Lawmakers and stakeholders within the business industry are at odds over the Consumer Financial Protection Bureau (CFPB) rule to collect data on small business loan recipients.
Proponents of the rule argue that it will allow for more equitable lending practices, while opponents argue that the rule constitutes a privacy breach and administrative burden. The CFPB’s 1071 rule specifically requires financial institutions to submit information about the race, ethnicity and gender of small business loan recipients. It also requires information on lending decisions and the price of credit.
The bureau argued that greater data collection “will give investors and lenders more insights to identify new opportunities that support economic growth, help policymakers measure the effectiveness of any government programs, and provide a data-driven approach to detect potential discrimination.” It pointed to the COVID-era Paycheck Protection Program as one that might have benefited from more data to keep more small businesses afloat at the beginning of the pandemic.
“Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program,” CFPB Director Rohit Chopra said in a statement announcing the 1071 rule, which was finalized in March 2023. “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.” However, some Republicans and financial institutions oppose the rule, describing it as government overreach. In October, the Senate voted 53-44 to overturn the rule.
“Small business owners are already suffering too much under President Biden’s inflation, and the CFPB’s rule only further burdens them and puts their personal data at risk,” Sen. John Kennedy (R-La.), who sponsored the resolution to reverse the rule, said in a statement. In a floor speech, Kennedy also highlighted the potential invasiveness of the CFPB’s rule.
“The bank has to ask the small-business person if that small-business person is gay,” Kennedy said. “What a private American does with another private, adult American in the privacy of their bedroom — we are free, so long as it doesn’t break any laws, to express our sexuality however we want to, and it’s none of the CFPB’s business.”
Senate Minority Leader Mitch McConnell (R-Ky.) also supported the resolution, arguing that “Washington Democrats want to tie small business loans to diversity quotas.”
Members of the banking community, including the American Bankers Association (ABA) and the Credit Union National Association (CUNA), were also critical of the rule, stating that it would place an additional burden on small business lenders and would translate to increased borrowing costs for loan recipients. The ABA, along with the Texas Bankers Association and a small Texas bank, sued the CFPB in July to try and stop the 1071 rule from going into effect.
The groups and the bank were granted a preliminary injunction preventing the CFPB from enforcing the rule on its members. In August, the Texas court expanded the initial injunction to include all U.S. financial institutions covered by the 1071 rule until the U.S. Supreme Court hears a case on the CFPB’s funding structure.
“The burdensome requirements of this rule — combined with the significant questions about the constitutionality of the CFPB’s funding — created too much uncertainty in the marketplace, especially when credit union products and services are needed by members and businesses more than ever,” CUNA President and CEO Jim Nussle said in response to the expanded injunction ruling.
The White House, meanwhile, defended the 1071 rule and said that it would veto any legislation, including the Senate resolution, meant to block it.
“This resolution would hamper the efforts to promote transparency and accountability in small business lending and create hurdles for mission-driven lenders and community organizations striving to close the most acute gaps in capital access for minority- and women-owned businesses,” the White House said in a statement of administration policy.
“The CFPB’s rulemaking will provide small business owners, lenders and the public with critical information about the $1.7 trillion small business financing market … Small businesses are the engines of our economy, and this administration will not support policies that hurt their ability to thrive and grow.”
The 1071 rule will remain on pause at least until the Supreme Court rules on the constitutionality of the CFPB’s funding structure.
For more background, see the September 2023 issue of Congressional Digest on “Economic Inequality.”
