On September 14, U.S. District Court for the Eastern District of Kentucky granted a motion brought by the Kentucky Bankers Association (KBA) and eight Kentucky-based banks (plaintiffs), seeking a preliminary injunction enjoining the CFPB from enforcing the Small Business Lending Rule (the Rule) against the plaintiffs and their members. In granting the motion, the court agreed to halt the rule until the Supreme Court rules on the CFPB’s funding structure in Consumer Financial Protection Bureau et al. v. Community Financial Services Association of America Ltd. The court also noted that the banks are incurring expenses related to “training programs, seminar fees, staff time, and new software” to comply with the ule, which they cannot recover due to the federal government’s sovereign immunity and “are likely unrecoverable, resulting in irreparable harm to plaintiffs.”
Finally, the court noted that the Supreme Court’s decision will be issued by June 2024 at the latest and that the CFPB is unlikely to suffer any harm in the interim since the agency is not requiring firms to comply with the requirements until October 2024 at the earliest.
Putting It Into Practice: The rollout of the CFPB’s requirements had already been blocked by a Texas federal court, though that decision only applied to the member banks of plaintiffs in that separate litigation, the American Bankers Association and the Texas Bankers Association (we discussed this case in a previous blog post here). This latest injunction effectively expands that relief to include banks that are members of the KBA. Financial institutions not impacted by these latest injunctions should be mindful that the CFPB is still conducting business as usual, as shown through its updated FAQs related to the Rule that were released on September 14. Impacted financial institutions should still seek to review the Rule and related CFPB guidance.