Federal Judge Upholds CFPB Rule on Small Business Loan Data Collection

In a significant ruling on Monday, a federal judge dismissed a challenge backed by the banking industry against a U.S. Consumer Financial Protection Bureau (CFPB) rule mandating lenders to collect demographic data on small business borrowers. This decision marks a crucial step in the implementation of fair lending laws aimed at preventing discrimination.

U.S. District Judge Randy Crane in McAllen, Texas, had initially blocked the CFPB's rule nationwide after a federal appeals court questioned the bureau's funding structure. However, the U.S. Supreme Court reversed this decision in May, affirming the constitutionality of the CFPB's funding, which led to the lifting of Crane's injunction.

Despite this, industry groups, including the American Bankers Association and Texas Bankers Association, sought to challenge the rule on different grounds. They argued that the CFPB's data collection methods were flawed and could potentially increase loan costs for small businesses. The regulation, introduced in March 2023, requires lenders to gather and report data on small business loan applications, specifically focusing on whether the businesses are owned by women or racial minorities. This data collection is part of a broader effort to enforce the Dodd-Frank Act of 2010, which aims to prevent discriminatory lending practices.

Judge Crane, however, dismissed the industry's arguments, stating that their concerns were more about policy disagreements rather than legal violations. He emphasized that the possibility of the rule being "ill-advised as a policy matter" does not render it unlawful.

The CFPB has extended the compliance deadlines for lenders, with those handling the highest volume of small business loans now required to collect the necessary data by July 2025. This extension provides lenders additional time to adapt to the new requirements.

In December, President Joe Biden vetoed a congressional resolution that sought to overturn the CFPB's rule, asserting that such a reversal would impede the government's ability to oversee predatory lending practices.

For more detailed information, you can read the full article on Reuters.