The CFPB has filed its opposition to the motion seeking a preliminary injunction filed by the plaintiffs in the lawsuit challenging the validity of the CFPB’s final rule implementing Section 1071 of the Dodd-Frank Act (Rule).  The plaintiffs in the amended complaint are the Texas Bankers Association (TBA),  the American Bankers Association (ABA), and Rio Bank, McAllen, Texas.

The amended complaint alleges that the Rule is invalid because the CFPB’s funding structure is unconstitutional and because portions of the Rule also violate various requirements of the Administrative Procedure Act.  The plaintiffs’ constitutional argument is that because the CFPB’s funding structure violates the Appropriations Clause, the Rule is invalid and should be vacated based on Community Financial Services Association of America Ltd. v. CFPB in which a Fifth Circuit panel held that the CFPB’s funding is unconstitutional.  The U.S. Supreme Court has agreed to review the CFSA decision in its next Term.  In their preliminary injunction motion, the plaintiffs ask the court to enjoin the Rule and stay the compliance dates and to keep the preliminary injunction in place pending the Supreme Court’s decision in CFSA. 

In opposing the preliminary injunction motion, the CFPB argues:

Standing/venue.  The plaintiffs have not established their standing for preliminary relief or that venue is proper in the Southern District of Texas because:

• Although Rio Bank alleged in the amended complaint that it made 409 small business and agricultural loans in 2022, it has failed to establish or even allege that any of these loans meet Rule’s definition of a covered credit transaction. Even assuming that at least 100 of such loans were covered transactions, Rio Bank would only be covered by the Rule if it also originates at least 100 covered transactions in 2023.  Rio Bank does not assert that it has done so or even that it expects to do so.  Accordingly, Rio Bank has failed to establish that it will be subject to the Rule and thus has not established standing for preliminary relief. 
• While TBA and ABA can proceed on behalf of their members under the doctrine of associational standing, neither TBA nor ABA have offered any specific facts to establish that at least one identified member has suffered or will suffer harm as a result of the Rule. 
• The plaintiffs’ failure to provide the details needed to establish standing not only deprives the court of the ability to assess its jurisdiction but also makes the court unable to assess its propriety as a venue.  The plaintiffs primarily rely on Rio Bank’s location in claiming that venue in the Southern District of Texas is proper.  However, the plaintiff on whom venue is based must have standing to sue.  Because the plaintiffs have not met their burden of establishing that a plaintiff residing in the Southern District of Texas has standing, they also have not shown that venue is proper in the Southern District of Texas.

Requirements for preliminary relief.  Even if the plaintiffs have established standing, they have not carried their burden on all four requirements for preliminary relief because:

• None of the plaintiffs have provided specific evidence establishing that they will be imminently harmed without the preliminary relief they seek.  Rio Bank stated that it has already begun compliance preparations and estimated that its related costs will be at least $20,000 for the remainder of 2023.  Even assuming Rio Bank will be subject to the Rule, the Bank did not explain why it must expend those resources now rather than later on.  Accordingly, the Bank is not entitled to preliminary relief based on alleged injuries from expenditures without having shown that those expenditures could not be deferred until later.  TBA stated that some banks have been advised by consumer compliance experts to begin preparing for the Rule immediately and estimated costs of approximately $100,000 will be incurred by each of its member banks in preparing to comply.  However, TBA did not identify any particular member that it believes is facing irreparable harm or any specific costs that a member bank is currently incurring nor did it attempt to establish that it is necessary for a member bank to incur these costs now rather than at some future time.  ABA stated that it has advised its members to begin implementation immediately and that some members have begun doing so.  However, it also failed to identify any specific costs that any particular member is required to incur now, as opposed to in the future. 
• The balance of equities weighs against preliminary relief and an injunction is not in the public interest.  Rather, there is a strong public interest in Section 1071’s requirements coming into effect without undue delay so that small businesses can begin to receive the benefits that Congress intended them to receive from Section 1071.
• Even if the plaintiffs can establish a likelihood of success on the merits of their constitutional challenge, this is not enough to justify preliminary relief.  To be entitled to preliminary relief, the plaintiffs must carry the burden of persuasion on all four requirements for preliminary relief.
• If the court concludes that the plaintiffs are entitled to preliminary relief, such relief should be appropriately tailored by limiting it to those plaintiffs or their members who the plaintiffs have shown would be irreparably harmed without such relief.  In addition, any preliminary relief granted by the court should terminate automatically upon a reversal by the Supreme Court in CFSA.

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