Celeste Embrey

Celeste Embrey
TBA General Counsel

Time to rein in the Agencies

Congress, not regulators, has the responsibility to enact laws and set policy.”

Weeks after beginning my career at TBA in late 2005, the Association took the unusual step of moving to intervene in a lawsuit brought by the now defunct ACORN (Association of Community Organizations for Reform Now) against the Texas Finance and Credit Union Commissions. ACORN, a community activism organization, challenged the validity of the Commissions’ rules implementing the home equity provisions of the Texas Constitution. TBA moved to intervene because we felt our members’ interests would be better represented by the Association being a party to the suit. We did not sue the regulators and our issue was not with the home equity implementing regulations promulgated by the Texas Finance and Credit Union Commissions. We simply did not agree with the portrayal of those regulations and the regulators who adopted them, so we intervened in the suit to give our banks a seat at the table as the case made its way through the legal process.

2013 IRS

The next time TBA actively pursued litigation was in 2013, when TBA and the Florida Bankers Association sued the U.S. Department of Treasury and the Internal Revenue Service over regulations issued by the IRS requiring banks to automatically report to the IRS the names and amounts of interest paid on deposits held by nonresident aliens even though the accounts were not subject to federal taxation. TBA, the FBA and our member banks were very concerned that the automatic disclosure of information regarding deposits held in U.S. financial institutions to 72 foreign governments could jeopardize the safety and security of the depositors and their families. 

Security concerns over the potential leakage and abuse of personal asset information from this international exchange with countries that have unstable governments and porous law enforcement led to the withdrawal of millions of dollars of deposits from Texas banks. In promulgating the new rule, the Treasury and IRS claimed, in part, the Administrative Procedures Act did not apply because the amendments did not constitute a “significant regulatory action.” 

2022 UDAPP

Fast forward nine years to 2022, when, as a plaintiff, TBA joined with the American Bankers Association, U.S. Chamber of Commerce, Longview Chamber of Commerce, IBAT, Consumer Bankers Association and the Texas Association of Business to sue the CFPB over its unlawful rewrite of the UDAAP (Unlawful, Deceptive, or Abusive Acts or Practices) provisions of its exam manual. 

Our suit alleged, among other things, that the CFPB violated the Administrative Procedure Act because the changes made in the exam manual constituted a legislative rule what should have gone through the rule making process (e.g., the Bureau should have published the proposed rule and accepted comments on the proposal before finally publishing the changes in the manual.) The Court in the Eastern District of Texas agreed and granted summary judgment in the case as it found the CFPB’s exam manual update exceeded the agency’s constitutional authority.

2023 Section 1071

Then, in 2023, we joined forces with Rio Bank to sue the CFPB over its rules implementing Section 1071 of the Dodd Frank Act, the small business lending data collection rule. As plaintiffs later joined by the ABA, our suit alleges the CFPB violated the Administrative Procedure Act because it took the 13 data points required to be collected by Dodd Frank and unlawfully expanded them to 81 data points and subfields without any basis in the administrative record for doing so. The Court in the Southern District of Texas has preliminarily agreed and issued a nationwide stay for all lenders subject to Sec. 1071 until the U.S. Supreme Court renders its opinion in the Community Financial case on the constitutionality of the CFPB’s funding structure.

2024 CRA

On Monday, Feb. 5, TBA, Amarillo Chamber of Commerce, ABA, U.S. Chamber, Longview Chamber, ICBA and IBAT sued the OCC, the FDIC and the Federal Reserve Board over the agencies’ Community Reinvestment Act (CRA) Final Rule. TBA and our co-plaintiffs’ lead argument in the CRA suit is that the Agencies, you guessed it, violated the Administrative Procedure Act by adopting a Final Rule that exceeds the Agencies’ statutory authority. 

The Final Rule assesses banks on their credit needs outside of their geographic deposit taking footprint, but the CRA authorizes the Agencies only to assess a bank’s “record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution.” TBA and our co-plaintiffs support the goals of the Community Reinvestment Act and believe the credit needs of borrowers of all income levels should be served in our communities. What we’re challenging in this suit is the Agencies’ unlawful expansion of the scope of their rules implementing the CRA.

Rein them in

Three lawsuits in three years is highly unusual for TBA. However, what we are seeing is a group of federal regulators who have become unwilling to follow the rules set for them by Congress. Executive Branch Agencies such as the CFPB, FDIC, OCC and Federal Reserve lack authority to rewrite Congress’ plain language of statutes under the guise of interpretation. And, because the very terms of the Administrative Procedure Act provide “a reviewing court shall ... hold unlawful and set aside agency action ... found to be ... not in accordance with law,” or “in excess of statutory jurisdiction, authority, or limitations,” TBA and our co-plaintiffs in each of these suits strongly believe the Agencies must be reined in and required to stick to the plain language of the statutes they’re responsible for implementing. 

Congress, not regulators, has the responsibility to enact laws and set policy. If Congress wants to expand the coverage of UDAAP under the Dodd Frank Act, they should do so. If the legislative branch believes 81 data points should be collected for each small business loan, then Congress should pass a law making that change. And, if the legislative branch believes the Community Reinvestment Act should be expanded beyond a bank’s meeting the credit needs of its entire community, it should absolutely make that change.

However, until that happens, TBA’s leadership believes it’s high-time for our federal regulators to be reminded they are not the legislative branch. If they continue to fail to recognize that their responsibility is to promulgate regulations within their statutory authority, TBA will continue to take action on behalf of our members to ensure regulators abide by the law just as the rest of us are required to do. 

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