West Virginia and ten other states are filing a lawsuit challenging the constitutionality of certain provisions of the Dodd-Frank Act.
The Dodd-Frank Act, which was signed into law by President Barack Obama in July 2010, implements sweeping reforms of the nation’s financial system.
West Virginia Attorney General Patrick Morrisey announced the states plans to join the lawsuit in a release from his office Thursday.
The lawsuit, which was originally filed by the states of Oklahoma, South Carolina and Michigan, and three private plaintiffs, is particularly questioning the constitutionality of Title II of the Act which gives Orderly Liquidation Authority (OLA) to the Secretary of the Treasury.
OLA gives the federal government the power to wind down financial companies labeled “too big to fail” and choose which of the companies’ creditors to bail out during a financial crisis.
Morrisey joins with the other states in claiming that by only helping financial institutions which are labeled “too big to fail” the smaller community banks that compose the overwhelming majority of banks in West Virginia and in other states are put at a disadvantage.
Also since the federal government, in particular the Federal Deposit Insurance Corporation (FDIC), is given sole power of choosing which creditors get payouts and which ones don’t, Morrisey adds they are essentially picking winners and losers, which entirely abandons the rule of law.
Morrisey claims Title II deprives West Virginia of its rights under federal bankruptcy laws to be treated fairly and equally. It potentially takes the state’s right to due process.
Also since West Virginia, both directly and through its pension funds, holds investments in many institutions potentially subject to OLA, Morrisey believes millions of dollars could be jeopardized in the end.
Congresswoman Shelley Moore Capito, who voted against the Dodd-Frank Act, released a statement following Thursday’s announcement supporting the lawsuit.
“We are already seeing the adverse effects this legislation is having on small financial institutions, consumers, and businesses,” said Capito.
In her statement, she promised, as Chairman of the Financial Institutions and Consumer Credit Subcommittee, to keep working to ensure West Virginia Community Banks and Credit Unions continue doing business.
The states of Alabama, Georgia, Kansas, Montana, Nebraska, Ohio and Texas are also part of the ten taking part in the lawsuit.