As discussed here, on April 26, the Texas Bankers Association, the American Bankers Association (ABA), and Rio Bank, McAllen, Texas (Rio Bank) filed a complaint in the U.S. District Court for the Southern District of Texas challenging the Consumer Financial Protection Bureau’s (CFPB or Bureau) final rule under § 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Final Rule). As discussed here, § 1071 amended the Equal Credit Opportunity Act (ECOA) to impose significant data collection and reporting requirements on small business creditors. The plaintiffs’ complaint relied heavily on the Fifth Circuit’s decision in Community Financial Services Association (CFSA) v CFPB, finding the CFPB’s funding structure unconstitutional and, therefore, rules promulgated by the Bureau invalid. The CFPB’s appeal of the Fifth Circuit’s decision is currently pending before the U.S. Supreme Court (discussed here).
On May 26, the plaintiffs moved for a nationwide preliminary injunction against the CFPB’s implementation of its Final Rule. On July 31, the federal district court issued an order granting, in part, the plaintiffs’ motion. Specifically, the court enjoined the CFPB from implementing and enforcing the Final Rule against the plaintiffs and their members, but denied the plaintiffs’ request for a nationwide injunction. The injunction would dissolve if the U.S. Supreme Court reverses the Fifth Circuit in the CFSA case but, in that event, the CFPB would be required “to extend [the plaintiffs] and their members’ deadlines for compliance with the requirements of the Final Rule to compensate for the period stayed.”
Despite the nationwide injunction being denied by the federal district court, the fact that the court granted the injunction with regard to the ABA’s and Texas Bankers Association’s members, and Rio Bank covers a large number of banks that engage in small business lending for which compliance with the Final Rule is now stayed. Nonetheless, banks that are not members of the ABA or Texas Bankers Association or non-bank small business lenders must continue to comply with the Final Rule.
The U.S. Supreme Court will not hear the pivotal CFSA case until next term, so there will continue to be uncertainty related to the CFPB’s status and its ability to undertake activities like rulemakings, i.e. the Final Rule, until a final decision is issued and the question of whether the Bureau’s funding structure is constitutional is resolved.