CFPB’s Small Business Lending Data Collection Rule Leaps Legal Hurdle

The Consumer Financial Protection Bureau (CFPB) rule requiring lenders to gather demographic information about small business borrowers has leapt another legal hurdle. 

A federal judge rejected a banking industry-backed challenge that argued that the rule’s data collection method was flawed, Reuters reported Monday (Aug. 26).

U.S. District Judge Randy Crane in McAllen, Texas, ruled that the challenge concerned a disagreement with the CFPB’s determinations rather than a dispute over the regulator’s statutory authority to adopt the rule, according to the report. 

The American Bankers Association, the Texas Bankers Association and other industry groups were among those who had asked the judge to block the rule, the report said. 

Opponents of the rule had argued that the flaws in the rule’s data collection methods could undercut the statute’s purpose and increase loan costs, per the report. 

The CFPB released the rule in March 2023, saying lenders who issue more than 100 small business loans annually — which in effect winds up covering more than 95% of small business loans issued in the states — would be required to collect demographic, geographic and other data about borrowers.

“This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly,” CFPB Director Rohit Chopra said when announcing the changes.

The CFPB said in June that it extended the compliance dates for the small business lending rule pursuant to court orders.

A federal court in Texas had stayed the rule in 2023, pending a Supreme Court decision regarding the constitutionality of the CFPB’s funding mechanism.

When the Supreme Court ruled in May that that the funding mechanism was constitutional, the federal court in Texas required the CFPB to extend the rule’s compliance deadlines to compensate for the period the rule was stayed.

Monday’s ruling by the federal judge in Texas comes on the same day that the CFPB launched a beta platform for the small business lending data collection rule.

“We invite the participation of financial institutions and their technology partners to test the beta platform and share feedback with the CFPB on the experience,” the regulator said in a Monday email to PYMNTS.