small Texas bank was handed a large victory this week, when a federal court ruled that the bank is allowed to challenge the constitutionality and authority of the Consumer Financial Protection Bureau. The repercussion of this battle could also have a huge ripple effect on the entire financial market.

The bank, State National Bank of Big Spring, Texas, filed suit against the federal government in 2012, claiming that CFPB’s “unprecedented, unchecked power” violates the Constitution’s separation of powers.

In August 2013, after 11 states had joined State National Bank’s lawsuit, the case was tossed by a federal judge, who ruled that the bank did not have standing to sue, and also said that the case was no longer ripe – meaning the suit was not filed quickly enough.

State National and the 11 states, which includes Oklahoma, South Carolina, Georgia, Michigan, Texas and others, appealed the decision to the U.S. Court of Appeals for the District of Columbia Circuit.

And this week, the Court of Appeals ruled in State National’s favor, stating the bank does have standing to challenge the CFPB’s constitutionality and ruled that the case can move forward.

The court ruled that the bank is “not a mere outsider” challenging the CFPB, stating that the bank is an entity that falls under the CFPB’s regulatory authority, therefore it is well within its rights to challenge the CFPB’s authority.

“As a small community bank out in West Texas, we’ve always felt pretty vulnerable to the regulatory burdens imposed on us by Washington, D.C,” Jim Purcell, chairman of the board and CEO of State National Bank said.

“In recent years, that threat was epitomized for us by the Consumer Financial Protection Bureau, an agency which was alarmingly free of traditional checks and balances,” Purcell continued.

“We never quite understood why the Bureau objected to having its constitutionality tested in court,” Purcell added. “On behalf of the bank, its customers, and the American public, we’re extremely gratified that we’ll now have the chance to put this agency to that test.”

State National’s case was also joined by the 60 Plus Association, a nonprofit that represents the interests of senior citizens, and the Competitive Enterprise Institute, which advocates for limited government.

In a statement, Sam Kazman, Competitive Enterprise Institute general counsel, said that the organization is pleased with the court’s decision.

“The DC Circuit’s ruling today opens the door to a court test of the Consumer Financial Protection Bureau’s constitutionality,” Kazman said.

“Since Dodd-Frank’s enactment five years ago this month, the CFPB has inflicted damage on huge segments of our economy,” Kazman continued.

“Its powers are so free-roaming that they are unprecedented in our history,” Kazman said. “The fact that our standing to challenge the CFPB has been upheld is great news for us, the plaintiffs, and even greater news for the American public.”

State National also challenged President Obama's in-recess appointment of CFPB director Richard Cordray, stating that it violated the appointments clause of the Constitution since it was an appointment made without the Senate's consent even though the Senate was technically still in session.

The bank also claimed Dodd-Frank's creation of the Financial Stability Oversight Council violates the separation of powers clause since the members of FSOC, which was designed to watch for systemic risks in the market, includes nonvoting members who are not appointed by anyone in the executive branch.

The Court of Appeals also ruled that State National’s challenge to Cordray’s appointment may continue, but upheld the lower court’s ruling related to the FSOC, stating that the bank does not have standing in that claim.

Here’s part of the court’s opinion:

To sum up: First, the Bank has standing to challenge the constitutionality of the Consumer Financial Protection Bureau, and that claim is ripe. We therefore reverse the judgment of the District Court on that claim and remand for it to consider in the first instance the Bank’s constitutional challenge to the Bureau. Second, the Bank has standing to challenge Director Cordray’s recess appointment, and that claim is ripe. We therefore also reverse the judgment of the District Court on that claim and remand for it to consider in the first instance the Bank’s constitutional challenge to the recess appointment.

The rest can be read here.

(h/t Phil Hall)

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