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| 6 minutes read

Fifth Circuit Says Not so Fast, Reverses the Transfer of CFPB/Credit Card Fee Litigation and Endorses Regulatory Challenge in Texas

Background: Agency Rulemaking Challenges in the Fifth Circuit

In recent years, Texas federal courts and the US Fifth Circuit Court of Appeals have been central battlegrounds for many challenges to alleged government overreach. One reason is the perception that many of the conservative-leaning judges are more receptive to challenges to government agency action. It has thus become standard playbook for trade groups to file lawsuits in Texas federal court when challenging agency rulemaking. 

In most of these lawsuits, the industry groups assert that the regulators’ rulemaking violates the Administrative Procedure Act (APA) by promulgating new rules that are “(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; [or] (D) without observance of procedure required by law.” 5 USC § 706. Fifth Circuit courts have repeatedly agreed, as there have been numerous court decisions in recent years that have vacated, stayed or otherwise curbed government regulatory action. See, e.g., Comm. Fin. Servs. Assoc. of Am., Ltd. v. CFPB, 51 F.4th 616 (5th Cir. 2022) (halting the CFPB’s 2017 Payday Lending Rule on the basis that the CFPB funding structure contravened Congress’s power of appropriations); Texas Bankers Association v. Office of the Comptroller of the Currency, No. 2:24-CV-00025-Z-BR (ND Tex. March 29, 2024) (granting injunction of new regulations issued related to the Community Reinvestment Act); Texas Bankers Association v. CFPB, No. 7:23-CV-00144 (SD Tex. July 31, 2023) (granting injunction of the CFPB’s Small Business Rule under Section 1071 of ECOA); Chamber of Commerce v. SEC, No. 23-60255 (5th Cir. 2023) (holding the SEC failed to adequately substantiate a new rule that would have required additional disclosures for stock buybacks). See also Jarkesy v. SEC, 34 F.4th 446 (5th Cir. 2022) (holding that the SEC’s pursuit of monetary penalties in an internal agency enforcement proceeding violated the Seventh Amendment’s right to trial by jury).

Credit Card Late Fee Rule Litigation and New Fifth Circuit Decision

On April 5, a Fifth Circuit panel yet again issued new precedent that will continue to make the Fifth Circuit fertile ground for trade groups’ ongoing battles against what they see as administrative overreach. Specifically, the Fifth Circuit vacated a district court transfer order that would have moved a new lawsuit against regulators from Texas to the District of Columbia, a venue that is often viewed as less favorable to administrative challenges. This ruling ensured that the trade groups could pursue their action in a more favorable venue within the Fifth Circuit’s umbrella.

The underlying lawsuit was filed on March 7 in the US District Court for the Northern District of Texas, Fort Wort Division, by the US Chamber of Commerce, the American Bankers Association, and the Consumer Bankers Association, along with several Texas industry groups. In the lawsuit, the plaintiffs sought a preliminary injunction of the Consumer Financial Protection Bureau (CFPB)’s new credit card late fee rule, which is set to go into effect on May 14.

Rather than rule on the injunction, US District Judge Mark Pittman of the Northern District of Texas, Fort Worth Division, entered an order transferring the case to the District Court for the District of Columbia, citing his belief that the lawsuit’s connection to Fort Worth was too “attenuated” and noting that “only one plaintiff of the six in this matter ha[d] even a remote tie to the Fort Worth Division.”

The court noted that the action could have been brought in the District of Columbia, as both defendants and three of the six industry groups were located in Washington, DC, where the Final Rule was promulgated. Taking issue with the trade groups’ choice of using a Texas forum to challenge federal rulemaking that had implications on a national industry and the associated tax burden that such litigation would impose on Fort Worth taxpayers, the court concluded: 

“This case does not belong in the Northern District of Texas and certainly not in the Fort Worth Division. The only apparent connection is that one Plaintiff is headquartered in the Northern District and the effects of the Rule will be felt generally here. But the effects of the CFPB’s Rule will be felt in every district in the United States. . . . Here, the Court will refrain from taking part in ‘creative judging’ and is compelled to follow the law laid out by Congress [allowing transfers as a matter of convenience] in 28 USC § 1404(a).”

