Bank regulators are now on notice that the industry will not sit idly by if they act outside of their congressional authority or try to sidestep the rulemaking process.
Numerous lawsuits, where federal bank regulators will attempt to defend their actions, are currently moving forward.
Litigation brought by the American Bankers Association and the Texas Bankers Association questioning the constitutionality of the Consumer Financial Protection Bureau’s funding mechanism (they do not go before Congress for an appropriation) was heard by the Supreme Court in early October with a decision expected in spring of 2024. The lower court ruled that the funding mechanism was unconstitutional.
Litigation was also brought against CFPB by the American Bankers Association, the Texas Bankers Association and the U.S. Chamber of Commerce, challenging the legality of recent changes made by the agency to the Unfair, Deceptive or Abusive Acts or Practices (UDAAP) examination manual. The U.S. District Court ruling in September makes clear the CFPB exceeded its statutory authority when it updated its exam manual and announced an open-ended and novel power to examine banks for alleged discriminatory conduct. This authority is nowhere to be found in the agency’s mandate from Congress, as the court concluded. The judge agreed that the CFPB clearly exceeded its statutory authority under the Dodd-Frank Act. In addition, the judge upheld ABA’s challenge to the exam manual on the grounds that it was the product of an unconstitutionally funded agency. The Court judgment included a vacatur of the agency action. We do not yet know when this case will move to a higher court.
Another lawsuit brought forward by the Texas Bankers Association and the American Bankers Association questions if CFPB went beyond the Congressional approved scope regarding section 1071 of the Dodd-Frank Act. DFA granted CFPB the collection of 13 data points. CFPB by rule would be collecting 81 data points. A federal judge in Texas granted a limited injunction staying implementation of the Consumer Financial Protection Bureau’s Section 1071 small business reporting rule for members of the American Bankers Association and Texas Bankers Association until the U.S. Supreme Court rules on a separate challenge to the CFPB’s funding structure.
The Kentucky Bankers Association brought a similar lawsuit with yet another victory for the industry. The Judgment reads, “The Consumer Financial Protection Bureau is ENJOINED from enforcing the Small Business Lending Rule until the Supreme Court issues an opinion ruling that the funding structure of the CFPB is constitutional.” It appears that the Court has granted a broader injunction against the CFPB on the enforcement of 1071 pending a ruling by the Supreme Court on the constitutionality of the funding structure of the CFPB.
CBA stands ready to help further these actions by joining the litigation, issuing amicus briefs or helping fund legal expenses. I am optimistic about the higher court’s probability of ruling in favor of the banking industry. However, even if the rulings are not in our favor, bank regulators now know if they cross the line, the industry will hold them accountable.
