The U.S. District Court for the Southern District of Texas granted the Consumer Financial Protection Bureau’s (CFPB or Bureau) motion for summary judgment on all Administrative Procedure Act (APA) challenges brought by several trade associations to the CFPB’s Final Rule under § 1071 of the Dodd-Frank Act, the “Small Business Lending Data Collection Rule” (Final Rule).
As discussed here, on April 26, 2023, the Texas Bankers Association and other trade associations initially challenged the Final Rule based on the Fifth Circuit’s decision in Community Financial Services Association (CFSA) v CFPB (CFSA case), which found the CFPB’s funding structure unconstitutional. On July 31, 2023, the district court entered a preliminary injunction in favor of the plaintiffs in the case Texas Bankers Association, et al. v. CFPB (Texas Bankers case). The injunction tolled all compliance dates while the U.S. Supreme Court considered a challenge to the Fifth Circuit’s decision. After other trade association intervened in the case, the district court extended the injunction to all covered lenders, as discussed here.
On May 16, 2024, the U.S. Supreme Court reversed the Fifth Circuit in the CFSA case, holding that the CFPB’s special funding structure does not violate the appropriations clause of the Constitution. The next day, the CFPB filed a notice in the Texas Bankers case identifying new compliance dates under the Final Rule, as discussed here, with the earliest date for the largest lenders being July 18, 2025. The CFPB later memorialized those new dates in an Interim Final Rule, covered here.
In the meantime, the parties in the Texas Bankers case had been briefing cross-motions for summary judgment on the plaintiffs’ separate claims that the CFPB violated the APA in finalizing the Final Rule. The federal district court ruled on those APA motions yesterday, finding that: (1) the CFPB did not exceed the authority granted to it under § 1071 in issuing the Final Rule; and (2) the CFPB did not act in an arbitrary and capricious manner in considering the Final Rule’s expected costs and benefits. Accordingly, the court entered judgment in favor of the CFPB on the APA claims. The plaintiffs will likely appeal the court’s ruling to the Fifth Circuit.
However, as the court noted in the last line of its opinion, the APA ruling does not end the litigation in the district court. The court must still rule on whether some of the plaintiffs, which Troutman Pepper represents, can amend their complaint to add a claim that, under the U.S. Supreme Court’s ruling in the CFSA case, the Federal Reserve has had no constitutional “combined earnings” with which to fund the CFPB since September 2022, when the Federal Reserve began to run a deficit. The CFPB published its Final Rule in May 2023 and amended it in July 2024.
We will continue to follow and report on all developments in this case. Meanwhile, the CFPB is proceeding full steam ahead to implement the Final Rule. On August 26, the Bureau unveiled its beta platform that will be used to file small business lending data. The beta version is for testing purposes only.
