A federal judge in Texas ruled against banking industry groups that sought to challenge the Consumer Financial Protection Bureau’s (CFPB) rule mandating lenders to collect demographic data on their small business borrowers. Judge Randy Crane of the US District Court for the Southern District of Texas had previously placed a hold on the rule nationwide in October 2023, amid awaiting a decision from the US Supreme Court on the constitutionality of the CFPB’s independent funding through the Federal Reserve. The Supreme Court upheld the CFPB’s funding mechanism in May, allowing Crane to proceed with the evaluation of the industry’s objections to the rule.
Crane ruled on Monday that the CFPB did not violate the Administrative Procedure Act (APA) when it adopted the small business data collection rule in March 2023. He noted, “It may well be that the Final Rule proves ill-advised as a policy matter, but that possibility does not itself make the Final Rule unlawful under the APA.”
The rule, adopted under Section 1071 of the 2010 Dodd-Frank Act, is set to take effect starting in July 2025. It will require lenders making at least 100 small business loans annually to collect race, gender, and other demographic data of borrowers, similar to the data gathered for mortgages.
The industry plaintiffs, including the American Bankers Association (ABA) and the Texas Bankers Association, argued that the CFPB had overstepped its statutory authority, failed to properly address the concerns raised by stakeholders, and had not conducted an adequate cost-benefit analysis. These plaintiffs announced they would appeal the decision, stating, “Given the significant harm small business owners and financial institutions face from this rule, our legal fight challenging 1071 will not end here.”
Last year, lawmakers passed Senate Joint Resolution 32, which aimed to overturn the CFPB’s rule using the Congressional Review Act. However, President Joe Biden vetoed the legislation, and subsequent attempts in the Senate to override the veto failed.
The case is Texas Bankers Association v. CFPB, S.D. Tex., Docket No. 7:23-cv-00144, 8/26/24. For full details, visit the original article.