Scorecard for Major Litigation: Banks vs. CFPB

“Sometimes you eat the bear, and sometimes the bear eats you” has been attributed to legendary baseball pitcher Elwin “Preacher” Roe, addressing the inherent ups and downs of competing in sports.

This quip is equally applicable to the recent onslaught of litigation between the banking industry and the Consumer Financial Protection Bureau (CFPB), which has involved a variety of ups and downs. The following is a brief summary of some of those cases, along with a tally of some of the ups and downs.[i]

Challenge to CFPB Constitutionality. Consumer Financial Services Association of America, Ltd. et. al. v. CFPB (CFSA Case) is currently before the U.S. Supreme Court. 

• Background and Primary Issue. This case involves a challenge to CFPB’s statutory funding arrangement, claiming it violates the appropriations clause of the U.S. Constitution. The case was initiated to challenge a CFPB rule applicable to payday loan companies. 
• Ups and Downs. The U.S. Fifth Circuit Court declared the CFPB’s funding arrangement unconstitutional and, therefore, the rule to be invalid. The CFPB is attempting to get that decision overturned by the Supreme Court.

During Supreme Court oral argument, several justices expressed skepticism about the reasoning behind the Fifth Circuit opinion. Also, the U.S. Second Circuit Court of Appeals, in a separate case, declined to follow the Fifth Circuit reasoning and rejected the argument that the CFPB funding structure was unconstitutional. It’s unclear what the impact would be if the Fifth Circuit decision is upheld by the Supreme Court. The argument challenging the constitutionality of the CFPB’s funding is likely also present in most current cases involving the CFPB as a party, including those listed below.

• Status. The case was argued before the U.S. Supreme Court Oct. 3, 2023. The Court’s decision is pending and is anticipated to be released within the next few months.

Challenge to CFPB Small Business Data Collection Rule (two similar cases). Texas Bankers Association, et. al. v. CFPB is in the U.S. District Court for the Southern District of Texas, and The Monticello Banking Company, et. al. v. CFPB is in the U.S. District Court for the Eastern District of Kentucky.

• Background and Primary Issue. These lawsuits challenged the CFPB’s rule requiring banks to collect certain information from small business borrowers under Section 1071 of the Dodd Frank Act.
• Ups and Downs. Preliminary injunctions were issued by both federal courts to stop the CFPB from implementing and enforcing the rule, pending the decision on constitutionality in the CFSA Case. However, some banks were initially not covered by those preliminary injunctions because the injunctions, as initially issued, only applied to the litigants (including, for example, member banks of the American Bankers Association). The Texas federal court later expanded the relief to cover all banks subject to the CFPB rule.
• Status: Both cases are in limbo, awaiting the Supreme Court decision in the CFSA Case regarding the constitutionality of the CFPB’s funding arrangement. Hearings were held in March in the Texas case on non-constitutional issues.

Challenge to CFPB Credit Card Late Fee Rule. Chamber of Commerce of U.S.A. et. al. v. CFPB was recently remanded by the U.S. Fifth Circuit Court of Appeals to the U.S. District Court for the Northern District of Texas to rule on the plaintiffs’ injunction request.

• Background and Primary Issue. This case involves a challenge to CFPB rule limiting credit card late fees by setting “safe harbor” fee amount at $8 for “larger” credit card issuers. The case was filed in the U.S. District Court for the Northern District of Texas. The CFPB has accused the plaintiffs of “forum shopping.”
• Ups and Downs. The U.S. District Court asked for and then approved a motion by the CFPB to transfer the case to the U.S. District Court for the District of Columbia, a court preferred by the CFPB but not by the plaintiffs. However, the Fifth Circuit has overruled the District Court’s transfer order. 
• Status. The Fifth Circuit has also remanded the case to the District Court to rule on the plaintiffs’ motion for preliminary injunction, which should happen quickly. Concurrently, the U.S. House of Representatives and Senate are considering legislation to void the late fee rule under the Congressional Review Act, although a veto by President Biden would be expected.[ii]

Challenge to CFPB Expansion of UDAAP. Chamber of Commerce of the U.S.A. et. al. v. CFPB is currently being appealed to the U.S. Fifth Circuit Court.

• Background and Primary Issue: This case involves a challenge to the CFPB’s attempt to expand “UDAAP” (unfair, deceptive or abusive acts or practices) coverage under the Dodd Frank Act to include discrimination involving any type of financial product or service. This expansion was effected by the CFPB revising an examination manual, rather than proposing a rule change. The U.S. District Court for the Eastern District of Texas ruled for the plaintiffs, vacating the CFPB exam manual language and the policy behind it. The CFPB has appealed.
• Ups and Downs. The District Court’s ruling only applied to the litigants and not to all banks impacted by the CFPB policy. However, after the District Court ruling, the CFPB removed the UDAAP exam manual language. The District Court not only ruled against the CFPB by following the Fifth Circuit holding that the CFPB’s funding arrangement is unconstitutional (i.e., the CFSA Case), but it also ruled against the CFPB on grounds that the CFPB exceeded its authority under the Dodd Frank Act in adopting the policy.
• Status: The CFPB has filed a Notice of Appeal with the Fifth Circuit.

On Deck and In the Hole. The following CFPB rules are still in proposed form and therefore not ripe to contest in a court action. However, they may be subject to lawsuit challenges like the challenges to the CFPB actions listed above, when they become final:

• CFPB “open banking” rule requiring banks to implement systems for customer data sharing; and
• CFPB overdraft rule amending Regulations E and Z.

Change in Litigation Environment. Bank industry suits against bank regulators were once – not that long ago – pursued only in extreme and unusual cases. That approach was considered a better way to keep good and productive relations between the industry and its regulators, who have to conduct examinations regardless of whether litigation is pending.

However, as the set of cases summarized above shows, the banking industry is no longer shy about suing the CFPB. The banking industry now appears to see filing these types of cases as one of the few ways to defend against actions it believes are unauthorized or inappropriate exercises in bureaucracy pushed by a government agency it sees as overly aggressive.

Conclusion. “It ain’t over ’til it’s over” has been attributed to baseball legend, Lawrence “Yogi” Berra.

Like the Preacher Roe witticism above, this Yogi Berra adage captures the uncertainty of the current wave of bank vs. CFPB litigation: The arguments and hopes of each side will hang in the balance until the last appeal is exhausted or the U.S. Supreme Court makes the final call.