The Consumer Financial Protection Bureau (CFPB) recently released a proposed rule to scale back the 2023 final small business lending data collection rule (2023 final rule). The proposed rule would significantly narrow the scope of the 2023 final rule by redefining “small business,” limiting the types of transactions and institutions covered by the rule, removing several discretionary data points, and replacing a tiered compliance schedule with a single compliance date. The proposed rule comes as no surprise, because the CFPB stated in court filings in litigation contesting the 2023 final rule that it anticipated “issuing a Notice of Proposed Rulemaking as expeditiously as reasonably possible.”
Comments on the proposed rule are due by December 15, 2025.
Background
Section 1071 of the Dodd-Frank Act amends the Equal Credit Opportunity Act (ECOA) by requiring that certain financial institutions collect and report to the CFPB data on credit applications from women-owned, minority-owned and small businesses. After a prolonged rulemaking, the CFPB issued the 2023 final rule, which revises Regulation B to implement Section 1071. Subsequently, a number of industry groups filed lawsuits challenging the rule. In response to stays issued by courts in Texas, Kentucky and Florida, the CFPB extended compliance deadlines for the 2023 final rule, first in June 2024 and then again in October 2025.
The 2023 final rule would have required companies offering a wide array of commercial credit products to small businesses to collect and report certain demographic and lending data to the CFPB, including whether the business applicant is minority-, women- or LGBTQI+-owned, as well as the ethnicity, race and sex of the applicant’s principal owners. It also required other application-level information, such as the type of credit product offered, credit pricing, types of guarantees, loan term, credit purpose, requested loan amount and the company’s response to the credit application.
Key changes in the proposed rule
The CFPB aims to narrow the scope of the 2023 final rule by focusing on “core” lending products, lenders and data. The rule proposes to make the following changes:
- Scope of coverage
-
- Covered credit transactions: The proposed rule would exclude merchant cash advances, agricultural lending and small-dollar business loans of $1,000 or less.
- Covered financial institutions: The proposed rule would also exclude Farm Credit System lenders and raise the origination threshold from 100 to at least 1,000 originated covered credit transactions in each of the two preceding calendar years.
- Narrowing the definition of “small business”
-
- The proposed rule would reduce the gross annual revenue threshold to qualify as a small business from $5 million or less to $1 million or less.
- Data collection
-
- Discretionary data points: The proposal would remove requirements to collect data on application method, application recipient, denial reasons, pricing information and number of workers.
- Demographic data: Questions about LGBTQI+-owned business status would be eliminated. Financial institutions would be required to ask about a principal owner’s sex using a binary (male/female) format rather than a free-form field. The CFPB is also seeking comment on whether to limit race/ethnicity data to aggregate categories.
- Applicant rights: The proposed rule would emphasize applicants’ statutory right to refuse to answer demographic questions.
- Data collection process
-
- The proposal would delete certain references to discouragement prohibitions and anti-discouragement monitoring, but would maintain restrictions on the time and manner of data collection similar to previous anti-discouragement provisions.
- Compliance timeline
-
- The compliance date for all covered financial institutions would be extended to January 1, 2028, replacing the previous tiered system with a single compliance date.
What’s next?
The CFPB’s proposed rule represents a significant narrowing of Section 1071’s scope and implementation, with a focus on “core” lending activities. While the rule’s future remains unsettled and subject to further litigation – and the future of the CFPB is in flux due to an expected funding shortfall – financial institutions should consider submitting comment letters and begin assessing how these changes may impact their operations and compliance strategies.