Texas Bankers Association, et al. v. Consumer Financial Protection Bureau
Date: June 23, 2023
Issue: Whether the Consumer Financial Protection Bureau’s (CFPB) final rule implementing section 1071 of the Dodd-Frank Act (1071 Final Rule) is unconstitutional under the Appropriations Clause and violates the Administrative Procedure Act (APA).
Case Summary: ABA, Rio Bank and the Texas Bankers Association (plaintiffs) filed a reply brief supporting their motion for preliminary injunction in their lawsuit challenging CFPB’s 1071 Final Rule.
The 1071 Final Rule requires a covered financial institution to collect and annually report to CFPB data on covered applications from small businesses. In its amended complaint, plaintiffs alleged the 1071 Final Rule should be vacated under the Fifth Circuit’s decision in Community Financial Services Association (CFSA) v. CFPB, which ruled CFPB’s funding structure is unconstitutional. Plaintiffs also alleged the 1071 Final Rule violates the APA because it is arbitrary and capricious, and CFPB its abused discretion by promulgating a final rule beyond the statutory scope.
Afterward, plaintiffs moved the court for a preliminary injunction. First, plaintiffs argued they are likely to succeed on the merits of their constitutional claim. According to plaintiffs, the 1071 Final Rule should be vacated because the Fifth Circuit ruled CFPB’s funding structure is unconstitutional in Community Financial. Second, plaintiffs argued irreparable harm would occur without a stay. For instance, plaintiffs’ members will be forced to spend significant sums preparing to comply with an illegitimate rule. Finally, plaintiffs argued granting an injunction serves the public interest, as the interests of judicial efficiency weigh heavily in favor of a stay, given the pending resolution of CFPB’s funding mechanism.
In its opposition brief, CFPB argued plaintiffs have not established standing for preliminary relief, or that the venue is proper in the Southern District of Texas. CFPB also argued plaintiffs did not satisfy the factors necessary for preliminary relief because plaintiffs have not shown imminent likelihood of irreparable injury, the balance of equities weighs against preliminary relief, and a likelihood of success on the merits by itself is not enough to justify preliminary relief. Finally, CFPB argued any potential preliminary relief should be limited to plaintiffs and automatically terminate if the Supreme Court reverses Community Financial.
In its reply brief, plaintiffs made three arguments. Plaintiffs first argued they adequately alleged an injury to confer standing. CFPB contended Rio Bank lacks standing because its declaration did not state it “plans to originate at least the regulatory minimum of 100 covered transactions in 2023.” Plaintiffs contended Rio Bank “directly stated the Bank is fully covered by the CFPB final Rule which is the subject matter of this civil action.” CFPB also claimed TBA and ABA lack associational standing because “they have not named a particular member that would independently meet Article III standing.” But plaintiffs contended Supreme Court precedent does not require associations to name particular members for associational standing.
Second, the plaintiffs argued they sufficiently showed irreparable harm. Rio Bank emphasized it will be required to hire outside consultants, specialist attorneys, and other experts to interpret, apply, and audit the 1071 Final Rule to its small business lending programs. Plaintiffs also emphasized they identified specific harms by providing the court precise dollar amounts banks will be forced to spend.
Third, plaintiffs argued Fifth Circuit precedent directs the remedy. CFPB argued any remedy should apply only to plaintiffs and last until Community Financial is decided. But plaintiffs contended this proposed relief is overly narrow because a vacated rule has no force of law anywhere. For this reason, plaintiffs asserted a national injunction is proper. Plaintiffs also argued a preliminary injunction should not terminate upon reversal of Community Financial. Plaintiffs highlighted the importance of the injunction staying the associated compliance timeframes to ensure banks have the same opportunity to comply with the 1071 Final Rule.
Bottom Line: The initial case conference is scheduled for Aug. 8, 2023.