The CFPB has filed its opposition to the motion for a preliminary injunction filed by the plaintiffs in the Kentucky federal court lawsuit challenging the CFPB’s final small business lending rule (Rule).

The plaintiffs in the Kentucky lawsuit are the Kentucky Bankers Association and several Kentucky banks.  The Kentucky plaintiffs chose to file a separate lawsuit rather than intervene in the lawsuit pending in a Texas federal district court challenging the Rule filed by the American Bankers Association, Texas Bankers Association, and Rio Grande Bank and in which several credit unions, community banks, credit union and community bank trade associations, an auto floor plan lender, and a trade association for financial services companies and manufacturers in the equipment finance sector have already intervened and filed preliminary injunction motions.  The CFPB has filed its opposition to the preliminary injunction motion filed by the credit union and community bank intervenors and presumably will also oppose the preliminary injunction motion filed by the floor plan lender and equipment finance trade association.

In its opposition to the preliminary injunction motion filed by the Kentucky plaintiffs, the CFPB makes the following principal arguments:

  • The Kentucky plaintiffs are  not likely to succeed on the merits of their constitutional challenge because the CFPB’s funding mechanism does not violate the Appropriations Clause and have waived any argument that the Rule violates the Administrative Procedure Act because they have failed to adequately explain the basis for their argument.
  • The Kentucky plaintiffs have not provided specific evidence establishing a likelihood of imminent harm without preliminary relief.  As to the plaintiff banks, it is not clear that all of them will even be subject to the Rule—at least at any point in the imminent future.  The banks’ argument that, in addition to unrecoverable compliance costs, they will suffer irreparable harm in the form of a competitive disadvantage because the Texas federal court has granted relief to ABA members that are located or do business in Kentucky is too abstract and lacking in specifics to warrant an injunction.  With respect to the KBA, it has not identified any particular member bank that it believes is facing irreparable harm or identify specific costs that a member bank is incurring.  It also has not identified any specific harm that the KBA itself is suffering or any specific costs that it is incurring.
  • The balance of equities weighs against preliminary relief because it will harm the public interest by delaying a congressionally  mandated Rule that will produce significant benefits for small businesses.

We continue to see the CFPB’s current litigation strategy of opposing nationwide preliminary injunctive relief as a waste of the parties’ and the courts’ time and resources, particularly when the CFPB can quickly and efficiently remedy this chaotic situation by issuing a proposal to delay the Rule’s tiered compliance dates.