Story Series: Section 1071
Will the CFPB’s Small Business Data Collection Rules Change?
April 4, 2025On April 3, the CFPB filed papers agreeing with the Revenue Based Finance Coalition’s (RBFC) request to stay the litigation between them over coverage of the Small Business Lending Rule. As it last stood, a federal court was leaning toward the CFPB’s side that the 888 pages of data collection rules should apply to MCAs despite them not being loans.
As to why the CFPB would agree to a stay, the agency explained that it may now be tweaking the rules at issue.
“New leadership has been assessing the Final Rule and the issues that this case presents to determine the CFPB’s position. CFPB’s new leadership has directed staff to initiate a new Section 1071 rulemaking. The CFPB anticipates issuing a Notice of Proposed Rulemaking as expeditiously as reasonably possible. Because the anticipated rulemaking process may moot or otherwise resolve this litigation, holding this matter in abeyance would conserve the Court’s resources.”
– CFPB in its response to the Motion to Stay
“The CFPB respectfully proposes submitting periodic status reports every 90 days during the pendency of the rulemaking and will promptly inform the Court when the rulemaking process is complete,” the Agency stated. “Within 30 days of the issuance of a final rule, the CFPB proposes that the parties confer and notify the Court of whether and how they wish to proceed.”
The small business data collection rules are scheduled to go into effect in July.
Court Leans Toward CFPB in MCA Section 1071 Lawsuit
February 19, 2025A federal magistrate judge found that the CFPB did not overstep its authority when it subjected MCA transactions to the Small Business Data collection rule slated to go into effect this year. The lawsuit was filed a little over a year ago by the RBFC. The RBFC has the opportunity to file an objection within 14 days. For an analysis of the findings, you should consult with an attorney. It can be downloaded here.
This course of events is not related to the recent headwinds the CFPB is facing otherwise.
CFPB HQ Temporarily Closed, Operations Frozen
February 10, 2025The CFPB’s headquarters in Washington DC will be closed this week as the agency undergoes an audit from the Department of Government Efficiency. The audit coincides with the arrival of yet another new Acting Director, Russell Vought, who is also serving officially as the Director of OMB. At the CFPB this weekend, Vought told employees not to “approve or issue any proposed or final rules or formal or informal guidance” and to “suspend the effective dates of all final rules that have been issued or published but that have not yet become effective.” He also told the Federal Reserve that the agency does not need funding at this time due to having too much on hand already.
Pursuant to the Consumer Financial Protection Act, I have notified the Federal Reserve that CFPB will not be taking its next draw of unappropriated funding because it is not "reasonably necessary" to carry out its duties. The Bureau's current balance of $711.6 million is in fact…
— Russ Vought (@russvought) February 9, 2025
While he has ordered all final rules that have been issued or published but not yet effective be suspended, some legal observers have indicated that the small business data collection process overseen by the CFPB (pursuant to Section 1071 of Dodd-Frank) that is scheduled to start on July 18 is technically bound by rules already in effect and that the deadline is merely the start date for compliance. However, that interpretation may be at odds with the spirit and intent of the suspension.
The Independent Community Bankers Association (ICBA) welcomed Vought into the role. “We look forward to working closely with Director Vought, the Trump administration, and the 119th Congress to implement needed CFPB regulatory reforms to help community banks meet the needs of local communities,” they said. The statement included a link in which they call for the small business lending data collection rules to be repealed.
“Intrusive data collection will compromise the privacy of small business applicants, effectively ‘commoditize’ small business lending, and increase the cost of credit,” they say. “ICBA urges the 119th Congress to promptly repeal or substantially revise Section 1071 to limit the implementation of a destructive rule.”
With Trump’s Freeze on New Regulations, What to Make of the New CFPB Rules?
January 23, 2025
On January 20, Trump’s ceremonial display of taking action and signing orders on his very first day might warrant a closer look for those in the small business finance industry. That’s because he signed a regulatory freeze order that could potentially affect rules promulgated by the CFPB on small business loan data collection that have yet to go into effect.
Specifically Trump’s order not only puts a freeze on issuing new rules but also mandates rules be withdrawn if they’ve been sent to the Office of the Federal Register. And then lastly, and most relevant, it orders agency heads to “consider postponing” any rules that have been published or “any rules that have been issued in any manner but have not taken effect, for the purpose of reviewing any questions of fact, law, and policy that the rules may raise.” It asks for a 60-day review period overseen by an agency head appointed or designated by Trump to review and approve the rule.
“Should actions be identified that were undertaken before noon on January 20, 2025, that frustrate the purpose underlying this memorandum, I may modify or extend this memorandum, to require that department and agency heads consider taking steps to address those actions,” the order concludes.
