AN UPDATE ON LAWSUITS AROUND THE COUNTRY

by Jacob Fair Wright Lindsey Jennings

There are a number of lawsuits working their way through the legal system that will impact banking and financial regulation. The following summary is a partial list of some of the most pertinent and impactful cases that could affect community banks.

CORPORATE TRANSPARENCY ACT (CTA) – TX

Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024)

Judge Mazzant enjoined enforcement of the CTA and its implementing regulations finding they are “likely unconstitutional.” This preliminary injunction arguably temporarily halts enforcement of the CTA with respect to the pending compliance deadlines pending any further determinations to the contrary.

COMMUNITY REINVESTMENT ACT (CRA) - TX

Texas Bankers Ass’n v. Off. of the Comptroller, 728 F.Supp.3d 412 (N.D. Tex 2024).

In 2023, the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of Currency updated their rules enforcing the 1977 fair lending law, which seeks to ensure banks lend to their local communities. The new rules, among other things, broadened the geographic areas in which lenders would be required to extend loans and other services to low-income Americans. In February of 2024, a coalition of trade groups sued to block the overhaul, claiming it would discourage lending.

In March of 2024, a federal judge in Texas granted a requested for a preliminary junction A preliminary injunction was entered enjoining the law for several reasons. In July of 2024, the agencies filed an appeal of the preliminary injunction to the Fifth Circuit. The appeal remains pending.

CONSUMER FINANCIAL PROTECTION BUREAU (CFPB) 1071 RULE – TX & KY

Texas Bankers Association v. CFPB, No. 7:23-CV-00144 (S.D. Tex.)

Monticello Banking Co. v. CFPB, No. 6:23-CV-00148-KKC (E.D. Ky.)

CFPB Section 1071 requires financial institutions to determine if a business is woman-owned, minority-owned, or a small business. In Texas, a bank and two trade associations filed a complaint against the CFPB asserting that the rule was invalid because the funds used to promulgate the rule were drawn from the CFPB’s unconstitutional funding structure, which was being challenged and pending in the United States Supreme Court. The Supreme court held that the CFPB’s funding mechanism comported with the Appropriations Clause. The remaining arguments before the Texas federal court include that the CFPB exceeded its authority in adding data points for collection, the CFPB acted arbitrarily and capriciously, and the costs and benefits analysis was unreasonable.

Following the lead of their Texas counterparts, a group in Kentucky filed a similar lawsuit. The Kentucky Court granted a stay of the case pending a decision in the Texas case.

CONSUMER FINANCIAL PROTECTION BUREAU (CFPB) 1033 RULE – KY

Forcht Bank, N.A., et al v. CFPB and Rohit Chopra, No. 5:24-cv00304-DCR (E.D. Ky.)

On October 22, 2024, the CFPB issued its final rule implementing Section 1033 of the Dodd-Frank Act (the “Open Banking Rule”). The Rule requires financial institutions to provide a right of electronic access to the most recently covered data to authenticated consumers and authenticated third parties. Industry groups in Kentucky filed a lawsuit against the CFPB on the day the Rule was issued seeking injunctive relief, alleging that the CFPB exceeded its statutory authority. The federal court has not issued a ruling.

FDIC RE-PRESENTMENT – MN

Minnesota Bankers Ass’n v. Fed. Deposit Ins. Corp., No. CV 232177(PAM/ECW) (D. Minn. Apr. 8, 2024)

A Minnesota federal district court dismissed without prejudice the complaint filed by the Minnesota Bankers Association against the FDIC challenging the FDIC’s guidance on non-sufficient funds. The complaint sought declaratory and injunctive relief under the Administrative Procedures Act regarding FIL 40 (FDIC Financial Institutions Letter 40-2022: Supervisory Guidance on Multiple RePresentment NSF Fees) which prohibits FDIC supervised banks from charging multiple NSF fees for the same item. The complaint alleged that FIL 40 is a legislative rule promulgated without adherence to the APA’s notice and comment rulemaking procedures, resulting in arbitrary and capricious agency action, and that the FDIC exceeded its statutory authority. On June 5, 2024 the Minnesota Bankers Association filed a notice of appeal to the United States Court of Appeals for the Eighth Circuit. The appeal has been briefed and the parties are awaiting a date for oral argument.

INTERCHANGE – IL

Illinois Bankers Ass’n v. Kwame Raoul, No. 1:24-cv-07307 (N.D. Il.)

The Illinois Fee Prohibition Act (IFPA) was signed into law won June 7. The IFPA would ban banks, payment networks, and other entities from charging or receiving interchange fees in Illinois on the portion of a debit or credit card transaction attributable to tax or gratuity. The Illinois Bankers Association, American Bankers Association, America’s Credit Unions, and Illinois Credit Union League filed a complaint seeking a preliminary injunction of the new law. Plaintiffs argue that the IFPA would undermine the benefits that credit and debit cards provide to consumers and businesses. The complaint outlines how the new law violates the National Bank Act and the Federal Credit Union Act and cannot be enforced against national or state-chartered banks, federal or state savings institutions, federal or state-chartered credit unions, nor their servicers. Oral arguments were held on October 30, 2024. The Court has not issued a decision.