The American Bankers Association, Independent Community Bankers of America and Texas Bankers Association are calling for the temporary injunction against Section 1071 to apply also to non-member banks.
The ABA and TBA penned an Aug. 2 letter to Consumer Financial Protection Bureau Director Rohit Chopra less than a week after a Texas federal court issued the injunction only for members of the associations, after the trade groups had requested relief for all banks when initially filing the lawsuit this spring. Two days later, the ICBA requested that the injunction also apply to all community banks.
TBA President and CEO Chris Furlow, and ABA President and CEO Rob Nichols said applying the injunction only to their members “would create a patchwork ruling which would undermine the injunction and create unequal enforcement of an agency rule that is invalid.
“While most FDIC-insured banks fall within our membership, there are some that do not,” they wrote. “We recognize the Bureau’s desire to continue pressing forward with certain covered institutions and so are only asking for your consideration of extending the stay to the banking industry. We believe this would simplify things for both your agency and the regulated community.”
The associations argue that Section 1071 should be delayed until the Supreme Court rules on the constitutionality of the agency’s funding structure, after it agreed to take the case in February. A final Supreme Court ruling is not expected until 2024. “Not only would a stay from the Bureau streamline administration for the agency after the Supreme Court’s ruling … it could also address concerns of other potential banking plaintiffs who may consider bringing additional litigation under current circumstances,” Furlow and Nichols said.
Section 1071 would require lenders to collect and report information on the race, sex and ethnicity of the principal owners of the small business applicant as well as the company’s gross annual revenue. Under the rule, the CFPB would require lenders that originate at least 2,500 small business loans to collect data starting on Oct. 1, 2024. Lenders that originate at least 500 loans will need to begin collecting information on April 1, 2025, and those that originate at least 100 annually must collect data starting on Jan. 1, 2026.
As the court battle looms, legislative pushback against Section 1071 also continues.
On July 27, the House Financial Services Committee approved a resolution of disapproval against the rule. Similar legislation has been introduced in the Senate by Sen. John Kennedy (R-La.) The bills face steep odds at being signed into law, as they still need to pass both chambers before being approved by President Joe Biden.
Chopra has described Section 1071 as necessary to help the agency update the Community Reinvestment Act and ease the current discrepancies in small business lending access across demographic groups. “It will help detect and deter lending discrimination,” he said in March. “It will also allow programs like the Paycheck Protection Program to be designed more effectively and work more efficiently. And it will allow the CRA to have more teeth when it comes to small business lending.”