Community advocates are rightly excited about new efforts to track small business lending data to help identify and combat potential discrimination. But that work faces one more short-term hurdle: Political opponents of the Consumer Financial Protection Bureau (CFPB) are trying to stymie the implementation of Section 1071 lending data rules through an arcane process in Congress.
The effort is not new. One of the two ringleaders launched the attack about a week after CFPB Director Rohit Chopra announced the final 1071 rules in March at the 2023 Just Economy Conference. In June, the same maneuver previously attempted in the House of Representatives was launched also in the US Senate.
But whatever it may lack in novelty, this story makes up for in danger and urgency. This is a bad-faith campaign to protect discriminatory lender conduct and confound both the letter and spirit of the post-crisis Wall Street reforms passed in 2010. And the constituencies that care about community reinvestment and economic fairness should understand what is happening, why it’s wrong and what can be done about it.
The CFPB finalized its rules for Section 1071 of the Dodd-Frank Act in March. The rules will bring transparency to the opaque world of small business lending. Section 1071 will help root out discrimination and increase understanding of the small business landscape, to the benefit of lenders, government agencies and researchers – all at minimal cost to stakeholders.
A pair of Republican Members of Congress are trying to repeal this historic rulemaking via the Congressional Review Act, a law that allows a fast track method for Congress to disavow agency rules.
The Congressional Review Act (CRA) was established in 1996 as part of the Small Business Regulatory Enforcement Fairness Act. It requires federal agencies to report their rules to Congress and provides a means for Congress to overturn specific actions taken by these agencies. The process for such legislative rejection of duly considered rulemaking is somewhat complex. It centers on what is called a “joint resolution of disapproval,” which must pass both House and Senate before it goes to the President to either sign or veto. A rule can only be invalidated if the President agrees or Congress overrides his veto. To date, this system has been used to overturn 20 rules, with several disapproval resolutions introduced in the 118th Congress.
In theory, this system ensures regulators make good on laws Congress passes instructing them to do things. In practice, with the balance of power in Congress changing every two years and rulemaking processes being the methodical undertakings they are, the law more often serves as a do-over mechanism driven by ideological actors rather than by serious, substantive consideration of the merits. The law is primarily useful for people who lost an argument in a previous Congress but regained power in the time it took the rest of the government to do what the previous Congress instructed.
This illustrates the first and most obvious problem with the current effort to overturn Section 1071 rules. Thirteen years passed between when Congress ordered the CFPB to write these rules and when the agency was able to deliver them. This is not a group of lawmakers who gave regulators an assignment circling back to check their work, as the name “Congressional Review Act” suggests. It is an almost entirely new set of humans, in a radically different political moment, seeking to dismantle something they don’t like in the same way their predecessors who wrote the law liked it.
Setting aside the inherent legitimacy issues of the 118th Congress pretending to speak for what the 111th Congress meant in Dodd-Frank, the rationale the CFPB’s opponents on Capitol Hill are offering also has no credibility.
The paired Congressional Review Act resolutions of disapproval appear to have different supporting arguments in the House and the Senate. The House resolution was introduced by Representatives Roger Williams (R-TX), Andy Barr (R-KY) and Andy Ogles (R-TN). The three expressed concerns that the rule would be costly for banks, hinder access to capital for small businesses and impede economic recovery after the pandemic. These are familiar arguments to anyone who’s paid attention to the 1071 process all these years. They are incorrect arguments. NCRC’s extensive research and data analysis of the small business lending market have shown these concerns to be baseless and overblown.
The Senate’s case for overturning 1071 comes with more dramatic window dressing. Senator John Kennedy’s (R-LA) resolution of disapproval stems, he has said, from concern for Americans’ privacy. “What business is [it] of yours what a small business woman does in her bedroom?” Kennedy asked Director Chopra at a recent hearing.
The CFPB’s collection of personal demographic and financial information has been a popular line of attack for opponents of robust consumer protection ever since the agency launched. The arguments were wrong then and Kennedy is wrong now. CFPB thoroughly anonymizes the data it collects before releasing limited forms of it for public analysis and transparency. Collecting demographic data at the loan level does not allow anyone to track back to individual borrowers, specific people’s loan applications or the details of private lives.
But those who pretend otherwise to attack the agency over this myth of systematic violations of privacy gained some fresh traction recently, thanks to an unfortunate one-off CFPB data breach where a lone staffer broke agency rules by sending datasets to his own personal email address and consumer information was compromised. Sen. Kennedy has touted that story in arguing that the rule is an invasion of privacy and a wasteful pursuit of a “woke agenda.” But the story, as alarming as it sounds in a headline, is in no way evidence of systematic issues around data privacy. In fact, the agency immediately revoked the rogue employee’s access to data systems and subsequently fired them – demonstrating again how seriously it takes its duty to the public. Since that story broke the CFPB has also escalated the matter to the inspector general for further investigation.
It is understandable that CFPB opponents like Sen. Kennedy would make the most of a sensationalized story like this – especially since the actual policies in the final 1071 rule directly contradict his privacy argument.
The final 1071 rule establishes a firewall within lender firms themselves, whereby bank staff involved in approving applications are not provided with demographic information at all. (The rule makes exceptions for institutions that may have smaller staff – in deference to bank arguments about compliance costs – and requires appropriate notices to the applicant in these instances.)
And while Kennedy pretends every demographic identifier that 1071 seeks to collect would be mandatory for any applicant, that’s just not so. Applicants will have the option to withhold information on their sexual orientation race, ethnicity and gender, if they so choose.
These efforts to overturn Section 1071 are part of a larger conservative effort to roll back progressive policies recently enacted. Issues related to the environment, student debt relief, H-2A Visas for foreign workers and firearms have all been targeted during the 118th Congress. As of today, President Biden has had to veto five CRA disapproval resolutions since March of this year – and Republicans have not overcome any of those vetoes.
That pattern should give community reinvestment and economic justice organizations confidence. There should be no reason that a mass of Democrats rush to join Williams and Kennedy to override a Biden veto, should these joint resolutions somehow pass a 50-50 Senate where Vice President Kamala Harris breaks ties.
But that doesn’t mean there’s nothing to worry about, and it doesn’t mean there’s nothing to learn. Anyone who wants to build a more just economy should be aware of this tactic and ready to push back against it – not just now on 1071 but on other big pending reforms. If history is any indication of the future, one would assume when the Community Reinvestment Act final rule is published a disapproval resolution will be introduced to attempt to repeal that as well. NCRC and its members must be ready to push back on this strategy to roll back so many progressive victories. Defeating the Congressional Review Act measures targeting Section 1071 is the latest conflict in a larger battle for the policies which will make our communities and our nation stronger.
Hill watchers expect these Congressional Review Act resolutions to come to a vote this summer and into the fall months. The House Congressional Review Act resolution is set to have a markup this Thursday and the Senate resolution will likely also move forward in the coming weeks. NCRC and its members are mobilized to defend the implementation of this long-awaited rule and other progressive priorities from the baseless attacks of misguided politicians and their industry supporters.
Joseph Reed is NCRC’s Senior Policy Advocate.
Photo by Adeolu Eletu on Unsplash
