CFPB declares inactivity on enforcing small-business data-gathering regulation
The Consumer Financial Protection Bureau's (CFPB) small-business data collection rule, mandated under Section 1071 of the Dodd-Frank Act, is currently not being enforced and its implementation has been delayed and suspended. This decision comes amidst ongoing controversy, opposition, and legal challenges.
The suspension of the rule is primarily due to concerns about regulatory burden and privacy, raised by critics such as smaller financial institutions and community lenders. These opponents argue that the rule imposes excessive data collection requirements on small-business loan applicants.
The rule, which would have required lenders originating 2,500 or more small-business loans per year to collect race, gender, LGBTQ status, and demographic data from borrowers, has been suspended. Under the revised time frame, lenders originating at least 500 per year must collect data by January 16, 2026, and lenders that originate at least 100 each year must comply by October 18, 2026.
The rule has been the subject of litigation since its issuance, with a Texas bank and the state's banking trade group suing the CFPB to block the rule less than a month after it was issued. The Senate and House each voted to repeal the rule, but then-President Joe Biden vetoed the matter.
Consumer groups and advocacy coalitions, such as Rise Economy, have sued the CFPB for failing to enforce the rule, contending that the Bureau violated the Equal Credit Opportunity Act (ECOA) and the Administrative Procedure Act (APA) by invalidating or delaying the rule's implementation. They argue that the data collection is vital to monitor discrimination in small-business lending and better support small businesses, pointing to the lack of such data during the COVID pandemic as damaging.
The CFPB's funding has also been drastically cut, which has impacted its capacity to enforce this and other regulations. The reduction of the CFPB’s budget by more than half—from approximately $729 million to a capped $425 million—likely contributed to its decision to delay and reconsider the small-business data collection rule.
In summary, the rule is currently effectively suspended pending further rulemaking and congressional action, primarily due to legal challenges, political opposition, concerns about regulatory burden and privacy, and funding limitations faced by the CFPB. The CFPB has stated that it looks forward to resolving the status of the regulation and ensuring fair, consistent treatment for all entities impacted by the regulation.
The ongoing suspension of the small-business data collection rule by the Consumer Financial Protection Bureau (CFPB) is not only linked to the regulatory burden and privacy concerns raised by opponents but also intertwined with political debates and funding restrictions affecting the CFPB's enforcement capacity. Additionally, the rule's potential impact on monitoring discrimination in small-business lending and offering support to small businesses during crises like the COVID pandemic is a subject of controversy in the general news, crime-and-justice, business, and political spheres.
