Joshua Wright headshot

Professor of Law
Antonin Scalia Law School

Joshua D. Wright is University Professor and the Executive Director of the Global Antitrust Institute at Scalia Law School at George Mason University. In 2013, the Senate unanimously confirmed Professor Wright as a member of the Federal Trade Commission (FTC), following his nomination by President Obama.

Financial Regulation

Administrative Law Consumer Protection US Constitution

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Is The Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010 Constitutional?

C. Boyden Gray and John Shu offer a very helpful discussion on this issue in an article in Engage.  Here is the abstract:

President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank” or “the Act”) into law on July 21, 2010. The massive and complex Act is reportedly the result of many compromises. Dodd-Frank’s intent, according to its title page, is “[t]o promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”

Of particular interest to me was this portion of the discussion of the Bureau of Consumer Financial Protection (BCFP):

One of the BCFP’s stated objectives is to protect consumers “from unfair, deceptive, or abusive acts and practices and from discrimination.”75 The BCFP may halt a company or service provider from “committing or engaging in an unfair, deceptive, or abusive act or practice” with respect to offering or transacting in a consumer financial product or service.76 In fact, Dodd-Frank makes it unlawful for consumer financial product companies or service providers to “engage in any unfair, deceptive, or abusive act or practice.”77 The Act extends this liability to any entity that “knowingly or recklessly provide[d] substantial assistance” to the offender.78

clearly defi ne vague terms such as “unfair,” “deceptive,” “abusive,” and “discrimination.” BCFP is vested with the sole discretion to decide what those terms mean and how they are applied to consumer financial products and services and the consumer financial industry.79 For example, Dodd- Frank defines an act or practice as “abusive” if it “materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service,” or if it takes “unreasonable advantage” of a consumer’s “lack of understanding” of the “material risks, costs, or conditions of the product or service” or a consumer’s “inability” to protect his own interests “in selecting or using a consumer financial product or service.”80 Given that each and every consumer has different abilities to understand a term, condition, material risk, and cost; and each and every consumer has varying levels of ability—or desire—to protect his own interests, the Act’s standard can readily be caricatured as “we know it when we see it.”

Moreover, the Act does not seem to include the concepts of deception or fraud with respect to the term “abusive,” which would mean that the BCFP could still declare illegal products and services whose terms, conditions, risks and costs are fully disclosed, so long as the BCFP labels them “abusive.” Moreover, the BCFP’s charter
is so vast that its power could be characterized as including the practical authority to re-write consumer financial protection laws if it chooses to do so. Accordingly, it is reasonable to argue that Congress must do the re-writing, not an agency that escapes
meaningful oversight.

Those challenging Dodd-Frank will maintain that Congress structured the BCFP in such a way that it unconstitutionally escapes both Article I and Article II oversight. The key is that the Act houses the BCFP within the Federal Reserve, thereby placing one protected entity (the BCFP) within another (the Fed).81

The article provides a good summary of the provisions of Dodd-Frank as well.