Fifth Circuit Pauses CFPB’s Section 1071 Rule Compliance Deadlines for Plaintiffs: But There is Another 1071 Case to Watch
The CFPB’s Dodd-Frank Act Section 1071 Small Business Loan Data Collection Rule just hit a major roadblock in the Fifth Circuit. On February 7, 2025, in Texas Bankers Association v. CFPB, No. 24-40705, the Fifth Circuit granted a motion to stay obligations to comply with the rule and to toll compliance deadlines—but only as to the plaintiffs and intervenors in the case, which includes the American Bankers Association and other trade associations. The decision provides temporary relief for banks and credit unions that are members of the plaintiff and intervenor trade associations, but it does not apply to all lenders. Other lenders, such as non-depository institutions, remain subject to the rule’s deadlines and compliance obligations at this time. But that may change, as discussed below.
The 1071 Rule and Legal Challenges
The rule (I wrote about the final rule here), issued under Section 1071 of the Dodd-Frank Act, requires financial institutions to collect and report data on small business credit applications, including demographic information about business owners—such as race, ethnicity, and sex—and loan pricing details. In light of the ongoing litigation concerning the rule, the CFPB issued an interim final rule in July 2024 to extend the original mandatory compliance dates into 2025 and 2026. The rule is scheduled to take effect in phases beginning in July 2025, with compliance deadlines based on institution volume.
The plaintiffs and intervenors—trade groups representing banks and credit unions, along with individual banks—argue generally that the CFPB exceeded its statutory authority under Section 1071, and the rule is arbitrary and capricious under the Administrative Procedure Act.
The Stay and CFPB’s Pivot
The plaintiffs and intervenors filed the motion to stay and toll compliance deadlines pending the appeal back in October 2024, arguing, in part, that without relief, they would have to begin costly implementation efforts before the appeal is resolved. At the time, the CFPB opposed the motion. However, following the change in administrations, the agency reversed its position.
After the CFPB filed an “emergency notice” in Texas Bankers, on the day of a scheduled hearing on the motion to stay, to request a pause in proceedings at the behest of former Acting Director Scott Bessent (which we wrote about here), the court asked the parties to submit briefing as to the status of the case. In its response, the CFPB partially withdrew its original objection to the plaintiffs’ pending motion to stay the compliance dates, and stated that it agrees with a stay for 90 days, citing its Acting Director’s instruction to pause litigation to give him time to consider the issues. With no opposition to the plaintiffs’ motion to stay, on February 7, the Fifth Circuit granted the plaintiffs’ motion in full rather than the CFPB’s requested 90-day stay, tolling compliance deadlines for the plaintiffs and intervenors pending the appeal. The Fifth Circuit stated that the stay is not a statement on its view of the merits of the case.
The Parallel Battle in Kentucky
A separate challenge to the Section 1071 rule is pending in the Eastern District of Kentucky in Monticello Banking Company v. CFPB, No. 6:23-cv-148. The plaintiffs in that case—which include several community banks and a regional banking trade association—make similar arguments to those at issue in Texas Bankers.
Key developments in Monticello:
Last month, the plaintiffs filed an amended complaint, asserting new claims to their challenge against the rule.
On February 6, 2025, the CFPB requested a 90-day extension of time to respond to the amended complaint, citing the Fifth Circuit’s stay in Texas Bankers and former Acting Director Bessent’s directive to pause litigation.
The plaintiffs filed on February 7, 2025 their opposition to the CFPB’s request unless it is accompanied by stay of the compliance deadlines, along with a proposed order that would stay the compliance deadlines for all covered financial institutions, not only for the plaintiffs.
The court has yet to rule on the motion.
While the Monticello case is at an earlier stage than Texas Bankers, this is a case to watch because it is possible that the court issues an order that stays the rule for all covered financial institutions.
The Bottom Line for Lenders
Banks and credit unions that are members of the plaintiff and intervenor trade associations in Texas Bankers are temporarily off the hook for 1071 compliance deadlines. Other lenders are still technically subject to the rule’s compliance deadlines. But there is a lot for other lenders to keep track of right now. First, lenders should continue to watch the Monticello case, for the reasons noted above. In addition, this month Republicans have filed proposed legislation in Congress to repeal Dodd-Frank Act Section 1071. Also, given the Trump administration’s recent actions with respect to the CFPB (which I wrote about here), the future of the rule and the agency itself is uncertain. Lenders should keep an eye out for what is happening at the CFPB, and whether it issues any rules proposing to amend or entirely withdraw the Rule.
We will be tracking these critical developments and analyzing their implications. Please email me at rich@garrishorn.com with any questions or if you would like to discuss.
