This past Thursday, August 31, another preliminary injunction motion was filed in the Texas lawsuit challenging the CFPB’s small business lending rule (Rule).  The latest motion was filed by XL Funding, LLC d/b/a Axle Funding, LLC (Axle) and the Equipment Leasing and Finance Association (ELFA) (collectively, the ELFA Intervenors), following the court’s entry of an order granting their motion for leave to intervene and their filing of an intervenor complaint.  The filing of the ELFA Intervenors’ preliminary injunction motion means there are now two new preliminary injunction motions pending before the Texas federal district court, with the community bank and credit union intervenors having filed their preliminary injunction motion on August 15 and the CFPB having filed its opposition on August 22.

This unfortunate situation has led many people to suggest that Director Chopra should unilaterally suspend, delay or stay the Rule’s compliance dates.  However, Director Chopra does not appear to have this authority. Section 705 of the Administrative Procedure Act (APA) permits an agency to postpone a rule’s effective date, without providing notice and an opportunity for public comment, if the rule is pending judicial review and “an agency finds that justice so requires.”  Case law interpreting this APA provision is sparse.  Federal district courts have generally allowed agencies to invoke Section 705 to postpone rules that are not yet effective.  However, the Rule became effective on August 29 and courts have not allowed agencies to invoke Section 705 to postpone the compliance date of an already effective rule.  Becerra v. U. S. Dep’t of Interior, 276 F. Supp. 3d 953, 965 (N.D. Cal. 2017 (holding that Department of Interior could not delay oil and gas valuation rule’s compliance dates after rule’s effective date of had passed); California v. I.S. Bureau of Land Management, 277 F. Supp 3d 1106, 1121 (N.D. Cal. 2017) (discussing Becerra, and noting that “[e]ffective and compliance dates have distinct meanings”); Nat. Res. Def. Council v. U. S. Dep’t of Energy, 363 F. Supp. 3d 126, 151 (S.D.N.Y. 2019).

More optimistically, although we have not found any relevant case authority, the text of APA Section 705 could be read to allow a federal district court to stay the compliance date and/or enjoin enforcement of a rule that has taken effect.  Section 705 provides that “[o]n such conditions as may be required and to the extent necessary to prevent irreparable injury, the reviewing court…may issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve status or rights pending conclusion of the review proceedings.”  Thus, if so read, Section 705’s text would provide the Texas federal district court with an alternate source of authority for staying the Rule’s tiered compliance dates and/or enjoining the CFPB from enforcing the Rule on a nationwide basis pending the outcome of the CFSA case in the U.S. Supreme Court and the outcome of the underlying case before it.  This clearly seems preferable to the patchwork approach of ruling on multiple preliminary injunction motions and limiting the injunctive relief only to the plaintiffs and intervenors.

Of course, as we have previously noted, the CFPB can quickly remedy the current situation by issuing a proposal to delay the Rule’s tiered compliance dates and allowing a 30-day comment period.  It could then issue a final rule soon after the comment period ends.