Concerned a provision in the Dodd-Frank Act threatens statepension funds, three states have joined a lawsuit that challengesthe bill's constitutionality.

The attorneys general from Oklahoma, South Carolina and Michiganadded their names to the lawsuit Thursday. The suit was originallyfiled in June by State National Bank of Big Spring, Texas, the 60Plus Association and the Competitive Enterprise Institute.

NCUA Chairman Debbie Matz is named as a defendant in the suit in both her official capacity as chairmanof the NCUA, and as member of the Federal Stability OversightCouncil.

Other defendants include Treasury Secretary Timothy Geithner,Acting FDIC Chairman Martin Gruenberg, Consumer FinancialProtection Bureau Director Richard Cordray, Federal ReserveChairman Ben Bernanke, all members of the Fed's Board of Governors,and other regulators.

The plaintiffs are challenging Title II of Dodd-Frank, whichgives Geithner the ability to liquidate financial companies withonly 24 hours' notice. South Carolina Attorney General Alan Wilsonsaid the law makes states what he called “second class creditors”when they invest millions or billions of dollars into institutionsthat could be seized by the federal government.

Although protecting state pension funds is their top priority,the attorneys general said they are also concerned about thecompetitive advantage the so-called “too big to fail” designationgives big banks over community banks and small institutions thatOklahoma Attorney General Scott Pruitt called the cornerstone of his state's economy.Rather than helping to avoid too big to fail, Pruitt saidDodd-Frank “enshrines” it.

“Dodd-Frank favors the big national banks and I believe becauseof their access to attorneys and lobbyists in DC, it puts communitybanks at a disadvantage,” he said.

Wilson added that when the federal governmentstarts making such designations, it's a passive endorsement thatsends a signal through the financial industry to invest or withdrawcapital, ultimately chasing capital away from smallerinstitutions.

Both Pruitt and Wilson say they would not be surprised to seeother states join the lawsuit, because their fellow attorneysgeneral have expressed an interest in it.

There's a real possibility that the suit could snowball, Wilsonsaid. Other attorneys general are limited by issues in theirstates, he said, but once they overcome those hurdles, moreplaintiffs could come on board.

Plaintiff attorney Gregory Jacob of the Washington-based lawfirm O'Melveny & Myers said the federal government has untilOct. 26 to respond to the complaint. Currently there are no hearingdates scheduled. Jacob said if Congress were to repealDodd-Frank, the lawsuit would be dropped.