The Consumer Financial Protection Bureau cannot enforce Section 1071 until the Supreme Court rules on the constitutionality of the agency’s funding structure, according to a ruling from the U.S. District Court for the Eastern District of Kentucky.
The case was filed by seven Kentucky state-chartered banks, one national bank operating in the state, and the Kentucky Bankers Association.
“A preliminary injunction will create no harm to the CFPB nor the public since the rule would not otherwise be enforceable in the interim,” Judge Karen Caldwell wrote in the Sept. 14 ruling. “Meanwhile, plaintiff banks are incurring expenses that will be unrecoverable and needless if the Supreme Court rules that the CFPB’s funding structure is unconstitutional.”
Though the order indicated that the relief covers financial institutions nationwide, it reportedly did not decide on the reach of the ruling. The Southern District of Texas previously issued limited injunctive relief in a case filed by the Texas Bankers Association and American Bankers Association, and later allowed the Independent Bankers Association of Texas and Texas First Bank to intervene after the groups filed a motion to declare Section 1071 invalid.
Section 1071 will require lenders to collect and report information on the race, sex and ethnicity of the principal owners of the small business applicant as well as the company’s gross annual revenue. Under the rule, the CFPB will require lenders that originate at least 2,500 loans to small businesses — businesses with $5 million or less in gross avenue revenue — in each of the last two years to collect data starting on Oct. 1, 2024. Lenders that originate at least 500 such loans will need to begin collecting information on April 1, 2025, and those that originate at least 100 annually must collect data beginning on Jan. 1, 2026.