The Kentucky banks and Kentucky trade association that filed a lawsuit in a Kentucky federal district court challenging the CFPB’s final small business lending rule (Rule) have filed a motion for a preliminary injunction. The court has ordered the CFPB, if it objects to the motion, to file a response by September 3, 2023.
The Kentucky plaintiffs chose to file a separate lawsuit rather than intervene in the lawsuit pending in a Texas federal district court challenging the rule filed by the American Bankers Association(ABA), Texas Bankers Association, and Rio Grande Bank and in which several credit unions, community banks, and credit union and community bank trade associations have already intervened. In the new Kentucky lawsuit, the plaintiffs consist of seven Kentucky state-chartered banks, one national bank with its main office in Kentucky, and the Kentucky Bankers Association (KBA). The first four counts of their complaint substantially track the complaint filed by the Texas plaintiffs. These counts allege that the Rule is invalid because it was promulgated by the CFPB using funding that violates the Appropriations Clause and because the Rule violates the Administrative Procedure Act. It also includes a fifth count that alleges the Rule violates the First Amendment because the Rule’s prohibition on discouraging applicants from responding to requests for data and the CFPB’s Enforcement Statement regarding that prohibition “does not permit the Plaintiff Banks to truthfully advise that an applicant for credit may refuse to provide any information that the [Rule] would otherwise require to be collected.”
In the Texas lawsuit, the court entered an order on July 31 that preliminarily enjoins the CFPB from implementing and enforcing the Rule “pending the Supreme Court’s reversal of [Community Financial Services Association of America Ltd. v. CFPB], a trial on the merits of this action, or until further order of this Court,” stays the deadlines for compliance with the Rule’s requirements pending the Supreme Court’s decision in CFSA, and extends the deadlines for compliance in the event of a reversal in CFSA. At the CFPB’s urging, the court unfortunately denied the nationwide relief requested by the plaintiffs and only granted relief to the plaintiffs and their members. The limited relief prompted the credit union and community bank intervenors to file their motions seeking leave to intervene and, after those motions were granted, prompted the community banks to file a preliminary injunction motion in which the credit unions joined. In their preliminary injunction motion, the intervenors have asked the Texas federal court to enter a preliminary injunction prohibiting the CFPB from enforcing the Rule nationwide or, alternatively, as to the intervenors and their members.
In their preliminary injunction motion, the Kentucky plaintiffs ask the Kentucky federal court to grant the same preliminary relief to the plaintiffs and KBA members as the Texas federal court granted to the plaintiffs in the Texas lawsuit. The Kentucky plaintiffs argue that they satisfy the requirements for a preliminary injunction, including the requirement of irreparable harm absent an injunction. According to the plaintiffs, the irreparable harm they would suffer not only includes the unrecoverable compliance costs they are incurring because of the Rule but also includes the competitive disadvantage they face if they do not receive the same relief already granted by the Texas federal court to ABA members that are located or do business in Kentucky. They assert that “[t]hese competing banks are able to focus their time and resources on competing with the Plaintiffs while Plaintiffs must continue to use staff time and resources on compliance with the Final Rule.”
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