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 on a nationwide basis against all entities covered by the Rule. On July 31, the court had denied the request of the plaintiffs in the lawsuit for nationwide preliminary relief and instead issued an order that granted preliminary relief only to the plaintiffs and their members. (The plaintiffs are the Texas Bankers Association, the American Bankers Association, and Rio Bank, McAllen, Texas.) The July 31 order triggered the filing of numerous motions by various trade associations and entities not covered by the July 31 order seeking to intervene in the case and expand the coverage of the preliminary relief granted to the plaintiffs. After those motions to intervene were granted by the Texas court, the intervenors filed preliminary injunction motions asking the court to extend the preliminary relief granted to the plaintiffs on a nationwide basis to all entities covered by the Rule.
After finding that all of the intervenors had satisfied the four requirements for a preliminary injunction, the court gave the following reasons for expanding the preliminary relief:
- Although the court was not initially persuaded that a need for uniformity merited a nationwide injunction, it determined that while there is no “constitutional command” for uniformity, “there exists a statutory command for uniformity with constitutional implications. While the general application of most laws does not alone justify nationwide relief, the statute underlying the [Rule] does more; its very purpose is the equal application of lending laws to all credit applicants to avoid disparate outcomes, and it presumes uniform application to all covered financial institutions absent exemption by the Bureau.”
- A judicial exemption from the Rule for only the parties in the case “both undermines the statute… and leaves non-exempted lenders subject to the discretion of an agency whose very ability to act is a matter of constitutional concern pending resolution on a nationwide scale.”
- A limited injunction “risks omitting those non-member and/smaller financial institutions less able to challenge the rule, and more likely to suffer harm should they continue to incur compliance costs that prove unnecessary and unrecoverable.”
The court also clarified that, in issuing the preliminary injunction, it was ordering the CFPB to “cease implementation and enforcement against Plaintiffs and their members, Intervenors and their members, and all covered financial institutions.” (emphasis included) However, it was not ordering the CFPB not to “answer an inquiry or publish guidance materials” because this “would not qualify as conduct taken against a financial institution, and does not fall within the conduct proscribed.”
The court’s order also (1) stays all deadlines for compliance with the Rule for Plaintiffs and their members, Intervenors and their members, and all covered financial institutions until after the Supreme Court’s decision in CFSA v. CFPB, and (2) order the CFPB, if the Supreme Court rules that its funding is constitutional, to extend the deadlines for compliance with the Rule to compensate for the period stayed. However, even if the constitutional challenge to the Rule is removed by a Supreme Court ruling in favor of the CFPB, other challenges to the Rule made by the plaintiffs and intervenors will remain for the Texas court to decide, such as whether the Rule violates the Administrative Procedure Act.