The case was then transferred immediately to the DC district court and docketed with US District Judge Amy Berman Jackson.

However, on March 25, before the court had entered an order transferring the case to DC, the industry groups petitioned the Fifth Circuit to intervene, arguing that the district court’s failure to decide their motion for preliminary injunction amounted to a denial of same. That led to an order by a Fifth Circuit panel on Saturday, April 2, administratively staying the case until the following Tuesday and ordering further proceedings “expedited to the next oral argument panel.” The panel extended the stay another three days until Friday, April 5, while industry groups and regulators waited with bated breath.

In a significant early win for the credit card industry, on April 5, a three-judge panel of the Fifth Circuit granted the industry groups’ Petition for Writ of Mandamus. In a workaround to addressing the propriety of the venue transfer on the merits, the majority focused on the court’s procedural decision to transfer the case instead of ruling on the plaintiffs’ motion to preliminarily enjoin the CFPB’s credit card late fee rule.

In arguing the issue, the CFPB claimed that Judge Pittman did not deny the motion for preliminary injunction, so there was no order denying the injunction that could be appealed. Conversely, the plaintiffs argued that Judge Pittman had “effectively” denied the injunction by not ruling despite great urgency for such relief. The two-judge majority of the panel agreed with the plaintiffs. The court held that considering “the issuers’ unusually short timeline for complying with the Final Rule or obtaining injunctive relief, the district court effectively denied the Chamber’s motion for a preliminary injunction by not promptly ruling on it and by instead opting to hear an unrelated motion sua sponte.” Although cases relating to “effective” denials generally involve many months of inaction of the district court, the Fifth Circuit emphasized the rapidly approaching rule compliance deadline of May 14. The court stated: 

“To comply with the Final Rule, credit card issuers needed to have printed and distributed disclosure materials about the late fees to customers by March 29. The Chamber attests that providing notice “typically takes 4 months” — not weeks.”

The court ruled that the plaintiffs’ appeal of the effective denial of their injunction divested the district court of jurisdiction to transfer the case to Washington, DC. 

What Happens Next?

Importantly, the court urged in the opinion that it was not deciding the issue of proper venue, stating:

“Indeed, we do not even reach the question of where this case rightly belongs. Our decision today is exceedingly narrow and procedural, focused not on the correctness of the district court’s transfer order but rather on whether the court had jurisdiction to enter it. On these facts, it did not.”

However, a concurring opinion by the second member of the panel — Judge Andrew Oldham — explained that he believed venue may very well be proper in the Northern District of Texas. For example, while the district court had emphasized the costs with witnesses and lawyers having to travel from DC to Fort Worth during the case, Judge Oldham noted his disagreement, opining that those possible facts did not support a transfer to DC and that “plaintiffs are the master[s] of the complaint.” While the concurrence by Judge Oldham is not dispositive of the ultimate decision on venue, it sent a clear message regarding how he believed Judge Pittman should treat the issue going forward. 

For now, the Fifth Circuit’s decision did not result in an injunction, just a reversal of the transfer order. Therefore, the injunction issue itself will need to be taken up quickly for the plaintiffs to have hope of avoiding the May 14 deadline.  

In the end, the ruling is a reminder that the Fifth Circuit remains a favorable forum and standard playbook for industry groups who challenge federal agency rulemaking. Further, barring some en banc re-hearing that overturns the decision, federal courts will likely see similar strategic moves by plaintiffs in the future in which they appeal and allege “effective” denials of injunction motions upon any whiff of a transfer to an unfavorable venue. 


consumer finance litigation and regulatory compliance, litigation