Biden Banking Rules Hit With Lawsuits Even as GOP Eyes Rollbacks

Financial industry powerhouses are going full steam ahead in court fighting Biden administration banking rules, even as Republicans set for a power trifecta in Washington consider reversing the eleventh-hour rulemaking.

President-elect Donald Trump and the Republican-controlled Congress have vowed to roll back President Joe Biden’s regulations, with those issued by the Consumer Financial Protection Bureau high on the list.

But blocking some rules with populist appeal, such as the CFPB’s limits on overdraft fees and its ban on most medical debt reporting, may be a tough political lift for Congress, especially as lawmakers eye floor time for competing priorities in the early days of Trump’s second term.

Litigation provides a more sure and long-lasting way of eliminating Biden-era rules—particularly if new agency leaders decline to defend them.

It’s a “belt-and-suspenders approach by the industry,” said Lucy Morris, a Hudson Cook LLP partner and former CFPB deputy enforcement director.

Populist Appeal

The CFPB finalized its $5 limit on overdraft fees in December. Bank and credit union lobbying groups sued to block it that very same day.

Likewise, the agency’s final rule on Jan. 7 barring medical debt from consumer credit reports was met by a suit that same day from credit reporting companies and credit unions. Debt collectors followed with their own suit a day later.

Both rules would be candidates for a Republican Congress looking to undo Biden’s regulatory legacy. The Congressional Review Act offers a fast-track process to cancel recently enacted rules using simple majorities in both chambers and Trump’s signature.

But with Congress likely to be tied up on Trump’s immigration, tariff, and tax-cutting priorities, there’s no guarantee GOP leaders will set aside floor time for CRA measures.

That’s particularly true when it comes to targeting consumer-friendly regulations such as the CFPB rules limiting overdraft fees and medical debt, said Elliott Stein, a senior litigation analyst at Bloomberg Intelligence.

“With some rules that might have populist overtones, it’s not certain that the administration or Congress will go as far as industry wants,” he said.

Even if Congress is inclined to agree with industry about particular regulations, a lawsuit allows courts to eliminate them without public debate, said Adam Rust, the director of financial services at the Consumer Federation of America.

“They’d prefer to sweep this under the rug rather than give it a fair public hearing because they know those are popular issues,” he said of the overdraft and medical debt rules. “They resonate with people.”

Notice and Comment

Another option to rescind a regulation is for an agency use the formal notice-and-comment rulemaking process required by the Administrative Procedure Act.

But issuing a proposal to eliminate a rule complete with a justification for doing so, accepting and reviewing comments, and crafting a final rule can take months.

Agencies will have to be especially careful to provide justifications for axing a rule following last year’s US Supreme Court ruling in Loper Bright Enterprises Inc. v. Raimondo. The ruling eliminated longstanding judicial deference to federal regulators on reasonable interpretations of unclear laws, requiring more time and care for APA rulemaking.

Banks and other financial companies can’t wait for those processes to play out because of time limits for filing a lawsuit, Stein said.

“Filing a lawsuit so as not to waive that right is definitely the prudent thing to do since one can never be sure what an administration’s priorities will be or whether Congress will expend time and capital going through the CRA,” Stein said.

In some instances, the lawsuits can serve as a placeholder.

A lawsuit last month from the Bank Policy Institute, the American Bankers Association, and the US Chamber of Commerce challenging the Federal Reserve’s stress tests for banks was just that.

The suit came one day after the Fed announced plans to revise the stress test process.

“We remain hopeful the Fed will address long-standing issues with the stress tests, but this litigation preserves our ability to seek legal remedies if the Fed falls short,” ABA President and CEO Rob Nichols said in a statement accompanying the suit.

More Certainty

A court decision overturning a rule can also provide more finality through precedent than a regulator simply rescinding it, Stein added.

If an agency reverses one of its previous rules, a new administration can try to put it back in place, Stein said. That’s what happened with shareholder proxy voting rules promulgated by the Securities and Exchange Commission under Trump’s first term and partially rolled back under Biden, he said.

If a court says a particular rule violates the law, an agency’s pathway to reinstating the regulation is much more limited, Stein said.

New leadership at an agency in Trump’s second term could instead choose not to defend certain regulations challenged in court. The CFPB, for instance, could simply let a judge eliminate the overdraft or medical debt rules without putting up a fight.

“This would be easier than going through another rulemaking process to unwind the rule,” Hudson Cook’s Morris said.