In the latest development to challenges to the CFPB’s 1071 rulemaking, plaintiff trade associations, including the American Bankers Association and the Texas Bankers Association have filed a motion for summary judgment requesting the court bar enforcement of the Bureau’s Small Business Lending Rule.

As discussed previously, in October of 2023, the United States District Court for the Southern District of Texas issued a nationwide preliminary injunction staying the implementation of the CFPB’s Small Business Lending Rule issued under Section 1071 of the Dodd-Frank Act. The rule, issued in March 2023, requires financial institutions, including banks, credit unions, and non-banks, to collect and report various types of data from commercial loan applications. This includes data about a loan recipients’ race, ethnicity, and gender, as well as geographic information, lending decisions, and credit pricing. The Bureau intends to compile the information in a comprehensive, publicly available database to help policymakers, borrowers, and lenders have a better understanding of the small-business lending market, empower data-driven decision-making, and create transparency and accountability.

In its motion, the trade associations argued that the Bureau exceeded its authority in promulgating the rule and rushed to finalize it. The rule, plaintiffs argue, requires lenders to collect a significant amount of information, even when businesses fail to respond to requests for demographic information or decline to provide it. They also complain that the rule is a “huge, costly compliance regime,” likely to cause negative downstream effects for banks and small businesses alike and could prove insurmountable for some lenders, ultimately leading to reduced access to credit for small businesses. The trade associations argue that the Bureau exceeded its statutory authority in promulgating the rule and that it should be set aside.

Putting it into Practice: This is one of many challenge trade associations have brought against CFPB rulemaking in the Fifth Circuit, with some degree of success (see here and here). And it will likely not be the last, as trade groups have now found a favorable forum to litigate against the Bureau. However, much of what the court decides to do here will be influenced by the Supreme Court’s decision in Community Financial Services Association of America, Limited v. Consumer Financial Protection Bureau where the Bureau’s funding structure is being challenged as unconstitutional. We will stay tuned to the outcome of that case and others as it will help define lenders’ future compliance obligations.

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Maxwell Earp-Thomas also contributed to this article.