The following content is sponsored by Pinpoint Policy Institute.
As the near $2 trillion avalanche of red tape unleashed by the Biden administration on the U.S. economy demonstrates, never doubt bureaucrats’ capacity for imagination. The Biden administration’s Consumer Financial Protection Bureau (CFPB) was often criticized for its tendency to invent new and costly ways to “protect” consumers. A remnant of the Biden administration’s regulatory fervor is a striking example.
Under a provision of the Dodd-Frank Act known as Section 1071, the CFPB issued a rule that forces banks, credit unions, and lenders of all sizes to collect and report an exhaustive trove of data, 81 separate fields, on every small business loan application. That includes not just race and sex, but also LGBTQ status, pricing terms, and underwriting details that lenders may not collect today.
Ostensibly the law is a step forward for “fair lending,” in reality, it’s a reckless exercise in bureaucratic overreach, driven by the same diversity, equity, and inclusion (DEI) ideology that warped policymaking across the Biden administration. The rule is poised to harm the very small businesses it claims to protect, particularly minority- and women-owned firms that need access to affordable credit.
Section 1071 of Dodd-Frank authorized the CFPB to collect a narrow set of business loan data, just 13 fields, mostly related to applicant demographics and basic application information. But instead of sticking to that list, CFPB bureaucrats took a mile from Congress’s inch. They claimed “discretionary authority” to demand detailed pricing data, borrower characteristics unrelated to discrimination, and even questions about owners’ LGBTQ identity, which aren’t even mentioned in the statute. This is but one of the reasons why lenders sued the CFPB, forestalling the rule from entering into force – for now.
Small community banks – those most active in the very communities the law and rules nominally serve – will be hardest hit. The Small Business Administration’s Office of Advocacy said as much in comments to the CFPB, explicitly noting that the rule, “…may lead to a decrease in lending to small, minority- and women-owned businesses.” Nearly one-third of credit unions stated that they may exit the small business lending market entirely if this rule were to take effect. Researchers from Texas Tech University warned that the rule could devastate relationship-based lending, which is an essential element of small-business credit.
As with so many Biden-era regulations, costs were underestimated, and benefits were surmised. To arrive at its cost estimate, the CFPB relied on a survey from 2020 (pre-final rule, with only 13 data fields) and borrowed estimates from the mortgage market, which operates under totally different rules. And despite warnings from other supervisory bodies such as the SBA Office of Advocacy and the Conference of State Bank Supervisors, the CFPB shrugged and moved forward.
Even if the CFPB were right on the law and costs (they weren’t), the data collected will still be of limited value, except perhaps to unelected bureaucrats who want ever more intrusion into private institutions.
What’s the point then? It’s not really about enforcing fair lending. It’s about creating a massive data warehouse to facilitate public shaming and political pressure campaigns – a DEI compliance scorecard masquerading as regulatory oversight.
And we’ve seen this playbook before. During the Obama administration, the Department of Justice (DOJ) and Federal Deposit Insurance Corporation (FDIC) used Operation Choke Point to quietly pressure banks to cut ties with industries they disliked—guns, payday lending, you name it. This time, the CFPB is building a new chokepoint under the banner of “equity.”
This rule is the financial regulatory equivalent of ESG mandates at the Securities and Exchange Commission (SEC) – an ideological crusade that’s legally dubious, economically harmful, and entirely unnecessary. It’s already facing legal challenges, and while the current administration’s reforms to CFPB may prevail, Congress can end the lawyering right now. Lawmakers could defund its enforcement through appropriations riders.
More substantially, Rep. Roger Williams (R-TX), Chairman of the House Small Business Committee, introduced legislationin February to repeal section 1071. The measure was reported out of committee in April and has a companion bill in the Senate, sponsored by Sen. John Kennedy (R-La.). By repealing 1071, Congress can end the CPFB’s authority to conduct its fishing expedition root and branch.
Equity can’t mean punishing lenders into submission or micromanaging credit allocation from Washington. And it certainly shouldn’t mean driving small banks out of the market while pretending it helps underserved communities.
This isn’t fair lending. It’s central planning with a DEI sticker slapped on the front.
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