On July 8, 2024, in the lawsuit challenging the CFPB’s credit card late fee rule (Rule), the CFPB filed a notice of supplemental authority in support of their motion to dismiss or transfer the case, a motion to dissolve the preliminary injunction, and a brief to support their motion.

On July 10, 2024, without addressing the merits of the CFPB’s motions, Judge Pittman issued an order to the Clerk to “STRIKE and UNFILE” the above mentioned filings from the docket due to the district court’s lack of jurisdiction until after the Fifth Circuit issues its mandate. The filings are now stricken. On June 19, 2024, the Fifth Circuit granted the writ of mandamus to stop the district court’s order transferring the case to D.C. The mandate will not issue until the expiration of the 45-day period during which the CFPB has the right to petition for a rehearing en banc. (The CFPB still could file such a petition since the 45-day period lapses on August 12, 2024.)

Notice of Supplemental Authority—Continued Arguments to Transfer Venue under Section 1406(a)

The district court transferred venue twice under 28 U.S.C. § 1404(a), governing cases “in the wrong division or district.” The CFPB originally moved to transfer under Section 1404(a). In its second motion to transfer, the CFPB moved under both Section 1404(a) and 28 U.S.C. § 1406(a). In granting the writ to stop the transfer, the Fifth Circuit did not address the applicability of Section 1406(a) (whether venue was proper) because the district court only explicitly ruled on Section 1404(a). Section 1406(a) states “[t]he district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” The CFPB contended that the Fifth Circuit’s mandamus relates only to Section 1404(a) and that the Fifth Circuit disclaimed that the mandamus relates to Section 1406(a). The CFPB argued that Judge Pittman should dismiss or transfer the case to a proper venue under Section 1406(a). The short of this is that the plaintiffs now have plenty of time to prepare a response to the Section 1406(a) transfer motion, which, according to the CFPB, remains undecided.

In its Notice of Supplemental Authority in Support of Motion to Dismiss or Transfer Under 28 U.S.C. § 1406, the CFPB submitted notice of “a new persuasive authority that supports their motion to dismiss or transfer under 28 U.S.C. § 1406.” The CFPB continued to argue that the Forth Worth Chamber, the association for which the plaintiffs base venue, does not meet the associational standing test because “the interests the association seeks to protect [are not] germane to the organization’s purpose.” In its notice, the CFPB cited to Justice Thomas’ concurring opinion in FDA v. Alliance for Hippocratic Medicine, 602 U.S. 367, 144 S. Ct. 1540, 1565–71 (2024), addressing an association’s standing to challenge agency action, as the new persuasive authority:

That concurrence raises serious concerns about associational standing, including whether it “can be squared with Article III’s” limitations on judicial power. [FDA v. Alliance for Hippocratic Medicine, 144 S. Ct. 1540, 1571]. Justice Thomas explained that associational standing “seems to run roughshod over” the “traditional understanding” that “private parties could not bring suit to vindicate the . . . rights of” others “who are not before the court.” Id. at 1566. And it “distorts” the “traditional understanding” that, for standing to exist, the court “must be able to provide a remedy that can redress the plaintiff’s injury.” Id. at 1567–68 (cleaned up, emphasis in original). Beyond those foundational concerns, Justice Thomas highlighted several other problems with associational standing, including that it “allows a party to effectively bring a class action without satisfying any of the ordinary requirements” and subverts ordinary preclusion principles and thus potentially “allow[s] a member two bites at the apple.” Id. at 1568–69.

Justice Thomas’s concurrence underscores why the Court should not allow Plaintiffs here to dramatically expand associational standing, beyond even what’s allowed by the precedent Justice Thomas criticized in his concurrence.

The CFPB will obviously refile once the mandate issues and Judge Pittman can be expected to promptly rule on the motion to dismiss or transfer. However, if Judge Pittman grants the transfer motion under Section 1406(a) after September 3, 2024, his order must be stayed for 21 days pursuant to the new local rule 62.2. (On June 17, 2024, the Chief Judge of the U.S. District Court for the Northern District of Texas announced a new rule automatically staying any order transferring a case outside the Fifth Circuit for 21 days absent the consent of all affected parties. The rule becomes effective September 3, 2024.) Even if Judge Pittman were to grant the transfer motion before September 3, any order to transfer under Section 1406(a) will likely result in yet another petition for a writ of mandamus.

