Court Refuses to Block Small Business Lending Regulation
Henry C. Meier, The Law Office of Henry C. Meier
In an important and decisive victory for the CFPB, a federal district court in Texas yesterday refused to block a regulation mandating that financial institutions begin to collect data on minority-owned small businesses from taking effect. Unless the decision is overturned, credit unions that originate 100+ loans for two consecutive years will ultimately have to start collecting and recording information about their small business loans.
The court’s decision in Texas Bankers Association v. Consumer Financial Protection Bureau is the latest chapter related to section 1071 of the Dodd-Frank Act. First, it took almost a decade for the CFPB to finalize regulations under the provision. Then, the American Bankers Association and credit unions were able to get an injunction blocking the regulation from taking effect, pending the outcome of the Supreme Court case that called into question the constitutionality of the CFPB’s funding mechanism. Following the Supreme Court’s decision upholding the CFPB in June, the CFPB published a new effective date under which the largest providers of small business loans, those that make 2500 or more such loans a year, will have to start reporting small business lending data in July of next year.
In rejecting the request for an injunction, the court had little patience for the lender’s arguments, concluding that the CFPB acted well within its authority under both the Administrative Procedure Act, as well as the congressional legislation in promulgating the regulations.
“Each of Plaintiffs' arguments with respect to the Final Rule's adherence to the “purpose” of the statute is in substance an attack on the effectiveness of the regulation—i.e., a claim that the agency's action was unreasonable and therefore arbitrary and capricious.” The court noted, “however ineffective or counterproductive the substance of the Final Rule may be,” the CFPB was clearly acting under its authority under the Administrative Procedures Act.
Beyond the importance of upholding the specific regulation in question, the case also serves as an important reminder that in the post-Loper Bright era, regulators retain a tremendous amount of power provided such authority has been clearly delegated to them by Congress. For instance, Section 1071 not only listed data to be collected under the act, it also authorized the CFPB to mandate the collection of “any additional data” that it determines “would aid in fulfilling” the purposes of the statute (Section 1691c-2).
While additional appeals are likely, under the regulations, reporting requirements are phased in over a three-year period with those institutions that originate at least one hundred small business loans over two consecutive years. Under the updated timeline established by the CFPB, the largest institutions, those that originate 2,500 small business loans a year, will start reporting data on July 18, 2025. For those in tier two institutions, those that originate 500 or more small business loans, the new compliance date is Jan. 16, 2026. And for those that make between 100 and 500, the updated compliance date is Oct.18, 2026. You can access the latest small business reporting regulation by the CFPB here.
The primary purpose of the legislation is to begin to ascertain whether minority- and women-owned small businesses are treated unfairly by lending institutions. As a result, lenders must collect the race, sex and ethnicity of the principal owners of the business as well as the census tract in which the business is located. Under the regulations, a small business is defined as any business with a gross annual revenue of $5 million or less.
Henry C. Meier, Esq., has broad knowledge at the nexus of law, regulatory compliance and politics. Prior to starting his practice, Henry served as the Senior Vice President and General Counsel of the New York Credit Union Association, where he oversaw the legal, compliance and governmental relations activities on behalf of the Association and its affiliate mortgage company. Reach Henry here!
