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Texas’ State National Bank of Big Spring challenges constitutionality of Dodd-Frank

13eeffd3b4bea8c4841373297cd658557420dfcaThe State National Bank of Big Spring, a community bank based in Texas, has challenged the Dodd-Frank Act in court, saying that certain provisions of the legislation violate the separation of powers and the Constitution’s bankruptcy clause.

Under the Orderly Liquidation Authority, the U.S. Treasury can petition a federal court to order the seizure of any financial entity deemed systemically important or a threat to financial stability. A U.S. district court judge would have 24 hours to decide whether to allow the seizure or liquidation would automatically follow, TownHall.com reports.

The liquidation process would not be subject to judicial review under procedures that could change at the regulators’ discretion. Neither the liquidated firm nor the creditors would have a legal alternative to the liquidation process, which differs from the traditional bankruptcy process.

“There is little precedent for this kind of unreviewable ‘Star Chamber’ proceeding, even with respect to government-supported entities; there is much less justification for applying such treatment to financial companies that are not federally regulated or supported,” C. Boyden Gray, counsel for the plaintiffs, said, according to TownHall.com.

Co-plaintiffs include the Competitive Enterprise Institute, the 60 Plus Association and the states of Michigan, Oklahoma and South Carolina.

Jim Purcell, State National’s chairman and CEO, said that the bank primarily makes smaller, more short-term loans held in portfolio, making the banking responsible for the quality of the loans. Purcell said that data collection and escrow requirements, as well as subsequent compliance demands, under Dodd-Frank led the bank to exit the consumer mortgage business, American Banker reports.

Purcell also said that while the bank’s relationship model allows it to track loan performance, shifting resources to compliance could have a negative effect on the bank’s business strategy.

“People would lose the incentive to do business with a particular place,” Purcell said, according to American Banker.

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