A federal judge in Texas has issued an injunction prohibiting the Consumer Financial Protection Bureau from enforcing a rule designed to combat gender and racial discrimination in small business lending. The injunction was made pending a Supreme Court review of the constitutionality of the CFPB’s funding structure. The American Bankers Association praised the ruling, arguing that it spared its members the unrecoverable costs associated with complying with a rule that the CFPB may not have had the authority to enforce.
The rule, which was finalized by the CFPB in March, mandated banks to gather data on loan applications from women-owned, minority-owned, and small businesses to help lenders identify business development needs and opportunities. However, the Texas Bankers Association, Rio Bank, and the American Bankers Association had challenged the rule, arguing that the costs of compliance, estimated at $100,000 per community bank, would cause irreparable harm.
Judge Randy Crane’s injunction applies solely to Rio Bank and members of the Texas Bankers Association and American Bankers Association, as he declined to issue a nationwide injunction. Notably, the CFPB has faced a series of legal challenges from the financial industry since its establishment over a decade ago.
However, government watchdog Accountable.US decried the ruling as part of a “long-running, organized effort by greedy industries” to undermine the CFPB. They contended that the resistance to the rule, especially from those with histories of discrimination against small business loan applicants, highlights the importance of an independent CFPB to protect borrowers from discrimination and abuse.
In October, the U.S. Supreme Court is set to hear arguments on an appeal by the CFPB regarding a previous ruling that found the agency’s funding structure violated the Constitution’s appropriations clause.
