EDITORIAL: Overturning Dodd-Frank

OPINION:

Ordinarily, political disputes ought to be settled by lawmakers accountable to the public, not unelected judges. It’s bad form for a political party to run to the judicial branch simply because it can’t win on an issue fair-and-square in the legislature. Sometimes, however, there’s no alternative but to turn to judicial referees when the other side is caught cheating.

There’s no other way to characterize President Obama’s brazen installation in January of Richard Cordray as head of the Consumer Financial Protection Bureau (CFPB), a new agency created by the Dodd-Frank law. The appointment was made without the advice or consent of the Senate while the upper chamber was still in session. The states of Michigan, Oklahoma and South Carolina, the 60 Plus Association and the Competitive Enterprise Institute (CEI) are crying foul, asking a federal court to slay the Wall Street regulatory monster before it can further harm the economy. “As our lawsuit demonstrates, the destructive impacts of this law affect everyone and everything, from state pension funds to community banks to consumers,” CEI General Counsel Sam Kazman told The Washington Times.

Beyond challenging the questionable appointment, the parties contend Dodd-Frank violates the separation of powers doctrine in granting Mr. Cordray unlimited power to write and enforce rules regarding any business practice he declares to be “unfair” or “abusive.” The law’s constraints are so vague and subjective that it’s up to regulators to decide what limits to place on themselves. As Mr. Cordray explained, “we are going to have to see what kind of situations would seem to fit the bill.”

Businesses can’t read Mr. Cordray’s mind. They will have no way of knowing whether the financial services they offer might offend Washington regulators. One of the plaintiffs in the lawsuit, Big Springs National Bank, has already discontinued mortgage lending as a direct result of Dodd-Frank. The Texas-based institution had been offering its customers loans with a five-year balloon payment option instead of charging points up front. If Mr. Cordray declares that to be “deceptive,” the bank could be hit with lawsuits putting it out of business.

Likewise, Dodd-Frank established a Financial Stability Oversight Council that has the power to declare certain businesses as “systemically important” and worthy of being bailed out. As Mr. Kazman put it, the bureaucrats on this unaccountable board “can hand out favored status to some companies and death sentences to others with minimal judicial review.”

Responding to the lawsuit last week, the Obama administration waved away the concerns as “pure conjecture.” Yet the smothering effect of Dodd-Frank’s red tape has been all too real. For the health of the economy, Mr. Obama and his allies in Congress need to be held to account for overstepping the rules.

The Washington Times