Kentucky Federal Judge Blocks CFPB Small Business Rule

Decision applies to all credit unions and banks.

David Baumann


Sep 19



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David Baumann

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David Baumann

A squiggly pink arrow pointing downward and to the right.
CFPB headquarters.

A Kentucky federal court judge has issued an injunction halting implementation of the CFPB’s small business lending rule at all financial institutions until the U.S. Supreme Court decides on the agency’s funding scheme.

U.S. District Judge Karen Caldwell of the Eastern District of Kentucky issued the injunction last week in a suit filed by the Kentucky Bankers Association and a group of Kentucky banks.

A Texas federal judge has issued a similar injunction, but that ruling only covered the groups that had filed suit there, including the American Bankers Association. Caldwell’s decision is a much broader ruling that includes all covered financial institutions.

Backstory and Context

The U.S. Supreme Court is scheduled to hear oral arguments on Oct. 3 in a case filed by the Consumer Financial Services Association of America that challenges how the CFPB is funded. The agency receives its funding through the Federal Reserve system opposed to the annual appropriations process, a setup that, the Kentucky association argues, is unconstitutional.

If the bureau’s funding scheme is indeed found unconstitutional, it could call into question all agency rules, including the one governing small business lending.

A decision in that case is expected by June 2024.

Inside the Ruling

In the Kentucky case, the bankers argued that they will incur expenses that are “unrecoverable and needless” if the court rules that the agency’s funding is not legal.

They also noted that while the rule had an effective date of Aug. 29, 2023, the CFPB will not require compliance until later—between Oct. 1, 2024, and Jan. 1, 2026, depending on the number of credit transactions.

Caldwell agreed.

“These compliance costs are likely unrecoverable, resulting in irreparable harm to plaintiffs,” she wrote. “Compliance costs incurred in preparation of a new government regulation are appropriately considered in assessing whether irreparable harm exists.”

“Any benefit that the public would receive from enforcement of the Rule will not be realized until October 2024,” the ruling continues. “Since the Supreme Court’s decision will be issued by June 2024 at the latest, the CFPB will suffer no harm and the public will not lose any benefit by the issuance of the preliminary injunction.”

While the rule is not scheduled to go into effect until next year, at the earliest, the CFPB has issued guidance documents on the data collection and reporting.


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