ELFA Wins Nationwide Relief from Section 1071

Court injunction delays compliance deadline by 10 months  

In a major victory for members of ELFA and the entire equipment finance industry, in late October the U.S. District Court for the Southern District of Texas issued a nationwide injunction delaying implementation of Section 1071 for all covered financial institutions. This action was in direct response to the efforts of ELFA and the other parties that intervened in the case in recent months. Functionally this means that the deadlines for compliance with Section 1071 are delayed by approximately 10 months for all ELFA member companies. 


Earlier this year the court had issued a partial injunction in response to litigation filed by Rio Bank, the Texas Bankers Association and the American Bankers Association. That initial injunction had, until that point, only covered those three entities. In August, ELFA intervened in the lawsuit to ensure that the initial relief provided by the Judge would apply equally to all ELFA members. 

The action taken by the Court broadens the injunction to delay implementation of Section 1071 for all financial institutions covered by the rule. The delay will last until the Supreme Court issues a decision in a different, but related, CFPB case. The Supreme Court decision is expected in the Spring/Summer timeframe of 2024. This means that compliance will likely now be pushed out approximately 10 months from all the dates published in the original rule. 

The likelihood of a CFPB defeat in that Supreme Court case was decreased in the minds of most observers during oral arguments earlier this fall. However, it is very important to remember that there are many claims included in the underlying litigation that ELFA is involved in beyond the funding issues raised in the Supreme Court case. The Administrative Procedures Act claims are broad and while no single one is a slam dunk, collectively they weigh against the rule as published being intact in a decade’s time. 

If you think of a rulemaking process like a drive in football, the Administrative Procedures Act lays out all the rules that a team must follow in order to successfully score a touchdown and just like in football there’s a gradation of the egregiousness of the penalty. A team can’t put all their wide receivers in the endzone before the ball is snapped and they also need to have seven players on the line of scrimmage.  

There are many aspects of the Section 1071 rule that may fall at different portions of this spectrum. For example, the original statute did not include LGBTQI+ ownership status as a piece of demographic information to be collected. The CFPB read this into the statute very late in the process and their interpretation may or may not be correct based upon untested Supreme Court precedent. This portion of the rule also did not go through the part of the rulemaking process called the SBREFA process required for CFPB rules affecting small businesses. While this factor is unlikely to doom the entire rule, does that mean it might get stricken from the rules in several years? These are just two examples of issues that may pop up in litigation over Section 1071 in the coming years.  

One of those factors is congressional action. In October in a surprise vote, the Senate voted to overturn the rule with five Democrats voting with all Republicans. While the Biden Administration has indicated that the President will veto this measure, the bipartisan nature of the vote was a surprise and indicates less support for the final rule than was earlier estimated. The House is expected to take up this measure in the near future. One thing that ELFA members can do in the near term is reach out to their member of Congress and let them know your views on Section 1071 and encourage them to vote accordingly. 

At the ELFA Annual Convention, Andy Fishburn (far right) moderated a session on Section 1071 with (L-R) Brad Salyer of U.S. Bank, Jeff Bilbrey of Leasepath and Stephanie Hall of Quality Equipment Finance.

If one thinks of where this rule will stand in five years’ time, the spectrum running from completely gone to intact exactly as issued by the CFPB, a fair observer could not be faulted if they ruled out both ends of that spectrum. However, where on the spectrum we are in five years depends on many factors that have yet to be determined.