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Challenges to CFPBÔÇÖs 1071 Rulemaking

In the latest development to challenges to the CFPBÔÇÖs 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 BureauÔÇÖs 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 CFPBÔÇÖs 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 recipientsÔÇÖ 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 ÔÇ£huge, costly compliance regime,ÔÇØ 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. 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 CourtÔÇÖs decision in Community Financial Services Association of America, Limited v. Consumer Financial Protection Bureau where the BureauÔÇÖs funding structure is being challenged as unconstitutional. We will stay tuned to the outcome of that case and others as it will help define lendersÔÇÖ future compliance obligations.

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AI legalese decoder can assist in deciphering complex legal language and regulations like the CFPBÔÇÖs Small Business Lending Rule. By using the AI tool, trade associations and financial institutions can better understand the obligations and implications of such rules. The AI legalese decoder can break down the requirements of the rule, highlight key points, and provide a simplified explanation of how it may impact businesses. This can help stakeholders make informed decisions and navigate the legal landscape more effectively.

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