CFPB announces exemption from enforcing regulation concerning data collection for small businesses
Consumer Financial Protection Bureau Suspends Enforcement of Small-Business Data Collection Rule
The Consumer Financial Protection Bureau (CFPB) has announced that it will not enforce its small-business data collection rule, a decision influenced by ongoing legal challenges and political opposition. The rule, mandated by Section 1071 of the Dodd-Frank Act, requires financial institutions to collect and report detailed demographic data on small business loan applicants to identify potential discrimination in lending.
The CFPB's decision not to enforce the rule has been a contentious issue, with some lawmakers and lenders arguing that it imposes undue burdens on smaller financial institutions and raises privacy concerns over collecting sensitive demographic data. Critics also contend that the rule perverts the intention of Section 1071 of the Dodd-Frank Act and violates entrepreneurs' privacy.
Implications for Lenders and Consumers
For lenders, particularly smaller financial institutions and community banks, the suspension of the rule means relief from potentially significant compliance costs and administrative burdens associated with collecting detailed borrower demographic data. However, the temporary suspension affects the rule's applicability, as some lenders have been protected from compliance deadlines due to court-issued stays.
For consumers and small businesses, the lack of enforcement means less transparency and fewer data available to detect discriminatory lending practices against protected classes. This lack of data hampers regulatory oversight and fairness in credit access, especially during critical periods like the COVID-19 pandemic when assessing small businesses’ aid needs.
Political and Legal Landscape
The CFPB's reluctance to enforce the rule has been influenced by efforts in Congress, such as the 2025 PROTECTED Act introduced by Senators Katie Britt and John Boozman, which seeks to limit the scope of the rule. This legislation aims to reduce reporting burdens on smaller lenders like community banks and farm credit institutions by exempting them from certain data collection requirements and calls for updated cost-benefit analyses before the rule takes effect.
In addition, Sen. John Kennedy introduced a resolution in June 2023 to repeal the rule via the Congressional Review Act. The enforcement suspension is roughly 2.5 months before the rule was set to take effect.
Looking Ahead
The CFPB has stated that it looks forward to resolving the status of the regulation and ensuring fair, consistent treatment for all entities impacted by the regulation. Under the revised time frame, lenders originating at least 500 per year must collect data by Jan. 16, 2026, and lenders that originate at least 100 each year must comply by Oct. 18, 2026.
It is essential to note that no court has ever stated any part of the law governing the small-business lending rule is a problem. Additionally, the CFPB has been loath to issue press releases, particularly those with regulatory implications, under Acting Director Russ Vought. The bureau has published no press releases between Feb. 4 and March 25 and has issued only five since.
The CFPB's CEO, Jesse Van Tol, has criticized the bureau's decision, stating it subverts the rule of law and prevents transparency for the public. However, the CFPB may still issue a new rule that could supersede the one finalized in March 2023.
[1] Source: The Hill [2] Source: American Banker [3] Source: National Law Review [4] Source: CFPB Press Release (2023)
*The suspension of the Small-Business Data Collection Rule by the Consumer Financial Protection Bureau has sparked controversy in political and business circles, with some arguing that it relieves smaller financial institutions of compliance costs yet hinders transparency and regulatory oversight in lending.
*Legislation like the 2025 PROTECTED Act, introduced by Senators Katie Britt and John Boozman, aims to reduce reporting burdens on smaller lenders and calls for updated cost-benefit analyses, further influencing the political landscape around this issue.
