A Texas credit union and two credit union trade associations have been granted leave to intervene in the lawsuit challenging the CFPB’s final small business lending rule (Rule) that is pending in a Texas federal district court. The Unopposed Emergency Motion for Leave to Intervene was filed by Rally Credit Union (Rally), a Texas-chartered credit union, the Credit Union National Association (CUNA), a national credit union trade association, and Cornerstone Credit Union League (CCUL), a regional credit union trade association. It followed a similar motion filed on August 4 by a Texas community bank and two community bank trade associations. Also, a group of Kentucky banks and a Kentucky trade association filed a new lawsuit last week in a Kentucky federal district court challenging the Rule.
All of these filings were triggered by the order entered on July 31 by the Texas federal court that preliminarily enjoins the CFPB from implementing and enforcing the Rule pending the Supreme Court’s reversal of [Community Financial Services Association of America Ltd. v. CFPB], a trial on the merits of this action, or until further order of this Court,” stays the deadlines for compliance with the Rule’s requirements pending the Supreme Court’s decision in CFSA, and extends the deadlines for compliance in the event of a reversal in CFSA. The plaintiffs in the case are the Texas Bankers Association (TBA), the American Bankers Association (ABA), and Rio Bank, McAllen, Texas. However, instead of the nationwide relief requested by the plaintiffs, the court limited the relief it granted to Rio Bank, ABA, and TBA and members of ABA or TBA.
In addition to granting the emergency motion for leave to intervene filed by Rally, CUNA, and CCUL, the Texas federal court granted the movants leave to file the Complaint in Intervention attached to their motion. Rally, CUNA, and CCUL indicated in their emergency motion that, if permitted to intervene, they would file a motion to obtain the same preliminary relief granted to the plaintiffs, either through a motion to modify the existing preliminary injunction or a motion for preliminary injunction. The CFPB will have an opportunity to respond to their motion and the court will need to decide if Rally, CUNA, and CCUL have standing and are entitled to the relief they seek. The Texas federal court has not yet ruled on the motion for leave to intervene filed by the Texas community bank and two community bank trade associations.
In the new Kentucky lawsuit, the plaintiffs consist of seven Kentucky state-chartered banks, one national bank with its main office in Kentucky, and the Kentucky Bankers Association (KBA). The first four counts of their complaint substantially track the complaint filed in Texas by Rio Bank, ABA, and TBA. These counts allege that the Rule is invalid because it was promulgated by the CFPB using funding that violates the Appropriations Clause and because the Rule violates the Administrative Procedure Act. It also includes a fifth count that alleges the Rule violates the First Amendment because the Rule’s prohibition on discouraging applicants from responding to requests for data and the CFPB’s Enforcement Statement regarding that prohibition “does not permit the Plaintiff Banks to truthfully advise that an applicant for credit may refuse to provide any information that the [Rule] would otherwise require to be collected.”
By filing a new lawsuit in Kentucky, which is in the Sixth Circuit, rather than seek leave to intervene in the Texas lawsuit, the Kentucky banks and KBA could face challenges that the Texas plaintiffs have already overcome. The Texas federal district court, based on the Fifth Circuit panel decision in CFSA, has already found a substantial likelihood that the plaintiffs would prevail in asserting that the Rule is invalid because it was promulgated using the CFPB’s unconstitutional funding. It has also already found that the plaintiffs satisfied the other requirements for a preliminary injunction, specifically that (1) the unrecoverable compliance costs alleged by the plaintiffs constituted a substantial threat of irreparable harm, noting that “the Fifth Circuit has accepted projected compliance costs as constituting irreparable harm,” and (2) the balance of harms and public interest favored a stay because the CFPB had not shown any evidence that a stay of the Rule would cause harm. The judge assigned to the Kentucky case, Judge Karen K. Caldwell, may be unfamiliar with the issues in the case, and it is uncertain how the Sixth Circuit would rule on the constitutionality of the CFPB’s funding.
We would expect to see a flurry of additional intervention motions or new lawsuits filed by other banks, credit unions, and non-banks who are covered by the Rule but not the preliminary relief granted by Texas federal court.
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