A group of trade associations has sent a letter to CFPB Director Chopra urging the CFPB to address the disparity that has resulted from the order entered by the Texas federal district court in the lawsuit challenging the CFPB’s small business lending rule that granted preliminary injunctive relief only to the plaintiffs and their members. The letter was sent by the American Financial Services Association, Consumer Bankers Association, CRE Finance Council, Equipment Leasing and Finance Association (ELFA), Mortgage Bankers Association, National Association of Federally-Insured Credit Unions, Truck Renting and Leasing Association, and the U.S. Chamber of Commerce (collectively, Trades).
In that order, the court preliminarily enjoined 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,” stayed the deadlines for compliance with the Rule’s requirements pending the Supreme Court’s decision in CFSA, and extended 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 plaintiffs are the American Bankers Association, Texas Bankers Association, and Rio Grande Bank.)
Since entering its preliminary injunction order on July 31, the Texas federal court has allowed a community bank and community bank trade associations and a credit union and credit union trade associations to intervene in the lawsuit. The community bank intervenors have filed a motion for a preliminary injunction in which the credit union intervenors have 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. A motion seeking leave to intervene has also been filed by a nonbank floorplan lender and the ELFA, which is a trade association for nonbank providers of equipment and vehicle financing.
In their letter to Director Chopra, the Trades state that the limited preliminary injunctive relief granted by the Texas federal court “poses serious compliance challenges for the membership of the Trades, as institutions that are identically subject to the 1071 Rule are now effectively subject to different compliance and implementation dates.” They urge the CFPB to “act to establish new effective dates and compliance dates for all institutions subject to the 1071 Rule.” They also urge the CFPB to “pause the 1071 Rule’s effective date and tiered compliance dates until the various legal challenges are resolved, which is currently expected to be at the end of the 2023-2024 U.S. Supreme Court term expected in July 2024.” The Trades state that more institutions are likely to seek judicial relief if the CFPB does not act to restore parity among institutions subject to the Rule and observe that “[m]anaging more litigation is not the most efficient use of anyone’s resources when the CFPB has the ability to provide uniform treatment to all covered institutions subject to the 1071 Rule.”
While the Trades do not recommend specific steps for the CFPB to take in response to their letter, there are at least two potential courses of action. First, the CFPB could issue a proposal to delay the Rule’s effective date and tiered compliance dates and allow a 30-day comment period. It could then issue a final rule soon after the comment period ends. The CFPB previously used this procedure in July 2015 to delay the effective date of its TILA-RESPA Integrated Mortgage Disclosure Final Rule and in 2021 to delay the mandatory compliance date for its General Qualified Mortgage Final Rule. Second, the CFPB could change its litigation strategy and agree to the court’s entry of a nationwide preliminary injunction in the Texas case.