(Austin, Texas) - The Texas Bankers Association (TBA) and co-plaintiffs, [Bank], Texas, and the American Bankers Association (ABA), have been successful in their motion to halt implementation of the Consumer Financial Protection Bureau's (CFPB) Section 1071 Finale Rule.

Watch for the press releases.

As I understand it, it will spare TBA and ABA members from having to devote time and resources complying with the rulemaking until the Supreme Court resolves a separate case involving the constitutionality of the CFPB's funding.

ABA's link to the Order:
https://www.aba.com/advocacy/policy...tm_content=SPECIAL_EDITION-20230731.html

Ya-Hoo!

If you are not a member of the ABA or TBA, I would not get too excited yet. You need to read the ruling.

For the foregoing reasons, the Court ORDERS that Plaintiffs’ Motion (Dkt. No. 13) is GRANTED IN-PART and DENIED IN-PART. The Court DENIES Plaintiffs’ request for nationwide injunctive relief, and GRANTS Plaintiffs’ request for relief as to Plaintiffs and their members.

We're an ABA member, so Ya-hoo and all, but that seems to make absolutely no sense at all.

Well, you have to have "standing" in a suit like this. Only Rio Bank, the ABA and TBA were plaintiffs. Since the court did not even opine on the standing of the ABA and TBA to bring suit, I am surprised they even extended it to their members.

We are ABA members-that was my YaHoo. The injunction was approved pending the other CFBP case in front of SCOTUS. With recent action coming from the Minnesota Bankers Association and this action, it is nice to see trade groups going to bat like this.

Yeah, that case is going to be interesting. So, if they are successful, what does that actually mean. All rules issued by the CFBP become null and void? I have not read the case, so I am not that familiar with the details.

Be careful what you wish for if that is the case, because then you are going to have to pull out the old GFE's and HUD-1's for a starter.

I like the old GFE's and HUD 1's. I was just explaining a GFE to a younger staff member the other day! Some of us remember back in the day you would be doing revisions on the HUD 1 up until the actual closing time. Yeah, I think if that SCOTUS case goes the way it is looking and against the CFBP funding mechanism, then the CFBP could be null and void.

It will be a mess that no one really wants in the real world, if that is the case. Who really wants for everything to unwind back to 2010? The costs involved in that pale in comparison to any costs associated with 1071, plus it would tip the entire mortgage industry on its head. Half the people currently involved in compliance probably started after 2010.

I've made that argument many times over the past decade. Still, things were way better before, both for consumers and traditional mortgage lenders.

As for most compliance folks who jumped in post 2010; who could blame them? This has become a "cottage industry," for sure.

My biggest concern has been that most of the folks newer to compliance never learned the original regulations from the ground up. What I have seen since is mass conflation of regulatory risk perception growing much bigger than it really is, which has only exacerbated industry consolodation. The 1071 rulemaking will most certainly facilitate this, which is not good for the broader U.S. economy (we need a network of de-centralized community banks).

I am happy for this little win for the time being.

1071 was ill conceived. I get the idea that our regulators en masse, want to ensure fair lending across consumer, commercial and residential lending. Really, we all get that as an industry. Community Banks are the ultimate small business lenders. But at the same time the CFBP wants to regulate small commercial lending to make sure our industry is playing fair, the SBA wants more competition for community banks by opening the 7(a) program to fintech lenders. Yeah, one arm of the government wants to make sure community banks are doing everything correctly and another arm wants to throw more non-bank players into the mix who won't have the same regulatory issues. Brilliant!

1071 is not going anywhere without an act of Congress . . . because it was created by an act of Congress. Whatever the result of the constitutionality of the CFPB, we will someday have a 1071 rule unless Congress repeals it. Remember, it's called "1071" because that's the section of the Dodd Frank Act that required the CFPB to issue it.

Remember the CFPB was under court order to enact the rule quickly, so we'll see how this all plays out. It'll be interesting/chaos for a while if they rule the CFPB is unconstitutional. I don't think it'll go as well as some people seem to think. Risk escalates quickly with uncertainty.

I was around pre-2010 and i don't want to return to separate RESPA/TIL disclosures.

