Section 1071 litigation
Texas Bankers Association v. Consumer Financial Protection Bureau
Date: Jan. 16, 2025
Issue: Whether the Consumer Financial Protection Bureau’s (CFPB) final rule implementing Section 1071 of the Dodd-Frank Act violates the Administrative Procedure Act (APA).
Case Summary: ABA filed its reply brief urging the Fifth Circuit to reverse Judge Randy Crane’s ruling that upheld CFPB’s Section 1071 final rule.
As background, Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect and report thirteen data points to CFPB regarding credit applications by women-owned, minority-owned and small businesses. Section 1071 also authorizes CFPB to require additional data collection, but only if such data “would aid in fulfilling the purposes” of Section 1071. ABA challenged the 1071 rule in the Southern District of Texas, urging the court to vacate.
On Aug. 26, 2024, Judge Randy Crane denied ABA’s motion for summary judgment and granted CFPB’s motion for summary judgment. Judge Crane ruled that CFPB did not exceed its authority under the Dodd-Frank Act, and the 1071 rule is not arbitrary and capricious under the APA. ABA filed a notice of appeal on Oct. 25, 2024, and also moved the Fifth Circuit for a stay pending appeal. In its motion for a stay, ABA claimed it is likely to succeed on the merits of its statutory overreach and arbitrary and capricious claims, its members would be irreparably harmed absent a stay, the balance of equities heavily favors a stay, and a temporary stay is warranted while the Fifth Circuit considers the motion.
In its opening brief, ABA argued that the ECOA does not require lenders to collect and disclose confidential loan pricing information, the 1071 rule improperly forces lenders to ask small-business applicants about the LGBTQI+ status of their owners, and the 1071 rule is arbitrary and capricious due to an improper cost-benefit analysis by CFPB. CFPB countered that it acted within its authority to create the 1071 rule and reasonably evaluated its costs, and ABA’s arguments provided no grounds for setting aside the 1071 rule.
In reply, ABA argued that the 1071 rule should be vacated because it exceeds the CFPB’s authority by requiring the collection and disclosure of pricing information. It explained that the plain language and structure of the ECOA clearly show this overreach. CFPB does not dispute that Congress never authorized it to mandate the collection of loan pricing information under the ECOA. Instead, the CFPB claims it can collect pricing data based on the statute’s reference to “any additional data that the Bureau determines would aid in fulfilling the purposes of this section.” However, ABA countered this phrase cannot be taken out of context. As described in the brief, when read as part of the statute, the surrounding language limits its scope: CFPB can only require lenders to itemize and disclose data that subsection (e)(1) of the ECOA mandates it to compile. At the same time, Subsection (e)(2) explicitly ties its scope to the “information compiled and maintained” under Subsection (e)(1), which includes loan application details and limited demographic data, such as whether the business is women- or minority-owned. ABA emphasized Subsection (e)(1) does not include pricing information or other data unrelated to the loan application or underwriting decision.
ABA also highlighted that statutory context confirms CFPB exceeded its authority by requiring the collection and disclosure of pricing information. ABA asserted that if Congress intended to allow CFPB to collect and disclose sensitive pricing data, it would have explicitly done so. CFPB claimed the sensitivity of pricing data is irrelevant because “Congress expressly required the collection and reporting of other kinds of potentially sensitive or private data, like the business’s gross annual revenue and information about the race, sex, and ethnicity of the business’s principal owners.” While CFPB saw this argument as supporting its case, ABA pointed out that it undercuts CFPB’s position. Congress’s explicit authorization for collecting some sensitive data shows it knows how to grant such authority when it chooses, yet it did not do so for pricing data.
ABA also reinforced that CFPB exceeded its statutory authority in requiring the collection and public disclosure of the LGBTQI+ status of primary owners of small businesses applying for loans. CFPB does not dispute that Congress directed lenders taking business credit applications to ask whether the business is women-owned or minority-owned. It also does not deny that the term “minority,” as defined in the statute, applies only to racial minorities, and does not include LGBTQI+ individuals. Nor does CFPB dispute that LGBTQI+ status does not appear anywhere in the ECOA. Instead, CFPB relies on its claim that it can collect “any additional data.” However, ABA noted it already showed that this argument lacks support in the statutory text. Beyond the limited demographic information Congress explicitly mentioned, CFPB can only collect data included in the application or related to whether the loan was approved, neither of which includes LGBTQI+ status.
ABA also argued that the 1071 rule should be vacated because it is arbitrary and capricious. ABA maintained that CFPB acted unreasonably by ignoring accurate data and instead relying on inaccurate and incomplete data to estimate costs. Additionally, CFPB blocked efforts to gather accurate data, conducted flawed analyses of one-time and ongoing costs, and failed to consider litigation and reputational damage costs properly.
Bottom Line: Oral argument is scheduled for Feb. 3, 2025.
Documents: Brief
