Facing a wave of new rules and encouraged by a sympathetic judiciary, U.S. financial firms and their trade groups are growing bolder about fighting Democratic President Joe Biden's regulators in court.
From fair lending requirements and increased investor disclosures, to bank capital hikes, a slew of new rules aimed at lenders, funds and at other companies threaten to increase compliance costs and dent profits.
Biden's regulatory appointees were given a mandate to take on perceived corporate profiteering, bolster rules relaxed by the Republican former President Donald Trump's administration, and address Democratic priorities such as income inequality and climate change. This year's bank failures have only bolstered their cause.
Multiple industry executives said firms are more willing to litigate than in the past because the regulations are frequently ill-conceived and rushed, and will ultimately hurt consumers, investors and the economy.
Over the past 18 months, more than 30 companies and trade groups representing banks, funds and other firms have brought at least 15 suits against financial regulators over major rules, policies and supervision issues, according to a Reuters tally. Historical litigation data was not immediately available.
Most of the suits allege violations of the Administrative Procedure Act (APA) which requires regulators to justify rules and allow time for, and fully consider, public feedback.
"The regulatory agencies are more willing to cut corners. They're giving industry short comment periods and they're not going through the APA process," said Tom Quaadman, an executive vice president at the U.S. Chamber of Commerce.
The group usually has one active case against financial regulators, but currently has two against the Securities and Exchange Commission (SEC) and one against the Consumer Financial Protection Bureau (CFPB), he said.
Others are suing for the first time. In September, six industry groups including the Managed Funds Association (MFA) and Alternative Investment Management Association (AIMA) alleged in a filing with the Fifth Circuit Court of Appeals that SEC private fund rules violated the APA, the pair's first suit against a regulator.
"Ordinarily, litigation against a national regulator is not a course of action we would seek to pursue," said AIMA CEO Jack Inglis, but the group felt "compelled to" because the SEC overstepped its authority and didn't account for legitimate industry concerns.
Spokespeople for the MFA and CFPB declined to comment.
The SEC "undertakes rulemaking consistent with its authorities and laws governing the administrative process, and we will vigorously defend challenged rules in court," an SEC spokesperson said.
"These rules are incredibly important to protecting consumers, investors, and financial stability," said Dennis Kelleher, CEO of nonprofit Better Markets. "Knowing their every action is under a litigation microscope, the regulators are being very careful to follow the letter and spirit of the laws."
To be sure, the financial regulators have been sued many times during previous administrations, including by pro-reform advocacy groups.
But some executives said the industry is also emboldened by a more conservative judiciary wary of regulatory overreach.
The majority of the suits were filed in conservative leaning courts, including seven in the Fifth Circuit's jurisdiction, which has become a magnet for litigation against Biden regulators.
Last year's Supreme Court decision curbing the Environmental Protection Agency's powers, which raised doubts over whether other federal agencies have the authority to tackle major policy questions, was also a positive development for the industry, executives said.
The Chamber, American Bankers Association and others in September won a case against the CFPB over changes to the agency's exam manual partially on the "major questions" grounds. Crypto companies have also cited the major questions doctrine when disputing the SEC's authority to regulate them.
Speaking at an industry event last month, Eugene Scalia, Gibson Dunn partner who has sued the government many times and is representing the industry in the private funds case, noted the judiciary, including the Supreme Court, is very focused on addressing abuses by the administrative state.
"Part of what you're seeing is regulated entities recognize that and are more comfortable now coming to the courts when they think something's been done that's unfair or wrong," he said.
"There are some financial regulators that are walking right into it," he added.
Scalia, former Labor Secretary and son of the late Supreme Court Justice Antonin Scalia, did not respond to a comment request.
Some plaintiffs said the political leaning of the courts was not a motivating factor and pointed out that the Fifth Circuit Court of Appeals last month upheld the SEC's approval of Nasdaq's board diversity rule.
" You still have to make the arguments," said Quaadman.
'LAST RESORT'
Traditionally, banks and investors have been reluctant to sue and risk souring relations with regulators they work with daily, or drawing adverse public scrutiny. Many prefer to sue through trade groups and it's not a decision taken lightly.
"It's our last resort," said Rebeca Romero Rainey, CEO of the Independent Community Bankers of America, which in August joined a lawsuit challenging a CFPB data collection rule. "The hope would be that we could resolve these issues through other means."
But as agencies increasingly ignore industry concerns, firms feel they have little to lose, executives said, adding more litigation is being considered.
In September, for example, bank groups accused regulators including the Federal Reserve of violating the APA with a new capital rule.
At the same event, Scalia said he saw flaws in the way regulators were handling feedback on the rule which, if not rectified, "will be a vulnerability when litigation does occur."
According to research by Wharton School professor David Zaring, neither industry groups nor individual lenders have filed more than one suit over the past decade challenging Fed policymaking.
The Fed declined to comment, but officials say they welcome input and have given the industry more time to feed back.
"With this many judges in courts biased in favor of the industry, it would be irrational for the industry not to sue," said Kelleher.
