The saga of the CFPB's section 1071 small business data collection and reporting rule continues. Rise Economy, fka California Reinvestment Coalition (Rise), the National Reinvestment Coalition (NCRC), the Main Street Alliance (MSA) and Reshonda Young (a small business owner and member of MSA) filed a complaint against Acting CFPB Director Russell Vought and the CFPB seeking to force the agency to implement the section 1071 rule. The complaint was filed with the U.S. District Court for the District of Columbia.
Rise and Ms. Young were among the plaintiffs that previously had filed a lawsuit against the CFPB to have it complete the section 1071 rulemaking required by Dodd-Frank. That led to a July 2022 stipulation and order in which the CFPB agreed to issue the 1071 rule by March 31, 2023. The CFPB released the rule on March 30, 2023.
As previously reported, the 1071 rule is subject to a stay issued by the U.S. Court of Appeals for the Fifth Circuit. The stay only applies to the plaintiffs, intervenors and their respective members. As previously reported, the CFPB has announced that it will not prioritize enforcement of the rule, it has extended the compliance dates for the rule, and it has announced that it will reopen rulemaking.
The complaint initially focuses on the reason why Congress included a requirement for the 1071 rule in Dodd-Frank:
Nearly fifteen years ago, in response to one of the most dire financial crises in our nation's history, Congress determined that the financial system had operated in an unsafe, reckless, and unfair manner, without adequate safeguards for people and communities impacted by its excesses or excluded from opportunities for credit. To that end, among numerous reforms, Congress included a straightforward requirement to enhance transparency: it enacted Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 . . ., which amended the Equal Credit Opportunity Act, to require CFPB to collect data from financial institutions on loans to women-owned, minority-owned, and small businesses, and make it available to any member of the public.
A central theme of the complaint is the need for the loan data that is required by the 1071 rule:
The benefits of collecting data on loans to communities seeking enhanced access to credit are clear: the data collected pursuant to Section 1071 is critical to understanding how small business credit flows into local communities and identifying "credit deserts," or places where credit flow is restricted. "Women-owned, minority-owned, and LGBTQI+-owned small businesses have smaller cash reserves on average, leaving them less able to weather credit crunches." As a result, many such businesses "may have a greater need for financing in general and particularly during economic downturns." Section 1071 data is intended to "provide opportunities for community development lending," and it "may be particularly important to support fair lending analysis and enforcement." (Footnotes omitted.)
The complaint addresses the challenge to the 1071 rule before the Fifth Circuit, and states that while the CFPB initially opposed a request by the plaintiffs to stay the rule pending a decision on the merits of the case, the CFPB subsequently dropped its opposition and the Fifth Circuit then issued a stay. The complaint then asserts that the "Defendants achieved through acquiescence in court litigation what they could not through direct agency action: a stay of the [1071 rule]." After noting that the stay only applies to the parties in the case and their respective members, the complaint then addresses the CFPB statement in which it indicated that it would not prioritize enforcement or supervision actions for any violations of the rule, and the CFPB interim final rule in which the agency, without opportunity for notice and comment, extended the compliance dates for the rule The earliest compliance date is now July 1, 2026 for lenders with the largest small business lending volume (the original compliance date for such lenders was October 1, 2024, and that date was extended to July 18, 2025 based on a prior court stay). Citing a press report, the complaint also states that "on July 8, 2025, CFPB placed the top agency official responsible for overseeing fair lending, Frank Vespa-Papaleo, on administrative leave, further signaling a departure from enforcement of fair lending rules."
The complaint asserts that the interim final rule extending the compliance dates and the "CFPB's refusal to implement [the] Section 1071 [rule] violate the Administrative Procedure Act and the Equal Credit Opportunity Act. CFPB is unlawfully withholding and unreasonably delaying agency action, amending its duly promulgated regulations without observance of procedure required by law, not acting in accordance with the Equal Credit Opportunity Act, and acting arbitrarily and capriciously."
The complaint delves extensively into allegations of how the plaintiffs are injured by the lack of the implementation of the 1071 rule. This may reflect a potential concern about challenges to their standing to file the lawsuit.
While the challenge under the Administrative Procedure Act to the interim final rule extending the compliance dates for the 1071 rule is a typical type of challenge to such a rule, the request to have the court order the CFPB to implement the rule could be frustrated by the current Fifth Circuit stay, at least with respect to the parties covered by the stay. Perhaps the plaintiffs believe that the implementation of the rule with respect to lenders not covered by the stay is better than no implementation at all. Perhaps the plaintiffs also believe that before the district court rules on the merits of the case, the case before the Fifth Circuit will be resolved, with the stay being lifted and the rule being held to be valid, thus paving the way for the district court to order the CFPB to implement the rule on a broader basis.
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