CFPB Under Fire: Litigants Are Using a Court Ruling to Push back Against the Agency

A small-market Texas state bank acting as plaintiff in a statewide assault on a Consumer Financial Protection Bureau (CFPB) final rule is the latest in a series of maneuvers by parties at odds with the agency. The federal bureau has been experiencing a pattern of new motions and lawsuits across the country that are using a U.S. Court of Appeals for the Fifth Circuit opinion holding that the bureau is unconstitutionally funded; therefore, its regulatory authority should be considered null.

In Texas Bankers Association and Rio Bank v. CFPB, the association and the McAllen-based bank challenge a recent final rule requiring the implementation of new software and compliance mechanisms. The suit further contends that any rules made public by the bureau are unconstitutional.

The plaintiffs complain that the bureau expanded 13 reporting data points required by law and turned them into almost 900 pages of rulemaking for more than 80 reporting requirements for small business loans.

Plaintiffs allege the bureau consistently ignored arguments of small-market lenders that assert the rule will hinder growth, drive smaller providers from the market, and reduce the availability of products to all customers, including minority and women-owned businesses.

“The average banking organization with $1 billion or less in total assets held over 13 percent of its portfolio as small-business loans in June 2021. By contrast, those with assets greater than $10 billion only held approximately 6 percent of their assets as such loans,” according to the complaint prepared by John C. Sullivan at S|L Law in Cedar Park and the Meeks, Butera & Israel firm in Washington, D.C.

The initial pretrial and scheduling conference is set for July 5 before Chief Judge Randy Crane.

Challenges Mounting

Rio Bank has about $900 million in total assets, with 14 locations in the Rio Grande Valley, and this its first challenge to the bureau. But Texas Bankers Association is America’s largest and oldest state banking organization, and has moved against the bureau before.

Last September, the association joined the U.S. Chamber of Commerce and other banking associations to challenge the bureau on another regulatory change, its update to the Unfair, Deceptive, or Abusive Acts or Practices section. In U.S. Chamber of Commerce v. CFPB, they allege the bureau exceeded its authority by adopting a policy that, for the first time, claimed discrimination on the basis of age, race, or sex, regardless of intent.

Unlike the Rio Bank case, which includes the unconstitutionality cause of action in its original complaint, the U.S. Chamber case preceded the Fifth Circuit’s CFPB v. Cmty. Fin. Servs. Ass’n of Am. Ltd. ruling. But after the U.S. Supreme Court granted certiorari in February, plaintiffs filed a Notice of Supplemental Authority to raise the Appropriations Clause–based Constitutionality issue.

The Rio Bank case was filed on April 26 in the U.S. Southern District of Texas–McAllen Division, and the U.S. Chamber case is in the Eastern District of Texas–Tyler Division. Counsel on U.S. Chamber is Cameron T. Norris of the Consovoy McCarthy firm in Arlington, Virginia.

The U.S. Chamber’s supplemental authority filing was one of a flurry of such filings to follow the Fifth Circuit’s opinion. Some examples include:

• CFPB v. TransUnion: In the U.S. Northern District of Illinois–Eastern Division before District Judge Elaine E. Bucklo; Jenner & Block in Chicago and Kaplan Hecker & Fink in New York for defendant alleged to have violated a prior consent order.
• CFPB v. Progrexion Marketing Inc.: In the U.S. District of Utah–Central Division; Williams & Connolly in Washington, D.C. for defendant alleged to have violated the Telemarketing Sales Rule and Consumer Financial Protection Act.
• CFPB v. Nationwide Biweekly Admin Inc.: In the U.S. Court of Appeals for the Ninth Circuit in San Francisco; Jones Day for the defendant contesting a $79 million civil penalty for allegedly misleading marketing practices.

After the Supreme Court granted certiorari on March 23, the Second Circuit issued CFPB v. Law Offices of Crystal Moroney, a case from the Southern District of New York that creates a split between the sister circuits.

U.S. Congress Monitoring

Legislative attorneys Sean M. Stiff and David H. Carpenter of the Congressional Research Service, in a whitepaper provided to Congress, said the Fifth Circuit opinion is unique in that it is the first to conclude that Congress, which is constitutionally mandated to make appropriations, violated the Appropriations Clause; challenges to Congress’ power of the purse are typically brought against the Executive Branch or the Judicial Branch.

The Fifth Circuit panel claimed Congress abdicated an obligation, which Stiff and Carpenter point out breaks new jurisdictional ground—“The (Supreme) Court has not described the Appropriations Clause, itself, as a provision that Congress could violate by making funding available in a statute.”

If the Supreme Court upholds the Fifth Circuit ruling, it could have grave and widespread ramifications, Stiff and Carpenter said, because similar rules of construction have existed for the other financial regulators since at least the 1930s.

“The decision also has the potential to create legal uncertainty in multi-trillion-dollar consumer financial markets that operate in accordance with the federal consumer financial laws implemented by the CFPB,” Stiff and Carpenter said. “These laws, including the Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, and Fair Credit Reporting Act, govern a wide array of consumer financial products and services.”

From: Texas Lawyer