On August 7, 2024, the U.S. District Court for the Eastern District of Kentucky granted the CFPB’s motion to stay the small business lending rule litigation before the court until resolution of the similar case pending in the Southern District of Texas.

In 2023, a group of Kentucky banks and the Kentucky Bankers Association brought suit against the CFPB challenging the Small Business Lending Rule, which amends Regulation B and creates data collection and reporting requirements pertaining to credit extended to small businesses. The Kentucky banks claimed that the rule was invalid because (1) the CFPB’s funding is unconstitutional, (2) the CFPB exceeded its authority in adding data points for collection, (3) the CFPB acted arbitrarily and capriciously, (4) the costs and benefits analysis was unreasonable, and (5) the rule violates the First Amendment to the U.S. Constitution. Based on the U.S. Supreme Court’s pending consideration at the time of whether the CFPB’s funding structure is constitutional, in September 2023, the court granted a preliminary injunction to enjoin the CFPB from enforcing the rule. The litigation was stayed pending the Supreme Court’s ruling on the constitutionality of the CFPB’s funding structure.

In April 2023, a Texas bank and the Texas Bankers Association filed a similar complaint in the Southern District of Texas. That complaint included substantially the same arguments challenging the small business lending rule, other than the First Amendment claim. The American Bankers Association was added as a plaintiff shortly after the initial filing. In December 2023, a trade group whose members include non-banks that provide sales-based financing to businesses, filed suit in a Florida federal district court also challenging the small business lending rule. The Florida case is unique in that the core argument is that sales-based financing does not constitute “credit” within ECOA and Regulation B. However, these plaintiffs made some of the same arguments challenging the validity of the rule.

On May 16, 2024, the Supreme Court held that the CFPB’s funding mechanism comported with the Appropriations Clause of the Constitution, which resolved the constitutional challenge. With the constitutional challenge resolved, the Kentucky, Texas, and Florida courts have the remaining challenges to consider. In the Florida litigation, the plaintiffs and CFPB have filed a motion for summary judgment and cross-motion for summary judgment. Similarly, in the Texas litigation, the plaintiffs have filed a motion for summary judgment and the CFPB has filed its response and a cross-motion for summary judgment. The Kentucky court held that because its case and the Texas case are nearly identical, and the suit in Texas was filed first, the Kentucky court should apply the first-to-file rule, and stay its case until the Texas court proceeds to final judgment.

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