Banking Groups Lose Challenge to CFPB Small Business Data Rule

A federal judge in Texas handed a loss to banking industry groups challenging the Consumer Financial Protection Bureau’s rule requiring lenders to collect demographic data on their small business borrowers.

Judge Randy Crane in the US District Court for the Southern District of Texas had put the rule on hold nationwide in October 2023, waiting for the US Supreme Court to rule on the constitutionality of the CFPB’s independent funding through the Federal Reserve. The high court in May upheld the agency’s funding in CFPB v. Community Financial Services Association of America, paving the way for Crane to consider the industry’s challenge to the rule itself.

The CFPB didn’t violate the Administrative Procedure Act when it adopted the small business data collection rule in March 2023, Crane said in a Monday opinion granting the agency’s motion for summary judgment.

“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,” he wrote.

The CFPB’s rule—adopted under Section 1071 of the 2010 Dodd-Frank Act, and now set to take effect starting in July 2025—will require lenders that make at least 100 small business loans a year to collect the race, gender, and other demographic characteristics of borrowers, similar to data they collect for mortgages.

The industry plaintiffs in the case, including the American Bankers Association and the Texas Bankers Association, have argued the CFPB exceeded its statutory authority, failed to respond to concerns raised by interested parties, and failed to undertake a proper cost-benefit analysis.

The ABA and other plaintiffs said they will appeal.

“Given the significant harm small business owners and financial institutions face from this rule, our legal fight challenging 1071 will not end here,” they said in a statement Monday.

The CFPB declined to comment.

Lawmakers last year passed a measure (S. J. Res. 32) with some bipartisan support that would have overturned the CFPB’s rule using the Congressional Review Act, but President Joe Biden vetoed the legislation, and lawmakers couldn’t muster enough votes to override the president’s veto.

The case is Texas Bankers Association v. CFPB, S.D. Tex., Docket No. 7:23-cv-00144, 8/26/24.