A small Texas bank and a conservative Washington think tank have joined to file a lawsuit challenging the constitutionality of the Financial Stability Oversight Council.
The lawsuit also challenges the constitutionality of the Consumer Financial Protection Bureau.
Insurers, however, are mostly exempt from oversight by the CFPB. Only such products as force-placed and debt protection insurance come under the bailiwick of the CFPB.
But Michael Nelson, chairman of international insurance-focused law firm Nelson Levine de Luca & Hamilton, based in New York, contends there are concerns by insurers about the potential impact of the CFPB on insurers. Nelson said the insurance industry fears the CFPB may attempt to regulate insurance products offered in conjunction with loans through its authority under the Truth in Lending Act.
“In comment letters submitted to the FIO, several trade associations requested that the regulatory actions of the CFPB be monitored to ensure that it does not attempt to directly or indirectly regulate insurance products,” Nelson said.
Both agencies operate under provisions of the 2010 Dodd-Frank financial services reform law. The suit, State National Bank of Big Spring, et al. v. Geithner, et al, D.D.C. No. 1:12cv1032, was filed June 21 in federal district court in Washington and assigned to Judge Ellen Huvelle.
Besides the Texas bank, the Competitive Enterprise Institute is among the plaintiffs. Another is the 60 Plus Association, Inc., based in northern Virginia.
Large insurance companies are deeply concerned about the impact of being designated as systemically significant and, therefore, subject to oversight by the FSOC as well as state regulators. Their concern is that federal oversight will subject them to expensive dual regulation. The lawsuit also contends that the cost of federal oversight is outweighed by its benefits.