Just one day after a Senate Judiciary Committee hearing focusing on the constitutional challenge to the CFPB in State National Bank of Big Spring v. Lew, the D.C. Circuit has issued an opinion allowing that challenge to go forward on the merits and reversing the district court's dismissal on standing grounds. I testified in defense of the Bureau yesterday, as did Adam Levitin of Georgetown Law; C. Boyden Gray, counsel to Big Spring bank, testified in support of his constitutional theories. Thankfully, neither Adam nor I ventured any predictions about standing. Instead, we confined our comments to the merits. And I remain just as confident that these challenges will fail on the merits–just as they have already failed in four other federal courts.
Today's D.C. Circuit decision, written by Judge Kavanaugh and joined by Judges Rogers and Pillard, is quite a narrow one. It does not say (or event hint) anything about the merits of any of Big Spring's separation-of-powers arguments. Instead, the court holds the following:
1. The bank has standing to challenge the CFPB's constitutionality because it is regulated by, among other things, the CFPB's Remittance Rule and has "alleged that it must now monitor its remittances" to ensure whether they fall within a safe harbor to the rule. The challenge is also ripe because the bank need not violate the law and wait for an enforcement action–it need not "bet the farm," in other words–to challenge "the legality of the regulating agency itself."
2. The bank likewise has standing to challenge President Obama's recess appointment, for the same reasons. But the D.C. Circuit "leave[s] it to the District Court to consider the significance of Director Cordray's later Senate confirmation and his subsequent ratification of actions he had taken while serving under a recess appointment." In practice, the confirmation and ratification will prove dispositive.
3. The bank lacks standing or ripeness to challenge the Financial Stability Oversight Council (FSOC) because the bank can't rely on the doctrine of competitor standing to argue that the designation of another entity as "too big to fail" somehow harms the bank. The designation by FSOC imposes a greater regulatory burden on designated entities; any harm to Big Spring as a result is attentuated at best.
4. The States lack standing and ripeness to challenge Dodd-Frank's Order Liquidation Authority (OLA) for several independent reasons–mainly because the challenge is based on speculation about the government might wield its authority in potential future proceeding.
The good news here is that the D.C. Circuit has set things up nicely for the bank's inevitable loss on the merits. Right now, political opponents of the CFPB are using constitutional rhetoric as ammunition for their critiques of the agency as some kind of unaccountable rogue regulator. That becomes harder after an unbroken string of losses in the courts.