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Texas Bankers File Suit to Stop CFPB Small Business Lending Rule

By David Baumann - May 09, 2023

Credit union groups CUNA and NAFCU cited in suit brought against bureau.


Texas Bankers have filed suit in federal court challenging the legality of the CFPB’s final rule requiring financial institutions to collect and report lending to woman- and minority-owned small businesses.

“Rather than advancing the goal of growing the number of loans made to minority and women-owned businesses, though, the CFPB has now issued a rule that will hinder that aim,” the Texas Bankers Association and Rio Bank of McAllen, Texas, stated in their suit, filed in U.S. District Court for the Southern District of Texas.

Credit union trade groups have made similar arguments and the bankers cited the opposition of CUNA and NAFCU in the suit.

Context

Texas federal courts have been friendly to CFPB opponents. The Fifth Circuit Court of Appeals ruled that the funding scheme for the bureau was unconstitutional because it did not require the agency to go through the annual appropriations process.

Presumably if one side or the other is unhappy with the small business lending ruling handed down by the District Court, it could appeal the ruling, placing it in the hands of the Fifth Circuit.

The CFPB issued its long-awaited small business lending rule at the end of March.

“Now, for the first time, data on small business lending will give investors and lenders more insights to identify new opportunities that support economic growth, help policymakers measure the effectiveness of any government programs, and provide a data-driven approach to detect potential discrimination,” the agency said, in issuing the final rule.

The Bankers’ Arguments

The bankers disagreed, accusing the bureau of a power grab based on a small section of the Dodd-Frank Act.

“Rather than hewing closely to the text of the Act, though, the CFPB’s proposed rule looked to vastly expand the categories of information on which data would be sought from banks and other financial institutions,” the bankers argued.

They added, “In the exercise of its discretionary authority, the CFPB transformed its three-page statutory mandate into an 887-page, single-spaced Final Rule.”

Further, the bankers maintained, the cost of complying with the small business rule will be so high, many lenders are likely to stop making small business loans.

“Unable to effectively comply with these burdensome and overreaching new 
reporting requirements, the Final Rule will drive smaller providers from the market, causing a decrease in the products available to all customers including minority and women-owned small businesses,” they said.

What Are the Bankers Asking For?

The bankers asked the district court to decide that the CFPB rule is illegal because it was issued by an unconstitutional agency.

Additionally, they asked the court to decide that the rule was issued in violation of federal law—contending that the agency failed to take several required steps, including an effective cost-benefit analysis.

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