CFPB: Don’t Exempt CUs From Small Business Reporting Rule

Bureau responds to motion filed by CUNA, CU League and credit union.

Contending that credit unions have not demonstrated they are currently harmed by the small business reporting rule, the CFPB is asking a federal judge to reject their request for a preliminary injunction blocking implementation of the rule.

For instance, the agency argued, one of the credit unions requesting the injunction would not have to comply with the rule until 2026.

The rule will require financial institutions to report their lending to women- and minority-owned businesses.

Backstory and Context

The U.S. District Court for the Eastern District of Texas has blocked implementation of the rule for members of the American Bankers Association (ABA), its Texas affiliate and Rio Bank, a Texas financial institution. In issuing his ruling, Judge Randy Crane cited a Fifth Circuit Court of Appeals decision that found the funding scheme for the agency unconstitutional because it is not funded by Congress through the annual appropriations process.

However, Crane refused to issue a broader injunction, which would have affected credit unions.

Motion Filed

Now, CUNA, the Cornerstone Credit Union League and Rally Credit Union are joining forces with the Independent Community Bankers of America, its Texas affiliate and Texas First Bank to request that Crane issue that broader injunction blocking implementation of the rule.

Without an injunction, “CUNA’s and Cornerstone’s members stand to incur, individually, hundreds of thousands of dollars in costs to prepare to comply with the Final Rule,” the filing reads.

Rally, for example, already has incurred $15,000 in operating costs and has dedicated 50 hours of employee time to prepare for the new regulation, the groups said. In addition, Rally is in the process of implementing new software at a cost of $250,000, which will carry an annual maintenance cost of $60,000.

And CUNA said it has dedicated hundreds of staff hours and hired a third-party consultant to advise both the association and credit unions about the rule.

Pushback from CFPB

In response, the CFPB said the groups and credit union have failed to demonstrate the costs they will incur at present, while adding that Rally will not have to comply with the rule until 2026.

The agency added that Texas First bank has likewise yet to demonstrate that it actually is incurring costs at the moment.

“Similarly, none of the four trade association intervenors specifically identify any member institution or establish with specific evidence any particular expense that such member is required to incur at this time,” CFPB attorneys said.

The bureau added further that the groups have asked the judge to order the agency to stop all implementation of the small business rule, noting that Crane simply had ordered the CFPB not to force the ABA, its Texas affiliate, and Rio Bank to comply with it.