SECTION 1071 LITIGATION
Texas Bankers Association v. Consumer Financial Protection Bureau
Date: May 10, 2024
Issue: Whether the Consumer Financial Protection Bureau’s (CFPB) final rule implementing Section 1071 of the Dodd-Frank Act is unconstitutional under the Appropriations Clause and violates the Administrative Procedure Act (APA).
Case Summary: The American Bankers Association and its co-plaintiffs (the associations) filed its reply brief supporting its motion for summary judgment in its lawsuit challenging the 1071 final rule.
Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect and report to the CFPB 13 data points regarding applications for credit by women-owned, minority-owned and small businesses. Section 1071 also authorizes the CFPB to require the collection of additional data, but only if such data “would aid in fulfilling the purposes” of Section 1071 to: “facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned and small businesses.”
On May 18, 2023, the associations filed an amended complaint in the Southern District of Texas, alleging the CFPB exceeded its statutory authority and violated the APA. The associations also moved the court for a preliminary injunction on May 26, 2023, arguing the final rule was invalid under the Fifth Circuit’s decision in Community Financial Services Association v. CFPB, and the lack of an injunction would irreparably harm ABA’s members. On July 31, 2023, the court granted the preliminary injunction. However, the injunction period ended when the Supreme Court reversed the Fifth Circuit’s decision in Community Financial, ruling the CFPB is constitutionally funded. Afterward, the CFPB announced it would extend the compliance deadlines by 290 days to reflect the injunction period.
On March 1, 2024, the associations moved for summary judgment, which the CFPB opposed, arguing: Congress granted it authority to determine what additional data aids Section 1071’s purpose; it reasonably determined the added data would advance statutory purposes; it reasonably considered the final rule’s benefits and costs; the associations’ request for relief ignores basic severability principles; and its funding provides no grounds for setting aside the final rule.
In their reply brief, the associations argued four points. First, the associations argued the CFPB failed to reasonably address the costs and benefits of the rule’s discretionary data points. The bureau’s analysis did not reasonably estimate the costs of the expanded data collection requirements. This is because the CFPB did not gather data from financial institutions on expected implementation or ongoing costs and relied on a flawed survey and inappropriate estimates from the Home Mortgage Disclosure Act. Additionally, the CFPB ignored costs related to reputational harm and increased fair lending litigation.
Second, the CFPB did not reasonably consider the hypothetical benefits of the expanded rule or justify its necessity. In the associations’ view, the CFPB wrongly assumes more data is automatically useful, without supporting the expected benefits of the added data points. The associations argued the expanded rule relies on unfounded assumptions about the commercial lending market and did not demonstrate that response rates would be sufficient for meaningful analysis.
Third, the CFPB exceeded its statutory authority by imposing the added data collection requirements. According to the associations, ECOA does not support unlimited bureaucratic discretion; ECOA requires lenders to inquire about applicants’ status as women-owned or minority-owned businesses and compile that information.
Lastly, the final rule’s expansion of data points undermines Section 1071’s purpose by decreasing credit availability for women-owned and minority-owned businesses. The associations argued any additional information gathered is not worthwhile if it compromises the ability of women-owned and minority-owned businesses to secure credit.
Bottom Line: The CFPB’s reply brief is due June 7, 2024
Documents: Brief
