A flurry of lawsuits against Trump administration financial regulations provide more pathways for the incoming Biden team to remove many of those rules.
Consumer advocates and community groups have in recent months sued to block a regulation that would make it harder to bring unintentional housing discrimination claims, and a revamp of how banks are assessed on their lending to low-income neighborhoods, among other rules.
The litigation opens up more options for the incoming Biden administration to prevent the rules from taking effect, either by declining to defend the regulations or settling with the plaintiffs to stay the rules and send them back for wholesale revisions.
“Consumer groups are suing, usually saying the rules violate the Administrative Procedure Act in one way or another. The Biden administration could just say ‘we agree’ and not defend,” said Christopher Odinet, a professor at the University of Iowa College of Law.
The agencies would still have to go through the full notice and comment rulemaking process to replace the Trump-era rules, but the litigation provides an immediate avenue to bar them from taking effect, Odinet said.
The Biden administration will have to make decisions on several Trump-era financial rules facing legal challenges.
Consumer advocates and the city of Toledo, Ohio, filed a suit against the Consumer Financial Protection Bureau in July to overturn slimmed down mortgage reporting requirements for banks and other lenders. Consumer groups also sued to block the CFPB’s final payday lending rule released in July and revive an earlier set of tougher standards.
California and New York have filed a legal challenge to the “valid-when-made” rule on bank loan transfers to fintech lenders and other third parties, arguing that federal regulators—the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.— preempted state authority to enforce interest rate caps.
For some rules, reaching a settlement that requires the agency to go back to the drawing board may be the best option, according to Kate Elengold, a professor at the University of North Carolina School of Law who previously worked in the Justice Department’s civil rights division.
“In settlement or a consent decree, if approved by a court, they could come to some sort of agreement whether they can proceed with the rule in light of the allegations,” she said.
Community Lending Revamp
The OCC’s’s sweeping rewrite of Community Reinvestment Act regulations could be a prime target for settlement. The regulator moved on its own to create new standards for measuring banks’ investment in low- to moderate-income communities after failing to reach consensus with the FDIC and Federal Reserve.
A lawsuit, filed by the National Community Reinvestment Coalition and the California Reinvestment Coalition, said the OCC rule was rushed through during the Covid-19 pandemic and violates the Administrative Procedure Act.
Both community groups and banks have clamored for a joint rule, among other complaints about the OCC’s rule. A potential settlement by the Biden administration could allow the OCC to join in with the Fed’s rewrite, which just began in September.
A settlement would also allow for a potential court-approved schedule for writing a new CRA regulation, according to Mike Landis, the litigation director at the U.S. Public Interest Research Group.
The California Reinvestment Coalition got the CFPB to agree to a schedule for completing a Dodd-Frank Act-mandated study on potential discrimination in small business lending as part of a February settlement. The rule had been delayed for nearly a decade prior to the litigation.
A second path the Biden administration could take would be to simply not defend a rule or law subject to litigation. The Trump administration took that approach after it took control of the CFPB in late 2017 and stopped defending long-running legal challenges to the bureau’s constitutionality.
A prime candidate for the Biden team is a Department of Housing and Urban Development rule that civil rights groups say will make it nearly impossible to bring housing discrimination lawsuits.
The so-called disparate impact rule, which sets cumbersome pleading standards for making allegations of unintentional discrimination against racial minorities and other protected classes, is already on hold after a Massachusetts federal court issued a nationwide injunction last month.
But there are risks to choosing not to defend a rule and hoping for a default judgment, according to Kent Barnett, an expert in administrative law at the University of Georgia School of Law. The court could appoint an outside amicus party to defend the regulation, he said.
“At that point, the challenges are mostly out of the agency’s hands, and events would proceed on a slow litigation timetable,” he said.
Without an amicus in place to defend a rule, a court may not be able to reach a judgment on the merits due to standing issues, Barnett said.
The cases are Massachusetts Fair Housing Center Inc. v. HUD, D. Mass., No. 1:20-cv-11765, Preliminary Injunction 10/25/20 and National Community Reinvestment Coalition v. OCC, N.D. Cal., No. 4:20-cv-04186, Complaint 6/25/20.