On October 26, a Texas District Court issued an expanded injunction preventing the CFPB from implementing and enforcing its small-business data collection rule issued under Section 1071 of the Dodd-Frank Act, so that it now benefits all companies subject to the rule. The Court's prior injunction, issued on July 31, applied only to the named plaintiffs in the suit.
Section 1071 amended the Equal Credit Opportunity Act to require lenders to collect data on credit applications made by small businesses and report such data on an annual basis. The CFPB's implementing rule has been controversial, in part because it requires lenders to collect demographic data regarding small business borrowers that such lenders are currently prohibited by law from collecting, including the race, gender, and ethnicity of the business owners.
After the Court issued its original injunction, several parties intervened in the case, urging the Court to extend the injunction nationwide pending the Supreme Court's decision in CFPB v. Community Financial Services Association of America, a case concerning the constitutionality of the CFPB's funding. The Court agreed, finding among other things that the previous targeted injunction would unfairly "leave non-exempted lenders subject to the discretion of an agency whose very ability to act is a matter of constitutional concern pending resolution on a nationwide scale."
If the Supreme Court reverses the Fifth Circuit's holding that the CFPB is unconstitutionally funded, the CFPB will be required to extend the compliance deadlines for the rule "to compensate for the period" during which the requirements were stayed. As such, while the highest volume lenders covered by the rule were originally required to begin collecting data by October 2024 and to report such data to the CFPB by June 2025, those dates will be pushed back. Oral argument in the Community Financial Services Association case was held before the Supreme Court on October 3, and the Court's decision is expected some time next year.
In light of the injunction, companies subject to the rule may desire to pause their preparations for compliance. However, considering the significant operational changes needed to comply, others may wish to continue such preparations despite the delayed compliance dates.
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