On July 31st, a U.S. District Court in Texas granted a stay on the compliance dates for members of the American Bankers Association (ABA) and Texas Bankers Association (TBA) with respect to the CFPB’s Section 1071 rule that was released earlier this year. The stay will remain in effect until the Supreme Court makes a final decision on the constitutionality of the CFPB’s funding structure. This review is scheduled for October of this year, but a definitive decision on the constitutionality issue is not expected until mid-2024.
The Judge’s ruling orders the CFPB to accommodate compliance dates based on the outcome of the constitutionality review. While the ABA and TBA requested an injunction, it should be noted that the ruling only applies to lenders who are members of these associations and Rio Bank in Texas – which could lead to inconsistency and confusion in the industry and for financial institutions that don’t belong to these organizations.
A statement issued by the ABA, TBA and Rio Bank commented on the limited scope of the stay saying, “While we sought an injunction covering all institutions covered by the rulemaking, this ruling spares TBA and ABA members across the country from being forced to incur unrecoverable expenses while the Supreme Court is considering whether the CFPB has the authority to promulgate the 1071 final rule at all.”
The Judge’s decision to make this a nationwide ruling in a State District Court raises questions as it is uncommon for a “stay” to be selectively applied to certain institutions across multiple states.
Then today, the TBA and ABA issued a request to the CFPB’s Director, Rohit Chopra, to extend the stay to all FDIC-insured banks. However, it is worth noting that doing so would still leave hundreds of institutions in the position of having to comply with Section 1071 based on the current compliance dates.
We’ll be sure to continue to share updates and developments on this issue as they happen, so stay tuned!