The Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010: Is It Constitutional?
Dodd-Frank appears to require almost a dozen different federal agencies to complete between 240 to 540 new sets of rules, along with approximately 145 studies that will very likely affect rule making.
THE FEDERALIST SOCIETY
C. Boyden Gray and John Shu
EXCERPTS:
This new, expansive regulatory regime prompted former Fed Chairman Alan Greenspan to argue that Dodd-Frank’s “unprecedented complexity” and its “inevitable uncertainty” will negatively impact economic growth, inhibit financial innovation, and “render the rules that will govern a future financial marketplace disturbingly conjectural.”
There has been much debate over whether Dodd-Frank will accomplish its stated intent, but there is also a growing exchange about whether the law is constitutionally infirm, primarily due to separation of powers, vagueness, and due process.
This paper focuses on the constitutional issues which three of the law’s most central grants of regulatory power raise: the Financial Stability Oversight Council (“FSOC”) and its powers in Title I, the Federal Deposit Insurance Corporation’s (“FDIC’s”) related liquidation authority in Title II, and the Bureau of Consumer Financial Protection (“BCFP”) in Title X.
The Constitution is designed to avoid placing all of the government’s functions in one entity. Dodd-Frank, however, may have accomplished exactly what the Constitution intends to avoid unless the courts correct the Act. Eliminating the lines of government demarcation also effectively eliminates the lines between government and the private sector. The consequence is the likelihood of “agency capture” by Wall Street elements on the one hand, and, on the other hand, implicit recognition of “Too Big To Fail” along with all of the implicit subsidies which go with a bailout promise. Thus, for any financial entity not in the charmed circle and credit consumers (small, medium, or large), the end result is a major loss of both their ability to compete and their basic freedoms from rent-seeking regulation and competitor-instigated “takings.” Dodd-Frank’s power aggregation reflected in this article is not what the Framers intended.
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