CFPB Responds to the TBA, ABA, and Rio Banks’ Lawsuit

On May 4, 2023, Compliance Resource blogged on the lawsuit challenging Section 1071 final rule, released by the CFPB in March of this year.

The CFPB  filed an opposition to the lawsuit in June claiming the plaintiffs have not established their standing for relief or that venue is proper in the Southern District of Texas because:

  • Rio Bank alleged in the complaint that it made 409 small business and agricultural loans in 2022, per the CFPB they failed to establish or even allege that any of the loans meet Rule’s definition of a covered credit transaction. If at least 100 loans were covered transactions, Rio Bank would only be covered by the Rule if it also originates at least 100 covered transactions in 2023.  Rio Bank did not assert that it expects to do the same in 2023.  Accordingly, Rio Bank has failed to establish that it will be subject to the Rule and thus has not established standing for preliminary relief.
  • The TBA and ABA can proceed on behalf of their members under the doctrine of associational standing; neither TBA nor ABA have offered any specific facts to establish that at least one identified member has suffered or will suffer harm because of the Rule.
  • The plaintiffs’ failure to provide the details needed to establish standing not only deprives the court of the ability to assess its jurisdiction but also makes the court unable to assess its propriety as a venue.  The plaintiffs primarily rely on Rio Bank’s location in claiming that the venue in the Southern District of Texas is proper.  However, the plaintiff on whom the venue is based must have standing to sue.  Because the plaintiffs have not met their burden of establishing that a plaintiff residing in the Southern District of Texas has standing, they also have not shown that venue is proper in the Southern District of Texas.

Additionally, the CFPB states the plaintiffs have not carried their burden on all for requirements for preliminary relief.  They go on to state:

  • None of the plaintiffs have provided specific evidence establishing that they will be imminently harmed without preliminary relief.  Rio Bank stated that it has already begun compliance preparations and estimated that its related costs will be at least $20,000 for the remainder of 2023.  Assuming Rio Bank will be subject to the Rule, the Bank did not explain why it must use resources now rather than later.  TBA stated that some banks have been advised by consumer compliance experts to begin preparing for the Rule immediately and estimated costs of approximately $100,000 will be incurred by each of its member banks in preparing to comply.  However, TBA did not identify any member that it believes is facing irreparable harm or any specific costs that a member bank is currently incurring, nor did it attempt to establish that it is necessary for a member bank to incur these costs now rather than at some future time.  ABA stated that it has advised its members to begin implementation immediately and that some members have begun doing so.  However, it also failed to identify any specific costs that any member is required to incur now, as opposed to in the future.
  • There is a strong public interest in Section 1071’s requirements coming into effect without undue delay so that small businesses can begin to receive the benefits that Congress intended them to receive from Section 1071.
  • Even if the plaintiffs can establish a likelihood of success on the merits of their constitutional challenge, this is not enough to justify preliminary relief.  To be entitled to preliminary relief, the plaintiffs must carry the burden of persuasion on all four requirements for preliminary relief.

As we stated in May, we will continue to follow and share updates with you as they happen.

In the meantime, check out our comprehensive, curated launch pad for all things Section 1071 to ease the regulatory burden and help you achieve compliance.