Mississippi Bankers Association, the American Bankers Association, the Consumer Bankers Association, America’s Credit Unions, and three banks are seeking a preliminary injunction blocking the CFPB from implementing the bureau’s controversial overdraft rule finalized just a month prior to the Trump Administration change and expected CFPB leadership change.

We suspect that the plaintiffs will be able to easily establish the factors necessary for the court to grant a preliminary injunction in this case. To obtain a preliminary injunction, the plaintiffs have to show: (1) a substantial threat of irreparable harm absent the injunction, (2) a likelihood ultimate success on the merits, (3) the balance of equities and hardships is in their favor, and (4) granting the injunction would be in the public interest.

In their request for a preliminary injunction, the plaintiffs said, “An injunction is warranted pending the Court’s review of the Rule’s legality because the CFPB lacks authority, under the [Truth in Lending Act] or any other statute, to issue the Rule, and because the Rule poses a substantial threat of irreparable harm to Plaintiffs and, as applicable, their members and the consumers they serve.” They continued, “Because Congress did not authorize the agency to rewrite TILA or render statutory terms meaningless, the CFPB’s Final Rule exceeds its authority.”

As we blogged last week, the CFPB issued its long-awaited overdraft rule that was immediately subject to challenge in in the U.S. District Court for the Southern District of Mississippi. The final rule gives large financial institutions three options. They may cap their overdraft fee at $5, set their overdraft fee based on a calculation from the allowed costs and losses associated with operating overdraft service, or offer “overdraft lending” by complying with Regulation Z requirements. The third option would require financial institutions to deliver TILA and MLA disclosures, make an ability-to-repay determination, send consumers periodic statements and give them the opportunity to pay automatically or manually.

The overdraft rule subjects discretionary overdraft services to a new and complex regulatory regime and reverses 55 years of consistent interpretation of TILA by the agencies charged with enforcing it, the trade groups and banks commented, in requesting the injunction.

“For over 40 years, the Board of Governors of the Federal Reserve System (“Board”) consistently interpreted TILA to conclude that discretionary overdraft services lack the hallmarks of a credit transaction as defined by the statute and are excluded from the credit disclosure requirements of TILA because consumers have no right to overdraw their account or defer repayment,” the plaintiffs said.

The CFPB has no authority to regulate discretionary overdraft services because these services fall outside TILA’s definitions of “credit” and “finance charge,” plaintiffs said, adding that, TILA is a disclosure statute; it does not regulate the substantive terms of consumer credit offerings.

“The Final Rule goes well beyond disclosure of credit terms,” the plaintiffs said. “Most obviously, it caps the amount [Very Large Financial Institution] may charge to continue offering discretionary overdraft services on the same terms. Nothing in TILA’s language or purpose permits this.”

Additionally, as we have noted previously, disclosures for overdraft services have been historically regulated under EFTA and TISA and their implementing regulations, but those regulations did not regulate fee amounts that may be charged for overdraft services. 

Even though the rule does not go into effect until Oct. 1, 2025, financial institutions must begin their change management processes immediately and will incur substantial implementation costs that will be unrecoverable even if the final rule is struck down.

The plaintiffs said, “There can be no doubt, therefore, that even if Plaintiffs ultimately prevail in this lawsuit, their members will suffer irreparable harm in the form of nonrecoverable compliance costs absent a preliminary injunction.”

The request for an injunction does not discuss the probability that the incoming Trump Administration, which opposes the strict regulatory regime of current CFPB Director, may rescind the rule or that the next Congress could act to nullify the rule under the Congressional Review Act.

The Consumer Bankers Association also released an announcement today to address the CFPB’s misleading statements contained in its final overdraft rule, including that overdraft fees are “junk fees” or are not clearly disclosed. This misstatement ignores the reality that the current regulations require the disclosure of overdraft practices and fees using a standalone form provided by the CFPB and fees be delivered to customers and consumers to opt-in for the payment of overdrafts on debit card and one-time ATM transactions.