It looks like the court is finally set to rule on the CFPB’s motion to dismiss in State National Bank of Big Spring, Texas, et al. v. Lew, et al., the case still pending in federal district court in Washington, D.C. that included a challenge to President Obama’s recess appointment of Richard Cordray. While Mr. Cordray’s confirmation as CFPB Director may have mooted that challenge, the case also includes a challenge to the CFPB’s constitutionality that is similar to the challenge made in the Morgan Drexen lawsuit filed on July 22. In both cases, the CFPB’s structure and authority is alleged to violate the Constitution’s separation of powers.
The State National Bank of Big Spring (SNB) case was originally filed in June 2012 by SNB and two non-profit organizations in the metropolitan Washington, D.C. area. In addition to the CFPB, the defendants included the Treasury Department, the other federal banking agencies and the SEC. In September 2012, an amended complaint was filed adding as plaintiffs the Republican state Attorneys General of Oklahoma, South Carolina and Michigan.) However, the state AGs did not join the portions of the amended complaint challenging the CFPB’s constitutionality or Mr. Cordray’s appointment. Instead, they only joined a newly-added challenge to the provisions in Title II of Dodd-Frank that give the Treasury Secretary “orderly liquidation authority” over financial companies. (Subsequently, eight more Republican state AGs joined the complaint as plaintiffs.)
In November 2012, the defendants filed their motion to dismiss in which they argued that SNB’s claim that the regulatory uncertainty created by the CFPB’s UDAAP authority caused SNB to exit the mortgage business did not give SNB standing to challenge the CFPB’s constitutionality or Mr. Cordray’s appointment. In response to SNB’s claim that it stopped providing remittance transfers due to the compliance costs associated with the CFPB’s remittance transfer regulation, the defendants argued that because the regulation was promulgated pursuant to the CFPB’s authority to implement the Electronic Fund Transfer Act rather than its UDAAP authority, the regulation did not give SNB standing to challenge the CFPB’s constitutionality based on its UDAAP authority. They also argued that the SNB’s claims were not ripe because it had not shown any imminent threat of harm resulting from CFPB action.
After holding a hearing on the motion to dismiss on June 12, 2013, the court entered an order on July 17 asking for supplemental briefs. The private plaintiffs were ordered to file a brief addressing the effect of Mr. Cordray’s confirmation and the defendants were ordered to file a brief addressing SNB’s contention that it had standing based on the representation made by SNB’s Chairman that “But for the Bureau, its rules and its enforcement authority, the Bank would reenter the consumer mortgage and remittance market without limitation.”
In their supplemental brief, the defendants characterize SNB’s alleged injuries as “self-inflicted” and argue that self-inflicted injuries do not give rise to Article III standing if they were incurred to avoid a future harm that is not certainly impending. They claim SNB has not plausibly alleged it would face a “certainly impending injury” by reentering the mortgage and remittance markets. In the private plaintiffs’ supplemental brief, SNB argues that Mr. Cordray’s confirmation does not moot its claims because it continues to be injured by regulations unconstitutionally promulgated by Mr. Cordray.
In addition to the SNB case, we had also been following CFPB v. Chance Edward Gordon, a California case involving a challenge to Mr. Cordray’s recess appointment. In the case, which was filed last summer, the CFPB alleged that an attorney and his law firm had violated the Consumer Financial Protection Act of 2010 (meaning Title X of Dodd-Frank) and Regulation O, the Mortgage Assistance Relief Services Rule, by falsely promising loan modifications in exchange for advance fees.
As part of their affirmative defenses to the CFPB’s complaint, the defendants had included a challenge to Mr. Cordray’s appointment. On June 26, 2013, the court issued an order granting the CFPB’s motion for summary judgment on its CFPA and Reg O claims. In denying the defendants’ summary judgment motion, the court found that the defendants had waived their challenge to Mr. Cordray’s appointment by failing to adequately “explain how, in the absence of a properly appointed or confirmed director, CFPB is unable to prosecute this action.”