District Court grants 1071 Rule nationwide stay
On October 26, the U.S. District Court of the Southern District of Texas entered an order granting intervenors’ motions for preliminary injunction against the CFPB and its small business loan rule.
As previously covered by InfoBytes, the district court entered an order in August enjoining enforcement of the rule pending the Supreme Court’s decision in Consumer Financial Protection Bureau v. Community Fin. Serv. of Am. and extending the rule’s compliance date to account for the tine the stay remained in place. The court, however, limited that relief to the plaintiffs at that time—a bank and two bank trade associations—and their members. In the wake of this ruling, separate trade associations representing small business lenders asked the CFPB to take administrative action to ensure that the compliance date for other lenders would be adjusted commensurately. The CFPB declined their request.
In response, separate groups of intervenor plaintiffs, including trade associations representing other types of small business lenders, intervened in the action and filed motions seeking to expand the scope of the preliminary injunction to all affected lenders (or at least their members), claiming the court’s decision to spare some from the rule put them at a competitive disadvantage. The CFPB opposed those motions (covered by InfoBytes here).
In its most recent order, the court reasoned that the preliminary injunction should extend to intervenors because the CFPB lacked evidence supporting its argument that that greater harm would result from a stay on its 1071 rule and “its intended benefits for small businesses failed to tip the balance in their favor.” The court reasoned that the purpose of the statute underlying the Bureau’s final rule is the equal application of lending laws to all credit applications to avoid disparate outcomes, presuming uniform application to covered financial institutions. Therefore, to exempt plaintiffs and not all other covered financial institutions would undermine the statute, leaving “non-exempted lenders subject to the discretion of an agency whose very ability to act is a matter of constitutional concern pending resolution on a nationwide scale.” Under that reasoning, the district court granted plaintiffs’ motions for preliminary injunction, enjoining the CFPB from implementing its 1071 Rule for small business lending.