House Bill Seeks More Time for Lenders to Comply with CFPB Small Business Lending Rule, Redefine Small Business
December 18, 2024A recently amended bill that was introduced in the US House of Representatives earlier this year aims to push back compliance deadlines with the CFPB’s Small Business Lending data collection rule. Specifically, HR 8338 seeks a 3-year preparation period from the time the rule was issued (which was March 2023) followed by a 2-year safe harbor where penalties are not issued for a failure to comply.
Furthermore, the bill aims to clarify the definition of “small business” as being any entity having gross annual revenue of $1 million or less in the most recently completed fiscal year.
You can read the text of the bill here.
CFPB Rule Would Likely Impact Sale of Business Loan Applicant Data
December 3, 2024
A proposed rule by the CFPB aims to “Stop Data Brokers from Selling Sensitive Personal Data to Scammers, Stalkers, and Spies” by limiting “the sale of personal identifiers like Social Security Numbers and phone numbers collected by certain companies and make sure that people’s financial data such as income is only shared for legitimate purposes, like facilitating a mortgage approval, and not sold to scammers targeting those in financial distress.” Presented as a consumer-facing protection that would make parties selling data subject to the Fair Credit Reporting Act while prohibiting the sale of such data to third parties for “marketing” the full 206-page proposal suggests that it would apply equally when individual information is used in the course of applying for business loans.
“The CFPB expects that the proposal may have a limited impact on the cost of credit for small entities. One small entity representative stated during the SBREFA process that the proposed rule may affect the cost and ease of accessing credit for small entities. In particular, the written instructions provision may slow down the application process for small business loans because creditors lending to small businesses check the personal credit of the small business owner and may need to rely on the small business owner’s written authorization to do so. In theory, the proposed rule could increase the cost of credit for small businesses if the compliance costs discussed above are passed on to small businesses in the form of higher on loans from lenders.””
“Data brokers sell lists of financially vulnerable individuals to predatory lenders for targeted marketing campaigns,” the CFPB wrote in a summary of the propsal. “This practice is compounded by the widespread sale of personal identifiers collected by consumer reporting agencies, also known as ‘credit header’ data—including names, addresses, and Social Security numbers—which has created a thriving market for sensitive personal information that puts Americans’ privacy and financial security at risk.”
Anyone can officially comment on this proposal until March 3, 2025.
Announcement
Proposed Rule
Trade Group Sues CFPB Over Small Business Loan Data Collection Rules
January 4, 2024
The RBFC has filed a lawsuit against the CFPB over its data collection rules that are scheduled to go into effect this year.
As readers may recall, the federal regulator created 888 pages of rules governing how small business lenders (including MCA companies) will be required to collect and submit data for federal analysis.
At first, it appeared that the CFPB had way overstepped its bounds when Congress, on a bi-partisan basis, passed a resolution to scrap the rules. President Biden, however, then took the unprecedented step of vetoing their resolution on his belief that the rules were necessary to “conduct oversight of abusive and predatory lenders.”
One week after the veto the RBFC filed its lawsuit.
Although the CFPB is required by law to collect small business loan data pursuant to Section 1071 of the Wall Street Reform and Consumer Protection Act, the plaintiff took umbrage with the CFPB’s allegedly deliberate misinterpretation of the words “credit” and “loan” as they’re written in that statute. That’s because the CFPB unilaterally decided those terms also apply to MCAs/Sales-Based-Financing agreements. The RBFC contests that the CFPB has the legal authority to include products outside the scope of the federal statute and asks the Court to declare the rules invalid as they apply to sales-based financing.
Biden Vetoes Congressional Resolution to Scrap CFPB’s Small Business Lending Rules
December 19, 2023Bipartisan or not, President Biden formally vetoed S.J.Res. 32 which would have scrapped the CFPB’s 888 pages of soon-to-be implemented small business lending rules and forced the agency to create new ones.
The CFPB is obligated by the Wall Street Reform and Consumer Protection Act to collect data from small business finance companies (MCA included) so that it will be able to assess the market and measure potential disparities. It is a limited scope law that nevertheless resulted in 888 pages of rules explaining how to collect that data and send it to the federal government. They are slated to go into effect very soon.
Despite data collection being the intended purpose, Biden suggested in his official veto statement that the rules are actually intended to “conduct oversight of abusive and predatory lenders.”
“If enacted, this resolution would harm all those that stand to benefit from expanded transparency and accountability,” Biden said. “By hampering efforts to promote transparency and accountability in small business lending, Republicans are siding with big banks and corporations over the needs of small business owners.”
Unless litigation changes the timelines, many funders and lenders must start complying by October 1, 2024. This is a federal law, not a state requirement.
