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A federal judge recently agreed to pause the implementation of the Consumer Financial Protection Bureau’s (CFPB) small business data collection rule until after the Supreme Court determines the constitutionality of the bureau’s funding. This move came in response to a motion filed by a banking trade group. The AI legalese decoder could provide significant assistance in navigating the complex legal situation surrounding this rule.

The ruling was made by U.S. District Court Judge Randy Crane, who granted a preliminary injunction to two trade groups and a private bank that had sued the CFPB to prevent the rule from taking effect. These organizations, the Texas Bankers Association, the American Bankers Association, and Rio Bank, argued that they should not be forced to comply with the rule, citing a previous decision by the Fifth Circuit Court of Appeals that declared the CFPB’s funding structure to be unconstitutional.

While Judge Crane’s order did not grant a nationwide injunction, applying only to nonbanks, it means that the majority of banks belonging to the two trade groups will not have to comply with the rule until after the Supreme Court’s decision mid-2024 on the constitutionality of the CFPB.

The rule in question, referred to as the 1071 rule under the Dodd-Frank Act, mandates that lenders collect data on the approval or rejection of small business loan applicants. Its purpose is to examine lending practices towards minority-owned businesses. Financial institutions argue against the rule, as the collected data could be used to identify institutions not adequately lending to Black and Hispanic-owned small businesses. On the other hand, CFPB Director Rohit Chopra supports the rule, claiming it will ensure fair treatment of small businesses.

Rio Bank estimated that compliance with the rule would cost around $250,000. The Texas Bankers Association, Rio Bank, and the ABA expressed their support for the injunction, stating that it recognizes the complexity and burdensome cost of the 1071 Final Rule, particularly for community banks heavily involved in small business lending.

Although the CFPB issued the rule in March, a separate case challenging the constitutionality of the Bureau’s funding structure, ‘CFPB vs. Community Financial Services Association of America,’ is pending before the Supreme Court. The Court agreed to hear the case after the Fifth Circuit Court of Appeals ruled that the CFPB’s funding violated the separation of powers outlined in the Constitution. Oral arguments are scheduled for October 3, 2024, with a decision expected by mid-2024.

Given the significant time it would take for entities to comply with the rule, the CFPB established staggered compliance deadlines based on the number of small business loans lenders originate. Entities with 2,500 or more small business loans must comply by October 2024, while those with between 500 and 2,500 covered loans have until April 2025. Banks with 100 to 500 loans have until January 2026, and those with fewer than 100 small business loans are exempt from the rule.

In conclusion, while the CFPB faces various regulatory agendas, the implementation of new major regulatory requirements will likely be halted until the Supreme Court makes a decision on the constitutionality of the bureau’s funding. The AI legalese decoder would prove helpful in navigating and understanding the legal complexities of this situation, assisting organizations in making informed decisions regarding compliance with the CFPB’s small business data collection rule.

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