In May 2023, the American Bankers Association (ABA) joined a Texas lawsuit seeking to invalidate the Consumer Financial Protection Bureau’s (CFPB) Final Rule regarding data collection by commercial lenders. The Final Rule was issued under section 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act to require commercial lenders to collect data from loan applications to facilitate enforcement of fair-lending laws. The Act required lenders to determine if the business is woman-owned, minority-owned or a small business, and to compile and report a handful of data points to CFPB. CFBP’s Final Rule significantly expanded the reporting requirement to 81 data points.
In the lawsuit, the plaintiffs seek a preliminary injunction that would suspend the Final Rule, as well as a declaration that the Final Rule is unlawful. The plaintiffs assert four bases to invalidate the Final Rule:
- CFPB’s funding structure is unconstitutional;
- CFPB exceeded its statutory authority;
- CFPB’s action was arbitrary and capricious in violation of the Administrative Procedure Act because CFPB did not respond to significant issues raised by interested parties; and
- CFPB’s action was arbitrary and capricious in violation of the Administrative Procedure Act because CFPB did not engage in a proper cost-benefit analysis.
On July 31, the court entered a limited preliminary injunction to postpone enforcement of the Final Rule only to the plaintiffs and their members and only until the Supreme Court enters a decision in the related case of Cmty. Fin. Servs. Ass’n of Am., Ltd. v. CFPB, 51F.4th 616 (5th Cir. 2022). If the Supreme Court reverses the 5th Circuit’s decision in Cmt. Fin. Servs., the preliminary injunction will automatically dissolve and CFBP will extend plaintiffs’ and their members’ deadlines for compliance with the requirements of the Final Rule to compensate for the period during which the Final Rule is stayed.
The plaintiffs include:
- American Bankers Association
- Texas Bankers Association
- Independent Bankers Association of Texas
- Independent Community Bankers of America
- Rio Bank of McAllen, Texas
- Texas First Bank
- Texas Farm Credit
- Farm Credit Council
- Capital Farm Credit
The earliest compliance date for covered financial institutions is October 1, 2024. It is possible the court will decide the case before then. Nonetheless, covered financial institutions should be prepared to comply with the Final Rule if it is not invalidated before then.