Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
June 2 — The U.S. Chamber of Commerce and eight other industry groups filed a lawsuit challenging the Department of Labor's recently finalized fiduciary rule ( Chamber of Commerce of U.S. v. Perez , N.D. Tex., No. 3:16-cv-01476-G, complaint filed 6/1/16 ).
According to the groups, the “deliberately unworkable” fiduciary rule—which requires those who give retirement investment advice to act in the best interests of their clients—oversteps the department's authority, creates unwarranted burdens, costs and legal liability, and disproportionately harms small businesses and individual savers.
The groups threatened to sue the DOL even before the rule was finalized in April. Although the June 1 lawsuit has been expected for months, the groups raised eyebrows by choosing to litigate in a Texas federal court, rather than the more obvious choice of Washington, D.C.
According to Eugene Scalia, the Gibson Dunn & Crutcher LLP attorney who represents the groups filing suit, this choice of courts reflects that the case is a “Main Street case,” rather than a Wall Street or inside-the-Beltway case.
Greta Cowart, an employee benefits attorney in Winstead PC's Dallas office, told Bloomberg BNA June 2 that this lawsuit is “likely just the beginning” of the legal challenges to the fiduciary rule.
Indeed, less than 24 hours after the Chamber filed its lawsuit, a similar legal challenge was filed in Washington by the National Association for Fixed Annuities ( Nat'l Assoc. for Fixed Annuities v. Perez, D.D.C., No. 1:16-cv-01035, complaint filed 6/2/16 ). In addition to accusing the Labor Department of overstepping its authority, this lawsuit raises due process claims under the Fifth Amendment.
In a June 2 conference call with the media, representatives of the industry groups that filed suit defended the litigation as an attempt to vindicate the interests of small businesses and small-dollar investors, which they say will be disproportionately harmed by the department's rule.
David Hirschmann, president and chief executive officer of the Chamber's Center for Capital Markets Competitiveness, said the rule makes it harder and more costly for small businesses to create and maintain retirement plans like 401(k)s and SIMPLE IRAs. According to Hirschmann, small businesses need support and advice when establishing retirement plans, and the rule makes that advice less affordable and harder to come by.
Kenneth E. Bentsen, president and CEO of the Securities Industry and Financial Markets Association, echoed these concerns. He called the rule "complex, confusing and redundant," adding that it will unnecessarily increase costs and legal liability for small businesses.
The lawsuit takes particular aim at the DOL's authority to regulate the advice given to retirement savers. According to the complaint, the DOL “possesses neither the expertise nor the authority to regulate financial services in a manner that properly balances the needs of retirement savers and small businesses.”
With this rule, the department has “leapt ahead” of the Securities and Exchange Commission, which is both better equipped to address these issues and specifically authorized by Congress to do so, the complaint alleged. Moreover, the department's attempt to regulate individual retirement accounts encroaches on the authority of the Treasury Department, according to the complaint.
The industry groups argue that this regulatory overreach violates the Administrative Procedure Act and is impossible to square with the text of the Employee Retirement Income Security Act, the Dodd-Frank Act and the tax code. The groups also challenge the department's rule-making process, which they say lacked meaningful consideration of industry concerns and comments.
Interestingly, the lawsuit also argues that the rule violates the First Amendment. Scalia explained that the rule's restrictions on communications by financial professionals are so onerous that they improperly restrict speech in violation of the First Amendment.
The industry groups voiced substantial concern over how the fiduciary rule encourages private litigation.
This is another overreach by DOL, Scalia said, because the ability to create private rights of action lies with Congress and not regulators.
This aspect of the rule will allow “meritless litigation” to proliferate, and it will create “diverging standards” across the 50 states, Hirschmann said on the call with media.
Labor Secretary Thomas E. Perez defended the rule in a June 2 statement, saying it was the product of “one of the most deliberate, open regulatory processes in recent memory.”
Perez criticized the lawsuit as an attempt by a “handful of industry groups and lobbyists” to “put their own financial self-interests ahead of the best interests of their customers.”
He promised to defend the rule vigorously.
To contact the reporter on this story: Jacklyn Wille in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Text of the complaint is at http://www.bloomberglaw.com/public/document/Chamber_of_Commerce_of_the_United_States_of_America_et_al_v_US_De.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)