Senate fails to override veto of small business data collection rule

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The Senate failed to override President Biden’s veto of a resolution to nullify the Consumer Financial Protection Bureau’s small-business data collection rule 

The Senate on Wednesday voted 54-45, falling short of the two-thirds majority needed to override the president’s veto last month of a Republican-led resolution to gut the small business data collection rule under the Congressional Review Act. 

The rule, known as 1071 for its section in the Dodd-Frank Act, is currently on hold pending the outcome of a Supreme Court case challenging the constitutionality of the CFPB’s funding. The bureau finalized the rule last year and was promptly sued by bank trade groups. 

Sen. Sherrod Brown, D-Ohio, chairman of the Senate Committee, said after the vote Wednesday that he applauded lawmakers’ “affirmation of the 1071 rule,” saying the rule was designed to promote access to credit and to combat discrimination in small business lending.

“The outcome of today’s vote is a win for the engines of our economy: Small businesses, businesses and entrepreneurs,” Brown said in a press release. 

Lawmakers knew early on that Biden would veto the resolution, so the vote to nullify the rule was largely symbolic. Still, Congressional Review Act challenges that pass both the House and the Senate are rare, especially those that can draw bipartisan support. 

Consumer advocates lobbied lawmakers to support the rule, which allows for public disclosure of data that would potentially show the number of small business loans originated — and denied — to women and minorities. Banks, credit unions and fintechs face potential reputational risks from such disclosures if they are cited by the CFPB or Department of Justice for fair lending violations.

“This issue has had a lot of strong support from civil rights and small business advocates and there’s been a fair amount of advocacy around this,” said David Ferreira, senior government relations manager at the Center for Responsible Lending. 

He cited widespread support for the rule among nearly 100 civil rights and consumer groups, including the Consumer Federation of America, Center for Responsible Lending, Farm Aid, National Urban League, NAACP, the U.S. Hispanic Chamber of Commerce and the Union of Concerned Scientists.

The CFPB dragged its feet for more than a decade and ultimately was forced to finalize a rule after it was sued in 2019 by a consumer advocacy group. The 1071 rule was one of the last remaining mandates of the Dodd-Frank Act.

The rule requires that small business lenders collect race, gender and demographic data from small business loan applicants. The rule is similar to Home Mortgage Disclosure Act requirements that went into effect for mortgage lenders in 1975. 

CFPB Director Rohit Chopra has framed the rule as necessary to give regulators data about small business lending which was lacking when the pandemic hit and the government created the Paycheck Protection Program.

“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,” Chopra said last March.  

Still, the banking industry has opposed collecting data on small business applicants  saying the rule’s requirements are burdensome and would restrict credit to small businesses while raising costs. Banks claim implementation of the rule, which takes effect in October, is a complex effort involving multiple data collection platforms and changes to existing technology. 

The small business data collection rule was halted in October by a federal judge after the Texas Bankers Association, the American Bankers Association and Rio Bank, an $814.7 million-asset private bank in McAllen, Texas, sued the CFPB in April. They argued that they should not have to comply with the rule because the 5th Circuit Court of Appeals had ruled in 2022 that the CFPB’s funding is unconstitutional. An injunction against the rule that initially applied only to the trade groups’ members and to Rio Bank was extended nationwide in October. 

The 1071 rule’s compliance deadlines begin in October for lenders that originated 2,500 small business loans in 2022 and 2033. Lenders that originated between 500 and 2,500 in the previous two years have until April 1, 2025 to comply, while the smallest lenders with fewer than 500 loans start reporting on January 1, 2026. Lenders that originate fewer than 25 small business loans are exempt from compliance.