Last week, by a vote of 221-202, the House of Representatives voted to approve S.J. 32, the resolution introduced under the Congressional Review Act to override the CFPB’s final Section 1071 small business lending rule (1071 Rule).  The Senate voted to approve S.J. 32 in October 2023.  President Biden is expected to veto the resolution and there is unlikely to be sufficient votes to override his veto. 

As we have previously noted, a more likely source of relief for industry are the two pending lawsuits challenging the 1071 Rule, one in a Texas federal district court and the other in a Kentucky federal district court.  Both district courts have issued orders that preliminarily enjoin the CFPB from implementing and enforcing the Rule on a nationwide basis against all entities covered by the Rule.  (The Texas federal court had previously issued an order that granted preliminary relief only to the plaintiffs and their members.)

In addition to raising a constitutional challenge to the 1071 Rule based on the CFPB’s funding mechanism, the plaintiffs in both lawsuits allege that, in promulgating the 1071 Rule, the CFPB violated the Administrative Procedure Act.  The plaintiffs in the Kentucky lawsuit also allege that the 1071 Rule violates the First Amendment.  The question of whether the CFPB’s funding mechanism is constitutional is currently pending before the Supreme Court in a case challenging the CFPB’s payday lending rule.  If the Supreme Court rules that the CFPB’s funding is constitutional or rules that the funding is unconstitutional but the constitutional violation does not impact CFPB actions other than the payday lending rule, the district courts will need to address the plaintiffs’ non-constitutional claims in the lawsuits.

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