The states of Michigan, Oklahoma and South Carolina have joined a lawsuit challenging the constitutionality of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The states want the U.S. District Court for the District of Columbia to review the constitutionality of the Orderly Liquidation Authority (OLA), established under Title II of Dodd-Frank. The three states are joining the original plaintiffs in the lawsuit, which was filed in June 2012: State National Bank of Big Spring, Texas; the 60 Plus Association; and the Competitive Enterprise Institute.
The private plaintiffs also are challenging the Financial Stability Oversight Council (Title I), the Consumer Financial Protection Bureau (Title X), and the validity of the Bureau Director’s appointment.
‘Pensions Put at Risk’
“We must challenge Dodd-Frank to protect Oklahoma taxpayers and our financial stability. The law puts at risk the pension contributions and tax dollars that the people have entrusted us to protect,” Oklahoma Attorney General Scott Pruitt said.
The OLA gives the Treasury Secretary the power to liquidate any financial company as along as the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve are in agreement. And institutions have only 24 hours to persuade a judge to intervene to stop a consolidation. Plaintiffs complain there is no meaningful legal recourse for a targeted company. A liquidation order comes with an immediate gag order placed on all parties, and it carries criminal penalties if violated.
“The administration and [Massachusetts Rep. Barney] Frank and [Connecticut Sen. Chris] Dodd saw the financial crisis as an opportunity. It was an opportunity to consolidate and concentrate power in D.C. They fundamentally and unconstitutionally altered” the authority of the federal government in the Dodd-Frank Act, Pruitt said.
In a conference call with reporters, Pruitt said the 24-hour liquidation provision effectively “enshrines” too big to fail. “Dodd-Frank allows one person to liquidate, and it favors big banks. It puts at a disadvantage those community banks” that are essential to communities, he said.
South Carolina Attorney General Alan Wilson said, “The unbridled power given to the OLA to seize assets of private companies is simply unconstitutional. If a large financial institution fails, holding state pension contributions and tax dollars, the states have very little ability to recover their citizens’ assets.”
This point was stressed by Michigan Attorney General Bill Schuette.
“Michigan’s public-employee pension funds hold substantial fixed-income investments in large financial institutions,” Schuette said. “Dodd-Frank gives the U.S. Secretary of the Treasury essentially unlimited power — with no judicial or Congressional oversight — to pick winners and losers among creditors when these large financial institutions go bankrupt. This lawsuit is necessary to safeguard Michigan’s pension funds and protect current and future retirees.”