[ad_1]
A federal judge in Texas blocked the Consumer Financial Protection Bureau from enforcing a new rule requiring lenders to collect demographic data from small-business borrowers while the constitutionality of the agency’s funding mechanism remains in question.
Judge Randy Crane of the US District Court for the Southern District of Texas placed an injunction Monday barring the CFPB from requiring Rio Bank of McAllen, Texas, and members of the Texas Bankers Association and American Bankers Association (ABA) to comply with the small business lending rule until the US Supreme Court rules on the CFPB’s funding.
The high court in October is scheduled to hear oral arguments in a CFPB appeal of a ruling last year from the US Court of Appeals for the Fifth Circuit that found the agency’s funding through the Federal Reserve violates the Constitution’s appropriations clause. Supreme Court watchers expect a ruling in the summer of 2024.
The injunction on the small business lending rule isn’t nationwide. Instead, it applies only to the Texas Bankers Association’s 400 members, including Rio Bank, and the ABA’s members around the country. The ABA’s member banks hold $19.2 trillion in deposits nationwide and include some of the biggest banks in the country.
“We believe the injunction is a recognition of the complexity of the 1071 Final Rule and the significant costs and burdens it places on our members, particularly community banks which provide much of the country’s small business lending,” the plaintiffs said in a joint statement.
The CFPB declined to comment.
Section 1071 of the 2010 Dodd-Frank Act required the CFPB to write a rule for collecting demographic data on small business lending, similar to what’s required for home loans under the Home Mortgage Disclosure Act.
The agency’s rule, finalized in March and set to take effect Aug. 29, will apply to small business lenders including banks and fintechs that make at least 100 small business loans each year. The CFPB estimated that setting the threshold at 100 loans annually would capture around 95% of the small business loan market. The largest lenders will have to collect data beginning next year, while smaller lenders will have additional time to comply.
The Texas Bankers Association and Rio Bank sued to block the rule in late April, arguing that the CFPB shouldn’t have been able to finish the proposal because the Fifth Circuit ruled the agency’s funding was unconstitutional.
Crane, a Trump appointee, found that the plaintiffs, who were joined by the national ABA in May, would likely succeed in challenging the rule on constitutional grounds following the Fifth Circuit’s ruling.
Fair lending advocates blasted Crane’s reasoning and the banks’ challenge to the rule.
“It’s a ludicrous and retrograde position to take, in effect asserting a right to discriminate in secret to illegally deprive marginalized communities of economic opportunity,” Jesse Van Tol, the president and CEO of the National Community Reinvestment Coalition, said in a statement to Bloomberg Law.
But rather than imposing a nationwide preliminary injunction in the case, as the plaintiffs requested, Crane elected only to stop the CFPB from requiring members of the two trade groups to start preparing for small business data collection before the Supreme Court issues its decision on CFPB funding.
Imposing a nationwide injunction would only lead to “more confusion,” Crane wrote.
The ruling may increase confusion among lenders, however, by limiting its applicability to members of the two trade groups.
“This tedious whining only leaves the industry trapped in uncertainty,” Van Tol said of the banks’ complaints.
In some instances, banks can be members of more than one trade association.
Take the Electronic Transactions Association, which includes both banks and fintechs. Some ETA bank members are also members of the ABA, which would put a halt to their compliance with the 1071 rule. Fintech members belonging only to ETA, on the other hand, would be expected to comply.
“The substance of the ruling makes sense, but it should be applied to all small business lenders to provide certainty and predictability,” said Scott Talbott, ETA’s senior vice president for government relations.
The case is Texas Bankers Association v. Consumer Financial Protection Bureau, S.D. Tex., No. 7:23-cv-00144, Order Granting In-Part and Denying In-Part Plaintiffs’ Motion for Preliminary Injunction 7/31/23.
[ad_2]
Source link