NEWS: A Texas federal court has blocked enforcement of the CFPB’s new Reg. B small-business lending data collection rule until the U.S. Supreme Court decides whether the CFPB’s funding structure is Constitutional; however, the order only provides relief for certain banks, not credit unions or other lenders.
As explained in this Compliance Courier, the rule, which implements Section 1071 of the Dodd-Frank Act, will require many financial institutions to collect and report data on lending to small businesses with gross revenue of $5 million or less. The rule is designed to help regulators and others uncover discrimination in small business lending.
The Texas Bankers Association (TBA) and a Texas bank filed a lawsuit challenging the rule’s validity soon after it was finalized. The American Bankers Association (ABA) later joined that lawsuit.
Among other things, the bankers alleged that the rule is invalid because the CFPB’s funding structure is unconstitutional. The same argument over CFPB funding is at the heart of a different case – CFPB v. Community Financial Services Association of America – which is pending before the U.S. Supreme Court. The Texas court issued its injunction on enforcement of the new rule until the Supreme Court issues its opinion on CFPB funding.
However, the Texas court’s injunction does not apply to all the lenders covered by the rule. Despite a request by the ABA and TBA for a broad injunction, the judge instead chose to provide relief only to banks that are ABA or TBA members, sparing them implementation costs for now.
“The injunction on the small business lending rule isn’t nationwide,” according to Bloomberg Law. “Instead, it applies only to the Texas Bankers Association’s 400 members … and the ABA’s members around the country. The ABA’s member banks hold $19.2 trillion in deposits nationwide and include some of the biggest banks in the country.”
When the U.S. Supreme Court issues its opinion in the CFPB funding case, which is expected sometime in the summer of 2024, new compliance deadlines will be issued for ABA and TBA members. “Defendants are ordered to extend Plaintiffs and their members’ deadlines for compliance with the requirements of the Final Rule to compensate for the period stayed,” the judge’s order said.
For everyone else, the rule has a tiered compliance date schedule. Compliance is required October 1, 2024, for financial institutions that originated at least 2,500 covered small business loans in both 2022 and 2023. Those with fewer originations have later compliance dates.
The League has information on the rule in our newest ii Release, No. B083.