I'm maybe a little more measured than others. Personally, I think the structure of the Bureau was ill-conceived from the start, and there were ways it was designed that almost ensured that the mess we are dealing with today would come to pass. Saying that, I will also say that if the structure has to be reworked, I'm not entirely convinced that would result in every rule being vacated, especially since a lot of these rules were mandated by DFA. Remember, the courts didn't direct the CFPB to act quickly on 1071, they ran out of patience because the CFPB drug its feet for over a decade on a rule that was mandated by legislation. Will there be pain if the funding mechanism is found unconstitutional? Probably yes, but does that mean we go back to 2010? I highly doubt it. I would suspect that rules mandated by DFA would be permitted to stand, but rules without clear Congressional mandate would be vacated.

Then the fights can begin on whether the implementing regulations exceeded the intent of the legislation...

Just sat in on a 1071 update call from ABA. Attorneys intrepreting the injunction stated that they believe banks who now become full (voting) members of ABA before the Supreme Court opines may be granted the benefits of the stay.

Also, if they reverse, a bank benefiting the stay will be able to tack on 10 months for the effective date(s).

These are my main takeaways (what I heard). Of course, there are many nuances based on FI structure (subsidiaries, FinTech relationships, etc.).

They will be doing a follow up call available to all banks this Friday, inlcuding non-members. Again, what I heard.

Hard disagree that things were way better for consumers pre-CFPB.

Interesting take. Sounds to me like ABA making a sales pitch to increase membership. I have a hard time believing that banks who were not members when the stay was enacted can come in after the fact and receive the benefits.

What I paraphrased were comments from an attorney interpreting the injunction. They (ABA & TBA) advocated for the entire industry.

Here is the link to this Friday's webinar summarizing it.

https://www.aba.com/training-events...tm_content=2023_1071_Webinar_8.4.23.html

"Please join us for a free webinar open to bankers at all of America’s banks to learn more about recent developments in the legal fight over the CFPB’s Section 1071 Final Rule. Legal experts and senior leaders from ABA, Texas Bankers Association and Rio Bank will provide more details on this week’s court order from a federal judge in Texas delaying the CFPB’s implementation and enforcement of the rule for ABA and TBA members."

I am sitting in on the ABA webinar in about a half hour. I just don't feel comfortable with this. I am planning on still moving forward with preparation for implementation.

Same here.

At the end of the day there are many unanswered questions. Regardless, Compliance needs to be aware of the speculative outcomes so it can discuss options with management.

It will be interesting to see if the court clarifies more specifically who its order applies too. I know the ABA and TBA are interpreting it to apply to any ABA/TBA members, even if they joined post-order, but there's really nothing in the order that supports (or arguably goes against) that position. I wonder if the Bureau will issue a new regulation enacting a broader exemption, or if we'll see additional law suits by other trade associations trying to get in on a stay. What a mess... Sometimes the cure is worse than the disease.

There are already other lawsuits filed to expand the injunction: https://ibat.informz.net/InformzDataService/OnlineVersion/Pub/bWFpbGluZ0luc3RhbmNlSWQ9MTExODAxMDg=

ABA & TBA sent a letter to the CFPB on August 2nd respectfully requesting they extend the stay to all FDIC-insured banks.

American Banker wrote on July 31st:

"Though the CFPB has a busy rulemaking agenda ahead, experts now say that no new major regulatory requirements are going to take effect because industry can file injunction in Texas to stop the CFPB from implementing rules until the Supreme Court makes a decision on its constitutionality."

I guess in the meantime, we may be able to expect more regulation by blog posts rather than the Federal Register?

Yes, which has worked so well in the past.

I spoke with a very high level CFPB person yesterday. He told me that since Dodd Frank passed 1071 there is a very clear legislative mandate to collect the data mandated in 1071. The CFPB was charged with that responsibility. So some way, somehow the mandate will be imposed on financial institutions. Perhaps some of the fields added by the Bureau could be nixed since there was a certain amount of regulatory discretion allowed by the law. But the 1071 mandate will eventually be imposed on lenders no matter the court decision about the CFPB itself.

It appears the Kentucky Bankers Assocation along with some member banks of theirs have filed a complaint in the U.S. District Court Eastern District of Kentucky challenging the authority of 1071, among other complaints against the rule.

Meanwhile, the Credit Union National Association (CUNA), Independent Community Bankers Association (ICBA) and Independent Bankers Association of Texas (IBAT) have joined the ABA/TBA/Rio Bank suit on behalf of its members as well.

