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The Consumer Financial Protection Bureau on Tuesday asked a Kentucky federal judge to stay an industry lawsuit challenging the agency's small-business lender reporting requirements, saying a largely identical challenge filed earlier in Texas should take precedence.

In a motion to U.S. District Judge Karen K. Caldwell, the CFPB argued the lawsuit brought by the Kentucky Bankers Association and eight Kentucky-based banks should wait for the "first-filed" litigation that the Texas Bankers Association and the American Bankers Association are leading in Texas federal court.

Both cases seek to overturn the CFPB's so-called Section 1071 rule, which established new requirements for banks and other lenders to report comprehensive data to the agency on their small-business lending activity. The rule was supposed to begin phasing in this year but has been delayed amid the litigation.

Although the two lawsuits involve different sets of named plaintiffs, the CFPB said they involve "almost exactly the same claims, against the same rule." Many of the Kentucky bank plaintiffs are also members of one of the industry groups — the Independent Community Bankers of America — that have joined in on the Texas case as intervenors, according to the agency.

"This case should be stayed pending resolution of overlapping litigation in Texas in which some of the same plaintiffs seek the same relief with respect to the same regulation, under the same legal theories, and against the same defendants," the CFPB told Judge Caldwell in its motion.

"Pausing this case to await resolution of the first-filed action is appropriate in order to conserve judicial resources by minimizing duplicative or piecemeal litigation, and protect the parties and the courts from the possibility of conflicting results," the agency added.

The CFPB noted that the Texas lawsuit is also "significantly further along," with summary judgment briefing due to wrap up in the coming days.

"Holding this case to await resolution of the Texas litigation would promote judicial economy and the efficient resolution of this case by, among other things, allowing the court and the parties here to determine what relief remains available and to whom," the agency said.

The stay request comes amid a broader ramping up of activity at the CFPB in the wake of its recent victory at the U.S. Supreme Court, where the justices last month ruled the agency's funding structure does not violate a provision in the Constitution that requires Congress to authorize all federal spending.

The decision cleared away a major cloud that had slowed the CFPB's momentum on rulemaking and enforcement. In both the Texas and Kentucky lawsuits, for example, the agency had been ordered to halt implementation of its Section 1071 rule while the funding issue was before the high court.

The CFPB has since pushed back the rule's compliance deadlines by nearly 10 months — until July 2025 at the earliest — to make up for the delay.

In the meantime, the CFPB has also begun moving to resume a number of other enforcement-related lawsuits that had been held up by the funding issue. With the agency's active caseload set to swell, CFPB officials have said they are staffing up with additional personnel to help handle the work.

Tuesday's motion did not argue that the CFPB needs a stay to avoid being stretched too thin. But the CFPB did say it would be more efficient for everyone if the more advanced Texas case was allowed to play out first and then the Kentucky case could follow "with the benefit of the Texas judgment."

That's because the outcome of the former could have potentially "dispositive" effects on the latter, narrowing what would need to be resolved, according to the agency.

"It makes little sense for the parties and the court to devote significant time and resources at this point to attempting to sort out what these effects may be and exactly which banks may be affected," the CFPB said. "The better course is to simply await the outcome in that case."

The CFPB also said the Kentucky plaintiffs are on board with staying most of their lawsuit's claims. Although they want to continue pressing a First Amendment claim related to whether the agency can penalize lenders for discouraging small-business loan applicants from volunteering data for reporting purposes, the CFPB said this claim can and should wait.

"It would make little sense to reach out to decide this constitutional claim first, before resolving plaintiffs' antecedent claims that the rule is invalid and unenforceable in full," the CFPB said. "That approach would turn basic principles of constitutional avoidance on their head."

The rule at the heart of the Kentucky and Texas lawsuits was finalized to implement Section 1071 of the Dodd-Frank Act, which instructed the CFPB to begin collecting small-business loan applicant data for uses including fair lending oversight.

Under the rule, the CFPB would begin collecting that information from banks, fintech firms and other small-business lenders, including details about their applicant demographics, pricing and approval decisions.

But the industry group lawsuits allege the rule exceeded the CFPB's authority and should be struck down. The agency wants far more data than Section 1071 actually called for and will overburden lenders in the process, the groups say.

There is also a third pending lawsuit against the rule in Florida federal court. That case — which was brought in December by the Revenue Based Finance Coalition, an industry group representing firms that offer merchant cash advances and similar products — challenges the rule's application to providers of "sales-based financing."

The CFPB has so far not moved to stay the Florida lawsuit, which is also due to conclude summary judgment briefing soon.

A CFPB spokesperson declined to comment on the agency's Tuesday motion.

A Kentucky Bankers Association spokesperson did not immediately respond to a request for comment late Tuesday.

The Kentucky Bankers Association and its co-plaintiffs are represented by John T. McGarvey and M. Thurman Senn of Morgan Pottinger McGarvey.

The CFPB is represented in-house by Kevin E. Friedl and Karen Bloom.

The case is The Monticello Banking Co. et al. v. Consumer Financial Protection Bureau et al., case number 6:23-cv-00148, in the U.S. District Court for the Eastern District of Kentucky.