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Last week, our counterparts at the Texas Bankers Association announced that they, along with Rio Bank, had filed a lawsuit for declarative and injunctive relief for community banks from the implementation of final rules implementing Section 1071 of the Dodd-Frank Act.

The lawsuit attacked the CFPB’s rule on multiple grounds:

  1. The bureau is unconstitutionally funded and did not adhere to the administrative procedures act;
  2. The bureau exceeded its statutory scope by drastically exceeding the data required to be collected by the Dodd-Frank act;
  3. The bureau acted in a manner that is arbitrary and capricious by not heeding comments raised in the rulemaking process; and
  4. The bureau did not adequately adhere to requirements that require a cost/benefit analysis of the rule.

The arguments follow closely to those employed in the lawsuit IBAT entered last year, which challenged the CFPB on revisions to its exam manual to include scrutiny of deposit accounts and other products.

So, what happens now?

As the suit was filed in the 5th Circuit Court (which previously declared the bureau’s funding mechanism as unconstitutional), the court is likely to agree that the impact and implementation of the rule should at the very least be delayed. That decision would be appealed by the bureau and would likely end up at the Supreme Court. Ultimately, this case could decide how current rulemakings will be treated until such a time as the Supreme Court rules on the question of the constitutionality of the CFPB’s funding mechanism.

The other grounds for the complaint could result in permanent relief from the implementation of the rule. However, the efficacy of those arguments is much less sure at this time.

IBAT has been working to raise awareness of this issue and its accompanying effect on credit availability for small businesses through outreach to our Texas Congressional delegation. Please visit our Grassroots Action Center to reach out to your members of Congress and register your concerns regarding the final rules implementing Section 1071.