30 November 2023
/ Andrew C. Voorhees
Equipment Finance Industry Spared From Section 1071 Compliance Until 2024
On October 26, 2023, the U.S. District Court for the Southern District of Texas granted a nationwide preliminary injunction enjoining the Consumer Financial Protection Bureau (CFPB) from enforcing Section 1071 of the Dodd-Frank Act. See Texas Banker’s Association, et al. v. Consumer Financial Protection Bureau et al., 7:23 CV 00144 (S.D. TX).
Section 1071 would require covered financial institutions to collect information about credit applicants and report to the CFPB on an annual basis, which would include extensive financial data on credit applicants.
The Equipment Leasing and Finance Association (ELFA), along with several other intervener organizations in the case, filed motions for preliminary injunction seeking delay of Section 1071 compliance in light of the Fifth Circuit Court of Appeals decision in Cmty. Fin. Servs. Ass’n of Am., Ltd. V. CFPB, 51 F.4th 616 (5th Cir. 2022). In that case, the Fifth Circuit ruled that the CFPB’s funding structure violates Article 1, Section 9 of the Constitution, which is known as the “appropriations clause." That clause states “no money shall be withdrawn from the Treasury, but in Consequence of Appropriations made by Law”. The CFPB is funded through the Federal Reserve, which in turn is funded through fees and fines that the CFPB levies. The Fifth Circuit held that the funding structure violates the congressional appropriations process and is thus unconstitutional.
The Fifth Circuit’s Decision in Cmty. Fin. Servs. Ass’n of Am., Ltd. V. CFPB is currently under review in the U.S. Supreme Court. Oral arguments were heard on the matter on October 3, 2023, and a decision is expected in the summer of 2024. Until then, the nationwide injunction shall spare the equipment finance industry, and any other covered financial institution, from the burdensome reporting requirements under Section 1071. Time will tell if/when they will eventually be implemented.
Section 1071 would require covered financial institutions to collect information about credit applicants and report to the CFPB on an annual basis, which would include extensive financial data on credit applicants.
The Equipment Leasing and Finance Association (ELFA), along with several other intervener organizations in the case, filed motions for preliminary injunction seeking delay of Section 1071 compliance in light of the Fifth Circuit Court of Appeals decision in Cmty. Fin. Servs. Ass’n of Am., Ltd. V. CFPB, 51 F.4th 616 (5th Cir. 2022). In that case, the Fifth Circuit ruled that the CFPB’s funding structure violates Article 1, Section 9 of the Constitution, which is known as the “appropriations clause." That clause states “no money shall be withdrawn from the Treasury, but in Consequence of Appropriations made by Law”. The CFPB is funded through the Federal Reserve, which in turn is funded through fees and fines that the CFPB levies. The Fifth Circuit held that the funding structure violates the congressional appropriations process and is thus unconstitutional.
The Fifth Circuit’s Decision in Cmty. Fin. Servs. Ass’n of Am., Ltd. V. CFPB is currently under review in the U.S. Supreme Court. Oral arguments were heard on the matter on October 3, 2023, and a decision is expected in the summer of 2024. Until then, the nationwide injunction shall spare the equipment finance industry, and any other covered financial institution, from the burdensome reporting requirements under Section 1071. Time will tell if/when they will eventually be implemented.
Our team is constantly monitoring this topic. If you have additional questions, please contact shareholder Andrew Voorhees at any time.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
This blog is not a solicitation for business, and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.
