As discussed here, on April 26, the Texas Bankers Association (TBA), the American Bankers Association (ABA), and Rio Bank, McAllen, Texas (Rio Bank) filed a complaint in the U.S. District Court for the Southern District of Texas challenging the Consumer Financial Protection Bureau’s (CFPB or Bureau) final rule under § 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Final Rule). The plaintiffs’ complaint relied heavily on the Fifth Circuit’s decision in Community Financial Services Association (CFSA) v CFPB, finding the CFPB’s funding structure unconstitutional and, therefore, rules promulgated by the Bureau invalid. The CFPB’s appeal of the Fifth Circuit’s decision is currently pending before the U.S. Supreme Court (discussed here).

On July 31, the federal district court issued an order granting, in part, the plaintiffs’ motion for a preliminary injunction (discussed here). Specifically, the court enjoined the CFPB from implementing and enforcing the Final Rule against the plaintiffs and their members, but denied the plaintiffs’ request for a nationwide injunction. The injunction will dissolve if the U.S. Supreme Court reverses the Fifth Circuit in the CFSA case but, in that event, the CFPB will be required “to extend [the plaintiffs] and their members’ deadlines for compliance with the requirements of the Final Rule to compensate for the period stayed.”

On August 4, Texas First Bank, Independent Bankers Association of Texas (IBAT), and Independent Community Bankers of America (ICBA) (collectively, Proposed Intervenors) filed an Unopposed Emergency Motion for Leave to Intervene (Emergency Motion) and brief in support arguing that they will suffer irreparable harm if the CFPB is not enjoined from enforcing the Final Rule against them. Texas First and many other community banks that are members of ICBA and IBAT are not members of the ABA or TBA, so the current injunction does not apply to them. “Proposed Intervenors stand to incur thousands of dollars in expenses associated with complying with the unconstitutional and unenforceable Final Rule, while many of their competitors — [p]laintiffs and their member banks — have been granted injunctive relief.”

In the Proposed Complaint in Intervention filed as Exhibit 1 to the Emergency Motion, the Proposed Intervenors seek the same relief sought by the plaintiffs based, in part, on the same legal grounds that the CFPB’s funding mechanism is unconstitutional. The Proposed Intervenors also raise the legal argument that the CFPB violated the Administrative Procedures Act in “multiple ways” by exceeding its statutory authority, failing to account for all comments relevant to implementation of the Final Rule, and failing to properly consider the costs and benefits of the Final Rule. The Proposed Intervenors argue that rather than file a separate, duplicative lawsuit, the court should instead grant them leave to intervene in the present action.

The Emergency Motion includes a certificate of conference attesting that counsel for the Proposed Intervenors conferred with the CFPB’s counsel and was advised that it did not oppose the motion.

Our Take

This could be the first of several motions to intervene in the TBA v. CFPB case by trade associations seeking to level the playing field for their members.

In the interim, the ABA and TBA sent a letter to the CFPB on August 3 following issuance of the court’s injunction. The trade groups asked the Bureau to extend the stay for the Final Rule to all FDIC-insured banks, noting that “[w]hile most FDIC-insured banks fall within our membership, there are some that do not.”

We also believe that this same sequence of events is likely to play out for any other regulation the CFPB finalizes prior to the CFSA case being decided by the Supreme Court, with the credit card late fee rulemaking and the § 1033 rulemaking seeming like they could be impacted by the pendency of the Supreme Court case.