Three states join lawsuit challenging Dodd-Frank financial law

Sept 21 Fri Sep 21, 2012 11:59am EDT

Sept 21 (Reuters) - Three U.S. states have joined a lawsuit against federal regulators, challenging the constitutionality of the 2010 Dodd-Frank law that overhauled U.S. financial oversight and created the Consumer Financial Protection Bureau.

The attorneys general of Michigan, Oklahoma and South Carolina are challenging a portion of Dodd-Frank that empowers the Treasury secretary to order the liquidation of failing financial institutions, according to a complaint filed in U.S. District Court for the District of Columbia on Thursday.

The states joined a suit filed in June by conservative think tank Competitive Enterprise Institute, a Texas bank and a senior citizens group.

The groups claimed the consumer protection agency and the Financial Stability Oversight Council, which addresses risks to the overall U.S. financial system, are unconstitutional because they are not subject to sufficient checks by other branches of government.

The complaint filed Thursday was amended to include the states' challenge against the new liquidation authority. The states did not sign on to the challenges against the consumer protection bureau and the oversight council.

Treasury Department spokeswoman Suzanne Elio said the department would fight attempts to impede financial regulation.

"This lawsuit just rehashes old arguments of those who oppose Wall Street reform," Elio said. "Independent regulatory agencies have long been part of our regulatory framework, and the Supreme Court has concluded that they are constitutional."

Dodd-Frank, passed by Congress in response to the 2007-2009 U.S. financial crisis, gives regulators broad authority to oversee financial institutions.

It has since drawn criticism from Republicans and industry groups who say new regulations could hurt businesses and restrict credit.

The attorneys general from the three states are all Republicans.

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