It's not enough to dislike the Consumer Financial Protection Bureau - if you want to try to dismantle it via a lawsuit, first you need to suffer an actual injury because of it.
That, in essence, was the argument made by the federal government in a motion to dismiss a suit filed by the Competitive Enterprise Institute, a Texas bank, the 60 Plus Association and three states for lack of standing.
"Despite the roving allegations of unconstitutionality set forth in the Amended Complaint, not one of the statutorily authorized actions that Plaintiffs speculate might someday cause them harm has yet occurred," states the motion, which lists an eye-popping 29 government lawyers as counsel and was signed by Wendy Doty, a trial attorney in the Justice Department's federal programs branch. "Because Plaintiffs have failed to allege any actual or imminent injury…Plaintiffs will suffer no hardship at this time in the absence of judicial intervention."
In June, the CEI, the bank and the 60 Plus Association filed suit in U.S. District Court for the District of Columbia. Represented by O'Melveny & Myers partner Gregory Jacob and C. Boyden Gray of Boyden Gray & Associates, the plaintiffs challenged "the unconstitutional formation and operation of the Consumer Financial Protection Bureau," as well as the recess appointment of CFPB head Richard Cordray.
They argued that the CFPB's "unbounded powers" violate the Constitution, and that the agency's authority to go after "unfair, deceptive, or abusive" acts or practices "creates a cloud of regulatory uncertainty that forces banks to censor their own offerings."
In September, the states of Michigan, Oklahoma and South Carolina joined the suit, but limited their attack to the Financial Stability Oversight Council's ability to designate certain large nonbank financial companies as "systemically important." They argue this "signals that the selected companies have the implicit backing of the federal government—and, accordingly, an unfair advantage over competitors." They also objected to the government's "orderly liquidation authority" to take over such an entity as an alternative to bankruptcy or bailout.
In its motion to dismiss, the government forcefully attacked each plaintiff's ability to bring suit due to lack of injury.
State National Bank of Big Spring in Texas, for example, claimed it was injured because the chilling effect of CFPB authority led it to exit the mortgage lending business. But the government pointed out that the Office of the Comptroller of the Currency, not the CFPB, is the only entity with the authority to enforce "unfair, deceptive, or abusive" prohibitions against the bank—the CFPB can only make recommendations.
Likewise, the bank claimed it stopped providing remittance transfers due to CFPB regulations that have not gone into effect. But the CFPB's authority here comes from the Electronic Fund Transfer Act, not the "unfair, deceptive, or abusive" standard. The bank "cannot utilize an alleged injury caused by one statutory grant of authority to challenge an entirely distinct grant of authority," the government wrote.
The bank also claimed it would be injured if the Financial Stability Oversight Council were someday to designate a competitor as systemically important. Such an injury is "layered upon speculation that this competitor will receive a cost-of-capital advantage from its creditors as a result of the designation (no entities have received such a benefit), layered upon speculation that this cost-of-capital advantage will outweigh the costs associated with heightened federal regulation (not yet finalized)."
As for CEI, the government argued it lacks standing "because it alleges only that it holds accounts at financial companies that might be subject to Bureau or Council authority. CEI alleges no facts demonstrating that the alleged constitutional violations have impaired anything other than its abstract interest in the constitutional separation of powers."
The 60 Plus Association fares no better. "It has failed to identify at least one member whose account has been affected by the challenged provisions of the Act or by Director Cordray's appointment. Even if it could identify such a member, the link between any changes to the member's account by its financial institution and any alleged constitutional infirmity is far too attenuated to sustain the organization's standing," according to the government.
The government also said the states have no grounds to sue. "Their theory that the orderly liquidation authority - which has never been invoked - may be applied to a financial company of which their pension funds are allegedly creditors is pure conjecture."
Still, the CEI remains undaunted. Constitutional litigation, said Sam Kazman, the group's general counsel in written a statement, "is not a matter of closing the barn door after the horses have bolted and rampaged the town. We believe that the issues raised in this case are ripe, and that plaintiffs are entitled to adjudicate them. And our basis for saying this will be fully set out in our response to the government's motion."