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The Consumer Financial Protection Bureau (CFPB) has successfully defended its rule requiring lenders to collect demographic data on small business borrowers, overcoming another legal challenge.
On Monday (Aug. 26), a federal judge dismissed a lawsuit backed by the banking industry, which argued that the CFPB’s data collection methods were flawed, according to a report by Reuters.
U.S. District Judge Randy Crane, presiding in McAllen, Texas, ruled that the challenge was based on a disagreement with the CFPB’s policy decisions rather than a question of the agency’s legal authority to implement the rule.
The lawsuit, brought by the American Bankers Association, the Texas Bankers Association, and other industry groups, sought to block the rule, claiming that the alleged flaws in the data collection process could undermine the rule’s intent and lead to increased loan costs.
The CFPB introduced the rule in March 2023, mandating that lenders who issue more than 100 small business loans annually—effectively covering over 95% of such loans in the U.S.—must gather demographic, geographic, and other relevant data from borrowers.
CFPB Director Rohit Chopra emphasized the importance of this rule, describing it as a “small business loan census” that will provide crucial data to ensure that both banks and nonbanks are serving small businesses fairly.
In June, the CFPB extended the compliance deadlines for the rule, following court orders related to a previous legal challenge. A federal court in Texas had stayed the rule in 2023, pending a Supreme Court ruling on the constitutionality of the CFPB’s funding mechanism. When the Supreme Court upheld the CFPB’s funding structure in May, the court required the CFPB to adjust the compliance dates to account for the delay caused by the stay.
The recent ruling by Judge Crane coincided with the CFPB’s launch of a beta platform for the small business lending data collection rule. The CFPB has invited financial institutions and their technology partners to test the platform and provide feedback on their experience, according to an email sent to PYMNTS on Monday.
This ruling marks a significant step forward for the CFPB’s efforts to enhance transparency and fairness in the small business lending market.
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