By way of a brief procedural history regarding the transfer orders, Judge Pittman granted the CFPB’s initial motion to transfer the case to the D.C. federal district court on March 28, and plaintiffs filed an emergency petition for mandamus the next day. On April 5, the Fifth Circuit granted the petition and held that the district court lacked jurisdiction to transfer the case because plaintiffs’ appeal to the Fifth Circuit of the order denying expedited consideration divested the district court of jurisdiction at the time of the purported transfer. That appeal was dismissed after Judge Pittman granted a preliminary injunction, and on May 27 the CFPB again moved to transfer the case to the D.C. federal district court. Judge Pittman entered an order on May 28, transferring the lawsuit. That same day, plaintiffs again petitioned the Fifth Circuit for a writ of mandamus and requested a stay; the stay was granted until June 18 pending the appellate court’s consideration of the mandamus petition. On June 19, the Fifth Circuit dissolved the district court’s order transferring the case. In granting the writ of mandamus, the three-judge panel rejected Judge Pittman’s second transfer order, holding that he misapplied the controlling standard for transferring cases.

Motion to Dissolve Preliminary Injunction

The CFPB’s motion is predicated upon the Supreme Court reversing the Fifth Circuit’s holding in CFSA v. CFPB, which held that the CFPB’s funding mechanism was unconstitutional. In issuing the preliminary injunction, Judge Pittman found that that the plaintiffs had established a likelihood of success on the merits based solely on the Fifth Circuit’s decision in CFSA. In issuing the preliminary injunction, Judge Pittman found it unnecessary to address the plaintiffs’ other arguments that the Rule violates the Truth in Lending Act (TILA), the CARD Act, and the Administrative Procedure Act (APA). However, Judge Pittman did comment that the plaintiffs’ other arguments were “compelling.” If his efforts to transfer the case continue to be unsuccessful, and he has to rule on the motion to dissolve, then it seems highly likely that Judge Pittman will continue the preliminary injunction and that he will eventually grant summary judgment in favor of the plaintiffs and against the CFPB on one or more of the alternative grounds, particularly now that, the overruling of the Chevron Doctrine, he will not be required to defer to the CFPB’s interpretations of the CARD Act and TILA.

As a refresher, to obtain a preliminary injunction, the plaintiffs had 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 its brief in support of the motion to dissolve the preliminary injunction, the CFPB argued that the Supreme Court’s ruling “fatally undermines the justification for the May 10, 2024, preliminary injunction” and the plaintiffs have not established the likelihood of success on the merits on any other claim. The CFPB addressed the plaintiffs’ claims that the Rule violates the CARD Act and TILA but failed to address the plaintiffs’ APA claim:

• CARD Act: The CFPB stated it did not exceed its statutory authority and it appropriately “consider[ed]” certain costs, deterrence, consumer conduct, and other necessary or appropriate factors it “deem[s] necessary or appropriate” when it defined a “reasonable and proportional” late fee. The use of the tem “penalty fee” does not require late fees to be greater than an issuer’s related costs. A late fee can be deterrent if it only compensates the issue for its costs because the consumer may face additional consequences like loss of grace periods, penalty interest rates, and credit reporting.
• TILA: The CFPB argued that the effective date does not violate TILA because the rule does not require any different disclosure as issuers must still disclose late fees at account opening and on periodic statements. If an issuer has to change the amount of the disclosed late fee, that is not a new required disclosure. A TILA violation alone will not entitle plaintiffs to a preliminary injunction, as that provision could be severed from the Rule.

The CFPB stated “the Court should reconsider its determination that the balance of the equities and public interest support a preliminary injunction.” They argued that maintaining the status quo is a disservice to the public interest in paying lower late fees. The CFPB stated “after all, new laws and regulations are put in place because the people’s elected representatives—or the agencies tasked with carrying out the mandates of those representatives—have determined that they are appropriate and in the public interest.”

Once the CFPB does refile, we expect the plaintiffs to oppose the motion based on the TILA, CARD Act, and APA claims raised in their complaint and preliminary injunction motion. The opposition is moot until the district court regains jurisdiction after the mandate is issued by the Fifth Circuit, which will occur after August 12, 2024, and the CFPB resubmits its notice, motion and brief.

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