On February 19, a federal magistrate judge for the United States district court for the southern Florida district published a Report and recommendation Rejecting the challenge of a commercial group to the loan data rule of small companies in the CFPB. The decision revealed that advances in market funds are legally of the scope of the rule. The commercial group trial has sought to exclude the cash advances of the merchants of the rule, arguing, among other things, that such transactions do not constitute “credit” under the law on equal opportunities of credit (“ECOA” ) and that the rule was arbitrary and capricious, in violation of the law on administrative procedure.
More specifically, the allegations of the commercial group included the following elements:
- Dispute on the definition of credit. The commercial group allegedly alleged that the CFPB had exceeded its statutory authority by classifying the advances of market funds as “credit” under ECOA and that these transactions do not respect the traditional definition of credit.
- Concerns of regulatory equity. The commercial group argued that the rule is arbitrary and capricious because the CFPB aimed to “level the rules of the game” rather than strictly adhering to statutory mandates. The commercial group said that the CFPB selectively targeted the merchant’s rent products without appropriate justification.
- Lack of adequate consideration of industry. The commercial group allegedly alleged that the CFPB had not correctly considered its public comments and their concerns of the industry during the regulatory process and that it did not adequately evaluate the economic impact that the rule could have on the financing of small businesses.
The court rejected these complaints, concluding that the advances in market funds respond to the definition of credit under ECOA because they involve deferred debt payments. The court also determined that the CFPB had acted within its statutory authority under article 1071 of the Dodd-Frank law. In addition, the court concluded that the CFPB had sufficiently considered the concerns of the industry and balanced the advantages of market advances against potential risks for small businesses.
Put it into practice: The conclusions of the judges of the magistrate must be adopted by the district court. But he affirms the mandate to collect the data from the office under the Dodd-Frank law. However, with future CFPB regulatory activities in flow, it remains to be seen what will eventually happen with the rule. Small businesses should continue to monitor pending disputes and political developments that may affect their compliance obligations.