A Texas community bank is leading a lawsuit against the Consumer Financial Protection Bureau.
The State National Bank of Big Spring will file a lawsuit Thursday afternoon in the U.S. District Court for the District of Columbia. The suit will challenge certain provisions in the Dodd-Frank Act as unconstitutional, with a focus on the creation of the CFPB. The Competitive Enterprise Institute and the 60 Plus Association will also join the case.
The parties complained in a press release Thursday that there are "no checks and balances" in certain provisions of Dodd-Frank, while taking issue with the "unrestrained power" that the government gives to the CFPB.
"No other federal agency or commission operates in such a way that one person can essentially determine who gets a home loan, who can get a credit card and who can get a loan for college," Jim Purcell, State National Bank's chief executive, said in the release. "Dodd-Frank effectively gives unlimited regulatory power to this so-called Consumer Financial Protection Board ... with a director who is not accountable to Congress, the President or the Courts. That is simply unconstitutional."
The plaintiffs are specifically targeting Title I and Title X in Dodd-Frank, which formed new agencies to monitor systemically important enterprises and created the CFPB. But the $294 million-asset State National Bank is largely exempt from many new regulations based on its size.
"The size of the bank is relevant," said the plaintiffs' attorney, C. Boyden Gray of Boyden Gray & Associates, when he was questioned repeatedly by media to detail how the small bank was harmed. "It is very severely disadvantaged vis-a-vis the regulatory regime compared to a very big bank when you look at the resources they have."
Gray said that State National has pulled away from the mortgage business entirely.
The CFPB's oversight on mortgages will "likely come through enforcement action rather than rulemaking, which makes it more unpredictable," he said. "This bank in Texas stopped dealing with consumer mortgages because it doesn't want to get sued [or regulated] in a way that's unpredictable so they just got out of it."
Still, it's hard to say how much the bank is actually losing based on its loan portfolio that is primarily made of commercial loans. Only 2.3% of the bank's $30 million loan portfolio is in 1-4 family residential; though most community banks tend to sell off their mortgages.
State National would become the first known community bank to file a lawsuit against the CFPB, rather than taking offence with one particular regulation. It's unclear whether more community bankers will join the suit.
Some of the group's biggest concerns involve the CFPB's structure, which includes one unelected director who largely administers the roughly $400 million budget and has "unaccountable power."
"As a whole, Dodd-Frank aggregates the power of all three branches of government in one unelected, unsupervised and unaccountable bureaucrat," Gray said in a press release issued before the conference call. Gray once was a White House counsel to former President George W. Bush.
It was widely assumed that lawsuits would be filed against the CFPB immediately after Richard Cordray was appointed the director in January. But so far, very few lawsuits have been filed, nor have they been as broad as State National Banks's allegations. Earlier this month, conservative watchdog group, Judicial Watch Inc., filed a Freedom of Information Act lawsuit against the CFPB related to information it repeatedly requested about Cordray's appointment.
The plaintiffs in the new lawsuit noted that the CFPB is overseen by the Dodd-Frank Financial Stability Oversight Council but they argue that its review is nearly "nonexistent." The FSOC "can overturn a CFPB regulation under only limited circumstances, and even then only if seven of the 10 FSOC members, including the CFPB Director himself, vote to overturn the CFPB's rule," the plaintiffs stated. "Most importantly, the Council has no power to oversee the CFPB's enforcement activities, which is the CFPB's preferred method of lawmaking."
"This lawsuit appears to dredge up old arguments that have already been discredited," said Jen Howard, a CFPB spokeswoman. "We're going to keep our focus on the important work Congress created us to do — making markets work for consumers and responsible providers."