A federal judge in Kentucky recently issued a nationwide injunction blocking enforcement of the Consumer Financial Protection Bureau’s (CFPB’s) Section 1071 final rule (the “Final Rule”) until the U.S. Supreme Court (SCOTUS) rules on the constitutionality of the CFPB’s funding structure in a separate pending case. The injunction is distinct from a similar order issued by a Texas judge in July, which only applied to Texas Bankers Association (TBA) and American Bankers Association (ABA) members, including co-plaintiff Rio Bank.
At the end of May, TBA, Rio Bank, and the ABA asked the U.S. District Court for the Southern District of Texas to issue an injunction halting implementation of the Final Rule. This request was granted delaying implementation only for member banks of the plaintiffs. ABA and TBA asked for a nationwide injunction in their lawsuit, but the Judge sided with the CFPB in limiting the order only to members of both groups. Afterwards, TBA and the ABA urged the CFPB to voluntarily pause enforcement of the rule while SCOTUS considers the case on the constitutionality of the CFPB’s funding. SCOTUS is scheduled to hear oral arguments in that case October 3, with a ruling expected spring 2024 but no later than June 2024. At a minimum, the injunction extends Sec. 1071 compliance dates for TBA and ABA members for the stayed period.
In Kentucky, the state bankers association and several banks operating in-state filed suit in the U.S. District Court for the Eastern District of Kentucky arguing that because the CFPB issued the Final Rule with funds derived from unconstitutional sources, the Final Rule itself violates the Constitution. The plaintiffs then moved for a preliminary injunction to enjoin the CFPB from implementing and enforcing the Final Rule. The court granted the plaintiffs’ motion, but its impact seems more limited than the ruling out of Texas. As the court conceded, “[b]efore the [Final] Rule becomes enforceable, a decision on the merits will be issued by the highest Court in the land. A preliminary injunction will create no harm to the CFPB nor the public since the [Final] Rule would not otherwise be enforceable in the interim.”
While this is ultimately subject to legal interpretation, the result is a seemingly all-inclusive, nationwide injunction against enforcement of the Final Rule until the SCOTUS ruling slated for spring of 2024. It’s important to note that this case is not the same as the TBA case. Unlike the injunction entered in Texas, the Kentucky order does not delay the compliance date for the Final Rule for the duration of the court’s injunction, but with an October 2024 compliance date falling after the expected ruling from SCOTUS this may have little impact. It also remains to be seen whether or not the CFPB will try to take either decision up on appeal.