Kentucky judge blocks enforcement of small business lending rule

A federal judge in Kentucky on Thursday issued a nationwide injunction blocking enforcement of the Consumer Financial Protection Bureau’s Section 1071 final rule until the U.S. Supreme Court rules on the constitutionality of the bureau’s funding structure. The injunction is separate from a similar order issued by a Texas judge in July, which only applied to ABA and Texas Bankers Association members.

The Kentucky Bankers Association and eight banks sued the CFPB in federal court in August over the small business lending rule. The plaintiffs asked the court to block enforcement of the rule while the Supreme Court considers a separate case involving the bureau’s funding, CFPB v. Community Financial Services Association of America, which is scheduled to be argued in October and whose decision could be released any time before the end of June. In the order, District Court Judge Karen Caldwell sided with the plaintiffs, saying a temporary injunction would not harm the CPFB or the public. “Meanwhile, plaintiff banks are incurring expenses that will be unrecoverable and needless if the Supreme Court rules that the CFPB’s funding structure is unconstitutional,” Caldwell wrote.

ABA and TBA asked for a nationwide injunction in their lawsuit, but the judge in that case sided with CFPB in limiting the order only to members of both groups. The associations afterward urged the bureau to voluntarily pause enforcement of the rule while the Supreme Court considers the funding case.