On July 31, the U.S. District Court for the Southern District of Texas granted, in part, and denied, in part, a preliminary injunction against the Consumer Financial Protection Bureau (CFPB). This injunction had been filed by a bank and two trade associations. Their purpose was to prevent the CFPB from enforcing its new final rule, which stems from section 1071 of the CPA, and would require financial institutions to collect and provide the bureau with data on lending to small businesses. Orrick, Herrington & Sutcliffe LLP reports.
The rule has been the subject of widespread controversy since its proposal. Many banks feel stifled by the requirement to collect and provide detailed demographic information about small-business borrowers. These institutions argue that the rule imposes a significant administrative burden and could potentially conflict with privacy rights.
Section 1071 of the CPA was meant to ease small-business access to credit and eliminate barriers faced by women and minority owners. However, according to several banks and finance advocacy groups, the data collection mandate would be overly burdensome and intrusive, potentially exposing sensitive financial information.
In this ongoing litigation, we see a classic tension between the imperative to promote transparency and disclosure in the finance sector, and the need to safeguard the rights and liberties of industry participants. The outcome of this tension could have significant implications for both lenders and borrowers in the small business sector.