CFPB: Small Business Lending Rule Should Go Into Effect
Learn why the CFPB is pushing back against a challenge from the ABA and its Texas affiliate over the bureau's rule regulating small business lending.
Proposal would require credit unions and banks to report their lending activity to women- and minority-owned small businesses.
The CFPB is asking a Texas federal court to reject a request to postpone implementation of the agency’s small business reporting rule, arguing that the plaintiffs cannot show that they would be harmed by the regulation.
The American Bankers Association, its Texas affiliate and Rio Bank in McAllen, TX contend the rule is illegal because the Fifth Circuit Court of Appeals has found that the CFPB’s funding scheme is unconstitutional. They argue that the U.S. Supreme Court is likely to uphold that ruling and, as a result, they have asked the U.S. District Court for the Southern District of Texas for a temporary injunction delaying the rule.
Backstory and Context
The CFPB rule requires financial institutions to report on their lending to women- and minority-owned small businesses, and was required under the Dodd-Frank Act.
Financial services trade groups have been outspoken in their opposition to the regulation and Republicans in both the House and Senate have introduced resolutions to void it.
The CFPB’s Arguments
In arguing that an injunction is not warranted, the CFPB said there is a strong public interest in the rule’s “requirements coming into effect without undue delay so that they may begin producing the benefit for small businesses—and the communities those businesses serve—that Congress intended.”
The agency said that Rio Bank cannot demonstrate that the small business loans it has made would even fall under the rule’s reporting requirements.
The bureau added that even if Rio Bank is covered by the rule, the financial institution would not be required to begin compliance until Jan. 1, 2026. The bank has argued that it must spend money now to begin compliance efforts, but the agency said the bank has not established why it must do so now.
The CFPB further contends that neither the Texas association nor the ABA has identified any member that would be affected by the rule.
And the agency disputes the notion that lenders will exit the small business lending market as a result of the rule, adding that CFPB officials considered that claim and found no evidence to support it.
The agency does hedge its bets a bit, however, saying that if the court decides that an injunction is appropriate, the ruling should only apply to the plaintiffs and not all financial institutions.
Finally, the CFPB said that if the Supreme Court agrees that the agency’s funding mechanism is constitutional, any injunction should be lifted.