N.Y. Federal Judge Muddies CFPB Enforcement Authority Even More

CUNA, NAFCU call on bureau to delay enforcement of small business lending rule.

Another federal judge has created uncertainty over the CFPB’s current ability to enforce consumer protection laws.

Judge Jennifer Rearden of the Southern District of New York this week issued a stay in a suit filed by the agency and the New York attorney general’s office against a company facing allegations of making predatory auto loans to vulnerable consumers.

Backstory and Context

The stay follows an injunction issued by U.S. District Judge Randy Crane of the Eastern District of Texas blocking a rule that would require financial institutions to report their lending to women- and minority-owned businesses.

While the injunction only covers the plaintiffs that filed the suit—members of the American Bankers Association, members of the Texas Bankers Association and Rio Bank—other banking trade groups, and now credit union trade groups, are asking the judge to expand the injunction to include all credit unions and banks.

The stay and injunction both cited the pending Supreme Court case challenging the way the CFPB is funded. On Oct. 3, the high court is scheduled to hear oral arguments in the case, which centers on whether the CFPB’s funding scheme is unconstitutional, since it is not funded through the annual appropriations process.

The court is likely to issue its decision in the summer of 2024; at issue is the legality of all rules the agency has issued along with all enforcement actions it has taken since it was created in the Dodd-Frank Act.

Suit in Question

In the New York case, the CFPB and the state attorney general charged that Credit Acceptance Corp. saddled borrowers with exorbitant interest rates and fees, while providing auto dealers with incentives to sell cars at inflated prices.

Judge Rearden said that although the stay will delay the litigation, the Supreme Court case will clarify the legal issues surrounding the CFPB.

“Any potential harm to the public caused by delaying this action is outweighed by the benefit to consumers in proceeding in a streamlined fashion,” she said.

Letter From Credit Union Groups

Meanwhile, CUNA and NAFCU have requested CFPB Director Rohit Chopra to delay enforcement of the agency’s small business lending rule, citing the Texas case.

“While the Court determined that a limited injunction was appropriate based on the facts offered by plaintiffs, we ask that you consider a broader set of circumstances that prioritizes consistency in the implementation of this rule as the collection of reliable data regarding small business lending requires consistent reporting among covered financial institutions to ensure fair and accurate peer comparisons,” Ann Petros, NAFCU’s vice president of regulatory affairs, and Alexander Monterrubio, CUNA’s deputy chief advocacy officer and managing counsel, wrote in a letter to the bureau director.

They added further that the CFPB should consider the competitive impact of granting delayed compliance only to certain banks.