In a groundbreaking decision on July 24, the D.C. Circuit Court of Appeals held that a Texas bank could pursue its constitutional challenge against the Consumer Financial Protection Bureau and its Director.  This decision was notable in allowing a regulated entity to maintain a so-called “pre-enforcement” lawsuit against a federal agency which contested the legality of the agency itself. 

The bank – State National Bank of Big Spring, Texas – joined a group of states and private entities in attacking various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), 12 U.S.C. §§ 5301 et seq.  Importantly, the bank argued that the CFPB was unconstitutional in design and wielded too much legislative power.  The bank also challenged the recess appointment of Richard Cordray, the Bureau’s Director, in early 2012.  On the trial level, the federal district court ruled that the bank and its co-plaintiffs did not have standing to maintain their suit and that their claims were not yet “ripe” for review, given that they had yet to confront any enforcement action by the Bureau. 

On appeal, the D.C. Circuit overturned these holdings.  The court held that the bank had standing because the CFPB regulated it under the Dodd-Frank Act through such administrative orders as the “Remittance Rule,” 12 C.F.R. §§ 1005.30-1005.36, which forces companies such as State National to disclose international remittance transfers.  The court also held that the bank’s suit was “ripe” even though it had not yet endured enforcement action – and even though the bank challenged the very existence of the CFPB rather than a specific order.  The court reasoned that it did not make sense to force the bank to “bet the farm” by having to violate the law, and thus jeopardize itself, before it could raise these challenges.  For the same reasons, the court held that the bank could challenge Cordray’s appointment.  It remanded the case back to the district court to consider the merits of these claims. 

In separate holdings, the court rejected challenges made by the bank and other plaintiffs to the Financial Stability Oversight Council and the federal government’s “orderly liquidation authority” under Dodd-Frank. 

The case was State National Bank of Big Spring, et al. v. Jacob Lew, et al., No. 13-5247.