Section 1071 litigation
Texas Bankers Association v. Consumer Financial Protection Bureau
Date: October 30, 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 a group of trade associations (its co-plaintiffs) appealed a Texas federal court decision holding that the Consumer Financial Protection Bureau’s (CFPB) Section 1071 final rule did not exceed the bureau’s authority or violate the APA. The associations also moved the Fifth Circuit for a stay pending appeal.
Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect and report thirteen data points to the CFPB regarding credit applications by women-owned, minority-owned, and small businesses. Section 1071 also authorizes the CFPB to require additional data collection, but only if such data “would aid in fulfilling the purposes” of Section 1071.
On Aug. 26, 2024, Judge Randy Crane denied ABA’s motion for summary judgment and granted CFPB’s motion for summary judgment. Judge Crane ruled that CFPB did not exceed its authority under the Dodd-Frank Act, and the 1071 rule is not arbitrary and capricious under the APA. The associations filed a notice of appeal on Oct. 25, 2024. The associations made five main arguments in the motion for a stay pending appeal.
First, the associations argued they are likely to succeed on the merits, claiming that the 1071 rule exceeds the CFPB’s statutory authority. The ECOA requires lenders to collect and disclose data about applications and the underwriting decision concerning those applications. However, the 1071 rule exceeds that statutory power to collect information about loan pricing. The two types of data loan sets are distinct, and turning that information over to CFPB, which can publicize the information, raises distinct costs and risks. The associations noted that the plain language and structure of the ECOA are about loan application data and the underwriting decision concerning that loan application, as well as lists of data that must be compiled and maintained. None of which addresses pricing information.
The associations also highlighted the statutory provisions that prove Congress wanted CFPB to collect information about the loan application rather than pricing information. The ECOA grants CFPB the power to make collected information public. However, the associations pointed out that Congress would not have provided for this public disclosure if it intended to include loan pricing information. Pricing information is generally closely held by lenders because its disclosure can disadvantage customers and banks by letting the competition know what a customer’s current rates are. Put differently, pricing information is highly valuable and sensitive commercial information. If Congress wanted to allow such sensitive information to be made public, it would have expressly said so and provided guardrails to protect the information. In addition, the associations pointed out that Congress knows how to ask lenders to collect pricing information, such as in the Home Mortgage Disclosure Act.
The associations also claimed their argument that the 1071 rule is arbitrary and capricious is likely to succeed. The associations argued CFPB blinded itself to accurate data in promulgating the 1071 rule by performing a fundamentally flawed cost-benefit analysis where it refused to consider vital cost data. For example, CFPB ignored the Small Business Administration Office of Advocacy’s advice to collect missing data from the regulated community. In addition, the associations claimed the 1071 rule is arbitrary and capricious because CFPB improperly glossed over litigation costs. Seeking data on loan pricing and publicizing sensitive data will trigger unfair litigation, especially against small lenders. The associations noted that CFPB did nothing to take those costs into account or mitigate them.
Second, the associations argued that their members will be irreparably harmed if the 1071 rule is implemented. Unless the Fifth Circuit grants a stay pending the outcome of the appeal, the associations emphasized that many of their members will incur significant costs to ensure compliance with the 1071 rule by July 2025 (the new compliance date for highest volume lenders), including one-time implementation costs and the costs of hiring new staff to meet mandatory compliance deadlines. Moreover, community and midsize bank members will be forced into a compliance regime that will force some of them out of the small business loan industry altogether. In effect, lost business for banks and reputational damage will occur given the lost borrowing opportunities for women and minority-owned businesses that depend on community and midsize banks.
Third, the associations argued the balance of equities heavily favors a stay. The associations explained that the equities favor a stay if it would benefit the movant more than harming the nonmovants. The associations reiterated that their harm is irreparable and CFPB cannot present powerful evidence of harm in tolling the compliance deadlines until this appeal is resolved.
Finally, the associations argued a temporary stay is warranted while the court considers this motion. The association also argued the appeal should be expedited.
Bottom Line: This Fifth Circuit merits panel set the following expedited briefing schedule: ABA’s opening brief is due Dec. 3, 2024; CFPB’s response brief is due Jan. 6, 2025; and ABA’s reply brief is due Jan.16, 2025.
Documents: Motion
