ABA President and CEO Rob Nichols announced today that ABA has joined a lawsuit filed by the Texas Bankers Association and McAllen, Texas-based Rio Bank challenging the CFPB’s final rule implementing Section 1071 of the Dodd-Frank Act. Nichols made the announcement during his remarks at the TBA Annual Convention in San Antonio.
Section 1071 requires the collection and submission of data related to credit applications by women-owned, minority-owned and small businesses. The lawsuit, filed in the Southern District of Texas, argues that the Section 1071 final rule goes well beyond the 13 data points specified in the Dodd-Frank Act to impose a final rule that “requires banks to develop and implement new software and compliance mechanisms to address over 80 reporting requirements that have been exponentially grown by the CFPB since the Act requiring this Rule was passed.” The plaintiffs contend the significant reporting requirements will force some community banks out of small business lending altogether, which would only harm women-owned and minority-owned small businesses.
The plaintiffs argue that by promulgating a final rule beyond the statutory scope, the bureau engaged in “an abuse of agency discretion” under the Administrative Procedure Act, and that by failing to account for industry comments relevant to the purpose of the statute and by failing to conduct a proper cost-benefit analysis, the bureau acted arbitrarily and capriciously in violation of the APA. In addition, the plaintiffs contend that the CFPB’s funding structure violates the constitutional separation of powers, thus voiding the Section 1071 final rule. The plaintiffs also ask the court to stay the rule while the case is litigated so that banks do not have to devote significant resources to comply with an invalid rule.
“We’re pleased to join the Texas Bankers Association and the Rio Bank in this important legal effort to rein in an agency that has consistently sought to stretch and exceed its statutory powers,” Nichols said. “We are fighting this rule because it will make it harder not easier for banks to serve the underrepresented communities it is supposed to help.” ABA is also asking bankers to take grassroots action on H.J. Res. 50, a bill that would seek to use the Congressional Review Act to rescind the Section 1071 final rule.