On July 31, the US District Court for the Southern District of Texas issued an order granting in part and denying in part the motion for preliminary injunction filed by the Texas Bankers Association, Rio Bank (a Texas state-chartered Bank), and the American Bankers Association (ABA) related to the Consumer Financial Protection Bureau's Final Rule entitled "Small Business Lending Rule Under the Equal Credit Opportunity Act" (Rule) which requires both banks and non-bank commercial lenders to obtain and report extensive information about certain commercial credit applicants. (Note: the Rule represents the CFPB's efforts to implement Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.)

Without the issuance of such an injunction, the Rule would have gone into effect on August 29, 2023, with compliance dates staggered depending upon certain enumerated criteria set forth in the Rule.

In granting the injunction, the Court focuses on the pending constitutional challenge to the CFPB's funding structure set forth in Community Financial Services Association of America v. CFPB, 51 F. 4th 616 (5th Cir. 2022), which challenges the CFPB's funding mechanism as violative of the US Constitution's Appropriations Clause and will be heard by the US Supreme Court during its 2023-2024 (Appropriations Case). After finding that the "balance of harms and public interest favor a stay," the Court held that the CFPB must "immediately cease all implementation or enforcement of the Final Rule against the Plaintiffs and their members." Moreover, the Court held that "all deadlines for compliance with the requirements of the [Rule] are stayed for Plaintiffs and their members until after the Supreme Court's final decision."

Why This Matters

Pursuant to supporting materials provided by the ABA, "88% of [its member] respondents would need to hire more full-time employees" to comply with the Rule and "73% would need to update commercial loan software at a median estimated costs of $29,029." In light of the grant of the requested injunction, most (if not all) of the country's insured depository institutions are heralding this decision as a temporary respite from the financial and operational investments that would have been necessary in light of the otherwise impending effective date of the Rule (with an understanding that, if the Appropriations Case is decided in favor of the CFPB, this decision simply defers expenditures that will thereafter be required). However, while there is likely general satisfaction within the banking industry as a result of this decision, non-bank providers of commercial credit do not benefit from this ruling. To the extent that non-bank lenders desire similar relief, such lenders or their trade associations should consider preparing similar materials to bring suit against the CFPB to enjoin action against them while the Appropriations Case is pending.