The Consumer Financial Protection Bureau said it will not take action against any companies to enforce or supervise the small business lending rule, which was finalized under the Biden administration and upheld after six years of litigation.
The rule, known as 1071 for the section in the Dodd-Frank Act that authorized it, has been widely opposed by banks and lenders because it requires that all small business lenders collect and report data on the race, ethnicity, gender and LGBTQ status of loan applicants.
The bureau said in February that it intended to
Late Wednesday, the CFPB said in a release that it “will not prioritize enforcement or supervision actions with regard to entities that are currently outside the stay imposed under Texas Bankers Association v. CFPB.”
A Texas appeals court had granted a temporary stay from the rule’s data reporting requirements to two Texas banks and members of four bank trade groups that had sued the CFPB in 2023 to stop the rule from going into effect. The appeals court, however, did not
The largest lenders were supposed to start collecting data in mid-July. Congress mandated the small business data collection in 2010 and covers a wide range of credit products including term loans, lines of credit, business credit cards, online credit products and merchant cash advances.
Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, said the 1071 rule was passed by Congress and that the CFPB “must enforce it.”
“We are a country made of rule of law, and the CFPB can’t simply gut rules by press releases on its whim,” Van Tol said. “No court has ever said any part of the law is a problem. “
In February, a Florida magistrate judge upheld the 1071 rule, which had faced a final legal challenge from a group of merchant advance lenders. Judge Eduardo I. Sanchez of the U.S. District Court for the Southern District of Florida wrote that the rule was not “‘arbitrary and capricious,” as alleged by the lenders, and reaffirmed that the CFPB had conducted an appropriate cost-benefit analysis of the rule.
Still, the CFPB told a court in February that it planned to start making a new rule to meet its legal obligation.
“CFPB’s new leadership has directed staff to initiate a new section 1071 rulemaking,” the bureau said. “The CFPB anticipates issuing a notice of proposed rulemaking as expeditiously as reasonably possible.”
In its
“Even absent resource constraints, the Bureau would deprioritize enforcement of this rule because of the unfairness of enforcing it against entities not protected by the court’s stay but similarly situated to parties that are protected by the stay,” the CFPB said.
Vought, whose main job in the Trump administration is director of the Office of Management and Budget, wants the CFPB to have fewer than 200 employees, with nearly all bank and nonbank enforcement and supervision
The bureau said that the 1071 rule promulgated under former CFPB Director Rohit Chopra “significantly expanded the data reporting categories specified by Congress and has been subject to criticism from small business lenders and their representatives and members of Congress.”
Banks and lenders objected because the data collection had expanded to 81 data fields up from 13 originally. The CFPB’s
The small business rule went into effect in August 2023 but it was not subject to the Trump administration’s regulatory freeze. It also was not included in orders from Vought, who put a halt to rulemakings that had not yet gone into effect.
As a reason given in the press release, the bureau said it “will instead keep its enforcement and supervision resources focused on pressing threats to consumers, particularly servicemen and veterans.”
The CFPB also said that it “looks forward to resolving the status of this regulation and ensuring fair, consistent treatment for all entities impacted by the regulation.”
The CFPB declined to promulgate a rule on small business lending for years, until the California Reinvestment Coalition, a consumer group rebranded as