The Texas federal district court hearing the lawsuit challenging the validity of the CFPB’s final rule implementing Section 1071 of the Dodd-Frank Act (Rule) has issued an order 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.” However, the court denied the plaintiffs’ request for nationwide injunctive relief and granted injunctive relief only to the plaintiffs and their members. The plaintiffs are the Texas Bankers Association (TBA), the American Bankers Association (ABA), and Rio Bank, McAllen, Texas. Thus, in addition to Rio Bank, the relief granted by the court extends only to TBA, ABA, and members of TBA or ABA.
The order also (1) directs the CFPB to immediately cease all implementation or enforcement of the Rule against the plaintiffs and their members, and (2) stays all deadlines for compliance with the Rule’s requirements for the plaintiffs and their members until after the Supreme Court’s final decision in CFSA. It further directs the CFPB, if the Supreme Court reverses in CFSA, to extend the deadlines for the plaintiffs and their members to comply with the Rule “to compensate for the period stayed.”
In response to the plaintiffs’ preliminary injunction motion, the CFPB argued that Rio Bank had failed to establish that it would be subject to the Rule and thus had not established standing for preliminary relief. The CFPB also argued that while TBA and ABA could proceed on behalf of their members under the doctrine of associational standing, neither TBA nor ABA had offered any specific facts to establish that at least one identified member had suffered or would suffer harm as a result of the Rule. With respect to Rio Bank, the court found that the bank had “established that it had 409 small business and agricultural loans in calendar year 2022, which under the Final Rule’s broad definition of covered originations makes it likely Rio Bank will be subject to the Final Rule.” Based on Rio Bank’s estimates that its compliance costs “will total $250,00, of which $20,000 will be spent in 2023,” the court concluded that “the [January 1, 2026 compliance date] and costs are not speculative; that lead-time for compliance was built into the Final Rule does not make Plaintiffs’ claims unripe.” Having found that Rio Bank had standing, the court did not address the arguments regarding ABA’s and TBA’s standing.
Based on the Fifth Circuit panel decision in CFSA, the court found a substantial likelihood that the plaintiffs would prevail in asserting that the Rule is invalid because it was promulgated using the CFPB’s unconstitutional funding. In CFSA, the panel held the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution and, as a remedy for the constitutional violation, vacated the CFPB’s payday lending rule.
The court also found that (1) the unrecoverable compliance costs alleged by the plaintiffs constituted a substantial threat of irreparable harm, noting that “the Fifth Circuit has accepted projected compliance costs as constituting irreparable harm,” and (2) the balance of harms and public interest favored a stay because the CFPB had not shown any evidence that a stay of the Rule would cause harm.
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