Plaintiffs'/Intervenors' Consolidated Motion for Summary Judgment

INTRODUCTION

In 2010, Congress instructed the Consumer Financial Protection Bureau (CFPB or Bureau)to promulgate a rule requiring financial institutions to disclose a small set of data points fromwomen-owned, minority-owned, or small businesses applying for loans. See Dodd-Frank WallStreet Reform and Consumer Protection Act of 2010, Pub. L. No. 111-203, § 1071 (codified at15 U.S.C. § 1691c–2). In § 1071, Congress identified 13 pieces of basic information about anapplication for small business credit and the race, sex, and ethnicity of the business owners thatlenders would be required to compile and disclose to the CFPB. The stated goal of this provision,an amendment to the Equal Credit Opportunity Act (ECOA), was to obtain a data set that would“facilitate enforcement of fair lending laws and enable communities, government entities, andcreditors to identify business and community development needs and opportunities for credit forwomen-owned, minority-owned, and small businesses.” Id. § 1691c–2(a).

But when the CFPB published its Final Rule implementing this directive in the Spring of2023, see 88 Fed. Reg. 35150 (May 31, 2023) (hereinafter, the “Final Rule”), it vastly expandedthe amount of data lenders would be required to disclose, requiring 81 data fields from financialinstitutions. Unlike the statute, the Final Rule requires lenders to venture far outside theapplication process—and far beyond the scope of the CFPB’s rulemaking authority—in a fruitlessattempt to capture the complexity of small business lending. And ultimately, any marginal benefitachieved by those additional data fields cannot justify the enormous costs that the CFPB ignored.

As stressed to the Bureau by commenters, commercial underwriting decisions are made fora host of legitimate reasons—e.g., the strength of the applicant’s product or service, the applicant’saddressable market, the value of collateral securing the loan—that will not be captured by the FinalRule. Thus, the extra data points will not allow the type of “apples to apples” comparisons thatwould enable a regulator to determine that lenders were denying applications for small business credit on a discriminatory basis, as opposed to a legitimate reason. Key underwriting factors willnot (and, realistically, could not) be collected or recorded in the expanded data set. Moreover,there is no reason to believe the demographic data collected from applicants will be representativefor accurate statistical analysis. Applicants are not required to comply with requests to providedemographic data. 15 U.S.C. § 1691c-2(c). Based on recent experience with the PaycheckProtection Program, it should be expected that most (nearly 75%) will not. As a result, theadditional information will provide minimal, if any, benefit.

Despite the fact that the additional data will not be useful, the requirement to collect theadditional fields will impose massive costs in terms of software, forms, and time (not to mentionthe litigation and reputational risks associated with the “false positives” for fair lending violationsthe new data will generate). As a result, even if the Court were to defer to the Bureau’s judgmentthat the additional data points might provide some marginal benefit to the purposes of the statute,that benefit is grossly outweighed by the costs imposed on lenders and, ultimately, smallbusinesses. The CFPB purported to conduct a cost-benefit analysis, but it relied on flawedassumptions and inadequate or cherry-picked data to justify its predetermined conclusions whileignoring or discounting comments from industry, academia, and the Small BusinessAdministration’s Office of Advocacy warning of the negative consequences of the Final Rule.

The only consequence, then, of the vastly expanded obligations under the Final Rule willbe the imposition of a staggering compliance burden on lenders. This, in turn, will increase thecost of small business credit and cause some lenders to exit the markets altogether, therebyreducing the availability of credit for the very small businesses the Act aims to protect. Thus, theFinal Rule will not serve the laudable purposes of the statute—it will only undermine them. TheFinal Rule is government run amok.

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