WASHINGTON, D.C. — In a significant shift in its regulatory oversight priorities, the Consumer Financial Protection Bureau (CFPB) announced today that it will not prioritize supervision or enforcement actions regarding the small business lending rule under Regulation B. The regulation, which implements Section 1071 of the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act, was published in the Federal Register at 88 Fed. Reg. 35,150 on May 31, 2023.
According to the Bureau’s announcement, this enforcement discretion applies specifically to financial entities that are currently outside the scope of the judicial stay imposed by the United States Court of Appeals for the Fifth Circuit in the ongoing litigation Texas Bankers Association v. CFPB, No. 24-40705. By making this administrative adjustment, the CFPB intends to redirect its supervisory resources toward what it identifies as the most pressing threats facing consumers today, placing particular emphasis on the financial protection of military servicemen, veterans, and everyday American taxpayers.
The policy shift addresses a complex regulatory and legal landscape that has unfolded around the Section 1071 rule since its finalization. The rule was originally designed to implement amendments made to the Equal Credit Opportunity Act by the Dodd-Frank Act, requiring covered financial institutions to collect and report specific data regarding credit applications made by small businesses, including women-owned and minority-owned businesses. However, the implementation timeline has faced intense legal scrutiny, multiple challenges, and subsequent judicial interventions across various federal courts, creating a fractured compliance environment for lenders nationwide.
In explaining the rationale behind the decision, the Bureau emphasized that even if it did not face existing resource constraints, principles of regulatory fairness necessitate a temporary halt to active enforcement for certain entities. Specifically, the CFPB noted the inherent inequity of enforcing the rule against financial institutions that happen to fall outside the formal protection of the court-ordered stay, yet remain similarly situated to the parties that are legally shielded by it. The agency acknowledged that enforcing compliance requirements against one group of lenders while their direct competitors enjoy judicial relief creates an uneven playing field that runs counter to the principles of consistent regulatory administration.
The ongoing legal battle represented by the Texas Bankers Association v. CFPB case has been central to the uncertainty surrounding the small business lending data collection requirements. Industry groups and banking associations have argued that the rule imposes substantial compliance burdens and operational costs, leading to extensive litigation aimed at halting or modifying the regulation’s implementation. As these legal proceedings advance through the appellate courts, the regulatory status of the rule has remained ambiguous for many financial institutions striving to understand their immediate obligations.
By adjusting its supervisory posture, the Bureau aims to mitigate the immediate compliance pressures on lenders caught in this regulatory gray area while the broader legal questions are adjudicated. The agency stated that it looks forward to the ultimate resolution of the regulation’s legal status through the judicial system. Furthermore, the CFPB stressed that its overarching goal in resolving this matter is to ensure fair, transparent, and consistent treatment for all financial entities and stakeholders impacted by the regulation once the legal framework is settled.
In the interim, the Bureau’s redirected enforcement and supervision resources will remain heavily concentrated on safeguarding consumers against predatory practices and financial fraud. Particular attention will be dedicated to supporting hard-working American taxpayers, as well as active-duty military personnel, veterans, and small business owners who may be vulnerable to immediate marketplace threats. The agency’s leadership indicated that maintaining a focused approach on these core protective missions remains paramount while the regulatory details of the Section 1071 rule continue to wind their way through the federal court system.
