Republicans have introduced bills in both the House and Senate to prevent the Consumer Financial Protection Bureau from implementing Section 1071 of the Dodd-Frank Act.
On July 27, the House Financial Services Committee approved a resolution of disapproval against Section 1071. 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.
Section 1071, which was finalized earlier this year, requires lenders to collect and submit data on credit applications from women-owned, minority-owned and small businesses. Lenders will need to furnish data on loans made to small businesses with less than $5 million in the last fiscal year, submit Congressionally-required data points and provide additional information typically included in lender files.
The CFPB plans to 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 annually will need to begin collecting data on April 1, 2025, and those that originate at least 100 annually must collect data starting on Jan. 1, 2026. The rule 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.
Independent Community Bankers of America President and CEO Rebeca Romero Rainey said the House resolution “rebukes intrusive and overly burdensome data collection and reporting requirements for small-business loans that would ultimately harm the women- and minority-owned small businesses the rule is designed to help.”
In late May, McAllen, Texas-based Rio Bank, the American Bankers Association and Texas Bankers Association sued the CFPB to prevent it from implementing Section 1071. The groups requested that the rule be delayed until the Supreme Court rules on the constitutionality of the agency’s funding structure after agreeing to take the case in February. The Supreme Court is expected to issue a decision on the constitutionality of the CFPB’s funding next June. On July 31, U.S. District Court Judge Randy Crane granted a motion for a preliminary injunction against Section 1071. However, the injunction only applies to Rio Bank and TBA and ABA member banks.
CFPB Director Rohit 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. “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.”