Reading tea leaves: Is Dodd-Frank more vulnerable after the Supreme Court upheld the Affordable Care Act?

John Lande Iowa Banking Law Dickinson Law Firm Des Moines, Iowa

Posted on 07/16/2012 at 11:29 AM by John Lande

On June 28, 2012, the United States Supreme Court held that a key provision of the Affordable Care Act ('ACA') the provision requiring certain individuals to purchase health insurance or pay an additional fee at tax time was a constitutional exercise of Congress's taxing authority. Although the Court's opinion ultimately upholds the entirety of the ACA, Chief Justice Roberts' reasoning leaves open intriguing possibilities for future litigants who may wish to attack other congressional actions. What is striking about the Court's decision is that there appears to be a majority of Justices who are willing to invalidate a major piece of legislation. Chief Justice Roberts found that the key provision of the ACA requiring purchase of health insurance to be invalid under the Commerce Clause of the United States Constitution. Four other Justices also agreed with this result. This is an argument that, until 1995, had absolutely no traction in the federal judiciary. Was it not for Chief Justice Roberts' narrow opinion upholding a key provision of the ACA as a tax then it is possible that the Court would have overturned the entire ACA. This is a truly remarkable result because it demonstrates that perhaps a majority of the justices are ready to resurrect arguments over seemingly long-settled principles of constitutional law. The Court may have another opportunity to rule on a major piece of legislation the Dodd-Frank Wall Street Reform and Consumer Protection Act. Recently, a group of institutions, including one bank, filed a lawsuit in federal district court challenging Dodd-Frank's financial reforms. The lawsuit, titled State National Bank of Big Spring, et al. v. Timothy Geithner, et al., challenges (1) the constitutionality of CFPB's creation, (2) the recess appointment of CFPB's director, Richard Cordray, and (3) the constitutionality of the Financial Stability Oversight Council ('FSOC'). These challenges implicate two constitutional questions. The first is whether Congress has provided sufficient oversight of CFPB and FSOC. The second is whether the President violated the Constitution's requirement that appointments to federal agencies be confirmed by the Senate.

Congressional Oversight of CFPB and FSOC

The challenge to CFPB and FSOC is similar, so it can be addressed at the same time. The plaintiff bank's allegation is that Congress delegated too much authority to a federal agency without sufficient oversight. The focus is on section 1031 of the Dodd-Frank Act, which empowers the CFPB to regulate 'unfair,' 'deceptive,' or 'abusive' practices. Dodd-Frank does not define what these terms mean, and the banks allege that this essentially provides unlimited authority to CFPB. Under the Constitution and previous Supreme Court rulings, Congress may delegate a certain amount of authority to federal agencies. These agencies may then write rules and conduct enforcement proceedings without any direct congressional oversight. As this regulatory system has evolved, the Supreme Court has put limits on precisely how much authority Congress can delegate to agencies. Recognizing that the Constitution requires Congress to actually write laws, the Court has held that Congress cannot write a blank check of authority to agencies. Instead, Congress must provide an 'intelligible principle' that limits the scope of agencies' authority. One of the key questions in this case will be whether Congress has provided an 'intelligible principle' to guide CFPB and FSOC. The Supreme Court has only invalidated a statute for lacking an 'intelligible principle' twice, both in 1935. This is a notable time period in constitutional history because it is defined by the Supreme Court striking down numerous pieces of President Roosevelt's New Deal legislation. This period is generally regarded as an 'activist' period in the Court's history, and seen by many as a classic example of the Court overreaching. Since that time, the Court has never invalidated a piece of legislation on the grounds that Congress failed to lay down an 'intelligible principle' to guide agency action. However, it is worth noting that the Supreme Court under Chief Justice John Roberts may be willing to breathe new life into dead doctrines. This proposition is supported by the fact that five Justices (including Chief Justice Roberts) were prepared to invalidate the ACA on the grounds that it violated the Commerce Clause of the Constitution. The willingness of these Justices to reinvigorate old constitutional arguments suggests that no point of law is too well settled to be revisited by this Court.

The President's Appointment

The basis of the challenge to Richard Cordray's appointment is that the United States Senate did not confirm his nomination. Under the Constitution, the President may make appointments 'with the advice and consent of the Senate.' This requirement has been understood to mean that when the Senate is in session, it must vote on whether to confirm all of the President's appointments. However, when the Senate is in recess, the President may make an appointment and that person will then serve until the Senate votes on the nomination, or the end of the Senate's next term. Since Dodd-Frank was enacted, the Senate has refused to vote on the President's appointment to head CFPB. This is not an unusual example of political wrangling. When the Senate and presidency are each controlled by different parties, stall tactics are often used in an effort to extract political concessions from the other party. In this case, the plaintiff bank contends that the Senate was not in recess when the President appointed Richard Cordray. The bank cites provisions of the Constitution providing that it is the Senate that decides when it is in recess. The bank also provides examples of Senate actions taken during the time that the President claims the Senate was in recess. It is difficult to know how much traction this claim will have in court. This is not a common claim for district courts to consider, and it is unclear whether the plaintiff bank even has standing to challenge the recess appointment.


The challenges to CFPB, FSOC, and Richard Cordray have a long way to go before they have any impact on financial regulations. It is unclear whether the lawsuit will even make it out of the district court, let alone the Supreme Court. It does warrant continued attention, however. If this case were to make it to the Supreme Court, there is no way to know exactly what the Justices particularly the five who are willing to take on Congress might do.  

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

Categories: John Lande, Banking Law


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