Bank Bailout Bill's Potentially Unconstitutional Racial and Gender Quotas

The President is expected to sign the financial overhaul bill today, yet he might want to pause a moment to consider not signing this bill because of the potentially unconstitutional racial and gender preference provisions buried in the massive bill.

Four members of the U.S. Commission on Civil Rights have signed a letter complaining that Section 324 of the conference report titled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” “includes a section on race and gender that even those who pride themselves on keeping up with national affairs may have failed to notice.” This provision, which can be found on page 172 of the conference report, may lead to unconstitutional racial and gender preferences being forced on financial institutions covered by the new law.

As the Becker-Posner blog argues, this over 2000-page long bill is “complex, disorderly, politically motivated, and not well thought out reaction to the financial crisis that erupted beginning with the panic of the fall of 2008.” One of the critiques leveled by Gary Becker and Richard Posner is that “the bill adds regulations and rules about many activities that had little or nothing to do with the crisis.” It is clear that the lack of racial and gender preferences had nothing to do with the financial meltdown in the fall of 2008. Section 342 is a special interest provision that has no relevance to financial services reform and may lead to this law being deemed unconstitutional by the courts.

The letter from members of the U.S. Commission on Civil Rights was signed by Commissioners Peter Kirsanow, Ashley Taylor, Gail Heriot, and Todd Gaziano. In the letter these experts in civil rights law explain that the legislation “requires that each covered agency establish an ‘Office of Minority and Women Inclusion’ responsible for ‘all matters of the agency relating to diversity in management, employment, and business activities.'” This law will empower federal bureaucrats to issue rules and regulations governing the financial sector of the economy, if those businesses are doing any work for the federal government.

The Commissioners further argue that these new bureaucrats will be empowered to shall “‘develop standards’ for ‘assessing the diversity policies and practices of entities regulated by the agency’ and ‘develop and implement standards and procedures to ensure, to the maximum extent possible, the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in all businesses and activities of the agency.” According to the letter, this new mandate will cover “financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants and providers of legal services.” If these institutions are doing business with the government, newly minted bureaucrats will be allowed to study the racial and gender composition of these covered entities work forces to search for companies with not enough minorities and women in a decision making capacity.

The commissioners are not the only ones to notice this offensive provision. Diana Furchtgott-Roth of the Manhattan Institute wrote for Real Clear Markets that

“I was searching the bill for a provision about derivatives. What did I find but Section 342, which declares that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America’s financial industry.”

The major media has ignored this important issue, yet this issue may cause some expensive litigation for companies alleged to engage in racial or gender discrimination without any court finding, but merely some bureaucrat deeming them not to be in compliance of the new law.

This legislation does not merely set up one bureaucracy, but it will be a jobs program for those who specialize in forcing racial and gender quotas on private enterprise. Furchtgott-Roth points out that “the Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks, the Board of Governors of the Fed, the National Credit Union Administration, the Comptroller of the Currency, the Securities and Exchange Commission, the new Consumer Financial Protection Bureau…all would get their own Office of Minority and Women Inclusion.” As the financial sector outsources to other nations and contracts without this new regulatory stranglehold known as Financial Services Reform, the federal government will have established a new jobs program to further expand the size and scope of the federal government.

The Commissioners further argue:

The potential for abuse should be obvious, but sadly sometimes it is not to those who are unfamiliar with the workings of governmental and corporate bureaucracies. All too often, when bureaucrats are charged with the worthy task of preventing race or gender discrimination, they in fact do precisely the opposite: Consciously or unconsciously, they require discrimination by setting overly optimistic goals that can only be fulfilled by discriminating in favor of the groups the goals are supposed to benefit. Those who are regulated by, or do business with, a federal agency are understandably eager to please that agency. When the agency says, “Jump!,” they know the financially smart response is, “How high?,” not “We’re concerned that your diversity goals cannot be achieved without tilting the playing field in favor of one group or another–something we believe the law and the Constitution forbid.”

At a minimum, President Obama needs to pause before signing this massive new regulatory regime for the financial sector to make sure that he is not violating his oath to the Constitution of the United States.