The Consumer Financial Protection Bureau’s (CFPB) Small Business Lending Rule is facing changes that render it ineffective only for plaintiffs and intervenors to a specific case on appeal with the Fifth Circuit Court of Appeals. For any other financial institutions that are not a party to the case, they must still proceed with the rule in effect. This specific rule is also known as the Section 1071 Rule from the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Fee, Smith & Sharp LLP is monitoring this situation closely.
Below, we discuss how the Fifth Circuit Court of Appeals granting a stay in the case challenging the CFPB’s Small Business Lending rule affects company owners. Due to significant shifts in the CFPB, vigilance is critical to ensure you and your business remain in compliance with the law.
Details About the Stay
On February 7, 2025, the Fifth Circuit Court of Appeals granted a stay in Texas Bankers Association v. Consumer Financial Protection Bureau that ceases the requirement for plaintiff and intervenor financial institutions to report certain data sets collected from loan applications. These data sets focused on women-owned, minority-owned, and LGBTQI-owned small businesses. Further, the stay provides that the plaintiff and intervenor lenders do not have to collect the thirteen data points at all.
Change Brings Uncertainty to the CFPB
For those not in the finance world, the CFPB typically runs in the background. In 2025, however, the independent agency that exists to protect consumers has experienced increased media and public attention due to seemingly abrupt changes to the CFPB leadership and its operations.
When President Donald Trump replaced Director Rohit Chopra with Secretary of the Department of the Treasury Scott Bessent, Secretary Bessent directed staff to stop all rulemaking activities and cease pursuit of active litigation and enforcement efforts. The agency’s leadership change and new direction occurred just days before the Fifth Circuit’s stay, and it is unclear what the CFPB’s future is in the finance world or the Federal Government.
Key Takeaways From the CFPB Case:
Here is what you should know about the immediate case:
- The CFPB had asked the Fifth Circuit to allow the agency 90 days to review the issues of record in order to fully respond to the plaintiffs’ assertions related to the constitutionality of the rule and its alignment with the Administrative Procedure Act (APA).
- Rather than providing the CFPB with 90 days to evaluate the assertions and respond, the Fifth Circuit issued a stay. The stay is a much more generous holding for the plaintiffs and intervenors as it tolls the compliance deadlines until a final decision is reached in the case, although there is currently no timeline for the decision.
- For Tier 1 financial institutions that are not plaintiffs or intervenors, the deadline of July 18, 2025, is still valid, and they must continue to prepare plans for implementation by that date.
- Tier 2 and Tier 3 financial institutions that are not a party to the case should put plans in place to ensure that operations will comply with requirements by the January 2026 and October 2026 deadlines, respectively.
- The current stay does not impact enforcement or litigation as a result of an institution’s failure to comply with the requirements of Section 1071 and its implementing regulations. If the deadlines remain, all non-plaintiff and non-intervenor financial institutions are subject to enforcement or litigation if not in compliance by those dates.
To further complicate matters, it is unclear what impact the new acting director’s order relating to regulations, litigation, and enforcement will have on any such options for disciplinary measures that may arise when the compliance requirements go into effect in the coming year and a half.
What Does This Actually Mean for Your Company?
Unless you are a plaintiff or intervenor to the case in the Fifth Circuit, this stay does not have any immediate impact on your business. You may, however, decide to intervene in the case and request that the Court modify its order to include your business. Closely monitoring the situation in the Fifth Circuit and how CFPB moves forward with the rule generally will be critical in the coming months.
The plaintiffs argue that the rule implementing Section 1071 is arbitrary and capricious due to the assertion that CFPB did not consider the associated litigation costs that the APA requires. The impact on small lenders is undeniable, and the plaintiffs note that the CFPB did not provide the public with an analysis of that impact or any attempts to mitigate the results. The plaintiffs further argue that there are one-time implementation costs that will result in irreparable harm, perhaps even resulting in some small lenders having to leave the market entirely.
In the meantime, your company must continue preparing for implementation by the deadlines. As plaintiffs note, this is not without cost and risk, but it is necessary absent a final change of course for Section 1071. Preparation, therefore, must include careful monitoring and analysis of the three branches of Government as this matter progresses.
What Comes Next?
Any of the three branches of Government could take action to change the Section 1071 requirements for your business. The executive branch could act through its rulemaking authority under the APA. Under the APA, any changes to the CFPB rule, including revocation, generally must go through a notice-and-comment rulemaking process, which you can monitor through the Federal Register.
Both chambers of Congress have introduced bills that effectively would repeal the rule. Plaintiffs argue that congressional intent for Section 1071 is clear and excludes pricing information from the required data collection. However, Congress does not need to wait for the courts to make a decision to more firmly provide that CFPB is restricted from collecting the data points, especially pricing information, due to the creation of unnecessary risk and jeopardy to operations, and providing competition with information about customers’ rates.
The judicial branch may act first and decide whether the CFPB rule violates the Appropriations Clause of the U.S. Constitution by exceeding the CFPB’s authority or the APA as arbitrary or capricious. No matter which branch of Government acts first or with finality, this is a situation that requires close monitoring and may require swift action. Fee, Smith & Sharp LLP is watching all three branches closely and can provide you with advice specific to your operations as this story continues to unfold.
