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Financial Services Law Insights and Observations

Federal District Court Dismisses Challenge to Dodd-Frank Act, CFPB

CFPB Dodd-Frank State Attorney General FSOC Single-Director Structure

Consumer Finance

On August 1, the U.S. District Court for the District of Columbia dismissed in its entirety a lawsuit that challenged Titles I, II, and X of the Dodd-Frank Act as unconstitutional.  The lawsuit was brought originally by three private parties and later joined by several state attorneys general.  The court determined that that the plaintiffs lacked standing and had not demonstrated injury sufficient to permit a challenge of the law on any of their claims.

The private plaintiffs' challenge to Title X, which created the CFPB, was based on “financial injuries directly caused by the unconstitutional formation and operation of the [CFPB,]” including substantial compliance costs, increased costs of doing business, and forced discontinuance of profitable and legitimate business practices in order to avoid risk of prosecution.  The court concluded that such “self-inflicted” harm could not confer standing to challenge Title X.  With respect to the private plaintiffs’ challenge to the Financial Stability Oversight Council (FSOC) created by Title I, the court concluded that while an unregulated party is not precluded from establishing standing to challenge the creation and operation of FSOC, standing is “substantially more difficult to establish” under such circumstances and the theories asserted by the plaintiffs were too remote to confer standing.

Both the private plaintiffs and the state attorneys general challenged Title II, claiming that the “orderly liquidation authority” (OLA) provisions violate the separation of powers, deny due process to creditors of a liquidated firm, and violate the requirement for uniformity in bankruptcy.  The court again concluded that none of the plaintiffs established either present or future injury sufficient to confer standing to challenge the OLA.

According to media reports, an appeal of the ruling by at least one of the private plaintiffs is anticipated.