While I agree with Len that (as most of us know) 1071 is baked into the Dodd-Frank statute, and therefore, we will have to comply with some form of it one way or another; I do think (my opinion) it is premature for banks covered by the stay to continue to incur unrecoverable costs of implementation of something that very well look different in the meantime.

Another big unknown is the impact on CRA reform. The banking regulators have publicly stated they will use the 1071 small business definition in CRA reform. Does that mean that reform is on hold until after the final rule? Or will the agencies just write the 1071 definition into a CRA rule without waiting? Or will they implement using the current (or some other rule) and revise once 1071 is settled?

Am I reading correctly that ICBA banks have been added to the motion as of Aug 15?

https://www.icba.org/docs/default-source/icba/news-documents/motion-to-intervene-court-order.pdf

They have been added to the case. They have asked the court for an injunction that would apply to their members and CFPB has opposed it. The court has yet to rule on that motion, so for now the injunction remains limited to its original group.

I am rather happy I am no longer in consulting.

What a mess!

Just heard some great news that in response to a 1071 suit filed by the Kentucky Bankers Association (KBA), that the injunction against 1071 is now nationwide until the Supreme Court rules on the CFPB's funding structure. Sounds like it will apply to all FDIC-insured banks and all lenders subject to the rule.

Be on the lookout for various press releases on the topic with more details.

Wow! Glad to hear it, simply for the consistency it provides. It would have been a circus otherwise. Thanks for sharing!

From BOL this morning:

Kentucky federal judge blocks enforcement of Section 1071 rule
A federal judge in Kentucky has issued a nationwide injunction preventing enforcement of the CFPB's Small Business Lending (Section 1071) final rule (subpart B of Regulation B) until the U.S. Supreme Court rules on the constitutionality of the Bureau's funding mechanism.

The Kentucky case was brought by the Kentucky Bankers Association and eight banks. They asked the court to block enforcement of the rule while SCOTUS considers CFPB v. Community Financial Services Association of America, which is scheduled to be argued in October. SCOTUS could release a decision any time before the end of June, 2024.

The Bureau has not yet updated the message on its Small Business Lending compliance resource page to acknowledge the order of the federal court in Kentucky.

So, even if the Kentucky order expands the injunction to all FDIC-insured institutions, it doesn't seem to extend the implementation timeline if the Supreme Court rules that CFPB funding is constitutional, correct? If that's the case, then this Kentucky order doesn't really gain us the ability to mitigate our upfront costs, as we're best-served to continue our preparation, right? If the SCOTUS doesn't deliver a decision until June, I wouldn't want to start preparing for an October deadline (IOW, 11.5 months prep is much better than 3-4 months prep time). Thoughts?

I totally agree, Rusty. Does anyone really want to "bet the bank" on the outcome?

Also, it is possible for SCOTUS to hold the funding mechanism unconstitutional but not to invalidate everything that CFPB has done up till now. That would leave the rule (and its deadlines) intact.

I'm no legal scholar, but since 1071 is part of the Dodd-Frank Act it's my understand the reporting requirement for the data points required by the Act will need to be collected regardless of the outcome of this case. The main question at issue is the other data points the CFPB added that weren't in the original legislation.

Please correct me if I'm wrong.

So, let's say the CFPB's funding is found unconstitutional, and by law, we have to report the original 13 data points. Who sets up the reporting system and enforces the law? Would it fall to the other regulators to each solve in their own way, considering the CFPB won't be able to do anything until they secure constitutionally-sound funding? Or would it fall on the FFIEC, similar to HMDA?

And if the CFPB's funding is unconstitutional because they're not budgeted by Congress, what does that say about the FRB, the FDIC, and the OCC, which are not budget items?

Those are all different from the CFPB. FRB is funded by income from operations (interest on securities and fees). OCC and FDIC are funded by fees on regulated organizations.

CFPB sets its own budget then tells FRB to fund that budget.

None of them are funded by Congress, however.

No, but that's not really the issue - it's the expenditure of federal government funds without Congressional appropriation. The Fed's profits (what it doesn't need to fund operations) are distributed to the Treasury and become general government funds. So in essence, the argument is that the CFPB is spending government funds without any Congressional appropriation.

Seems like a systemic problem.