CFPB Proposes Significant Amendments to ECOA and Small Business Loan Data Collection Rules, at the Same Time as Telling Court It Will Go Broke in Early 2026: Carry On Wayward CFPB?
There have been a few recent CFPB moves that may puzzle the industry. First, on November 11, 2025, the CFPB filed in D.C. District Court and the D.C. Circuit Court of Appeals in the NTEU v. CFPB lawsuit (which I’ve written about most recently here) a notice telling the courts that it “anticipates exhausting its currently available funds in early 2026.” Then, only a couple days later on November 13, 2025, the CFPB will publish two highly significant proposed rules to narrow both the antidiscrimination provisions of Regulation B, the regulation that implements the Equal Credit Opportunity Act (ECOA), and the CFPB’s Small Business Loan Data Collection Rule. Both proposed rules will have short 30-day comment periods. But even with this brief comment period, it may be difficult to analyze all of the comments and turn around a final rule before the CFPB goes broke. What is going on? Below I describe the CFPB’s filings, briefly summarize its Regulation B proposed rule, and provide some thoughts for the industry.
I. Going Broke
The CFPB’s November 11 filing tells the courts that it anticipates running out of funds in “early 2026,” because it cannot draw more funds from the Federal Reserve. This is because the Federal Reserve currently “lacks combined earnings from which the CFPB can draw,” which is where the CFPB gets its main funding under the Dodd-Frank Act. The filing notes that the Acting Director “anticipates preparing a report to the President and to congressional appropriations committees, as statutorily required, identifying the ‘funding needs of the Bureau,’” but that “the Bureau does not know whether and the extent to which Congress will appropriate funding to pay the expenses of the Bureau.”
The CFPB appears to have made this filing to put the courts on notice of its interpretation of how the federal Antideficiency Act, which prohibits agencies from operating without funds, interacts with the District Court’s preliminary injunction in the NTEU case, which prevents the current leadership from firing staff, terminating contracts, and certain other actions (which I wrote about here, here, here, and here). The CFPB basically says it is not interpreting the preliminary injunction as requiring it to violate the Antideficiency Act. You may be asking whether the Antideficiency Act applies to so-called independent agencies like the CFPB. So, we looked, and it appears the statute has been interpreted to apply to independent agencies in the past, and the CFPB may be correct that it would have to stop operating once its funds dry up.
Specifically, the CFPB’s reasoning for not being able to draw more funds from the Federal Reserve is that the Dodd-Frank Act provision that creates the CFPB’s funding mechanism (which I’ve written about here) authorizes the CFPB to take funds from the Federal Reserve Board’s “combined earnings,” but the Fed “currently lacks combined earnings from which the CFPB can draw.” The CFPB cited a November 7, 2025 memorandum by the Department of Justice (DOJ) to CFPB Acting Director Russell Vought, which was requested by the Acting Director. In the DOJ’s very lengthy and thorough memorandum, the DOJ concluded that “‘combined earnings of the Federal Reserve System’ refers to the Federal Reserve’s profits, calculated by subtracting its interest expenses from its revenues.” An alternative interpretation that the term “combined earnings” refers to Fed’s revenue, which was previously espoused by the CFPB under former Director Chopra, was rejected by the DOJ.
The DOJ’s memorandum bases its conclusion that the term “combined earnings” means the Fed’s profits, rather than merely its revenues, on the plain meaning of term at the time of enactment. The memorandum notes that several general and technical dictionaries define “earnings” to mean “the balance of revenue after deduction of costs and expenses,” “business profits,” and “net income.” The memorandum also cites a Securities and Exchange Commission interpretation and a Nasdaq glossary defining “earnings” as “net income.” The memorandum also cites common financial and accounting terms, such as “earnings per share” and “retained earnings.” The memorandum states that these definitions indicate that the term “combined earnings” does not mean merely the Fed’s revenue.
The memorandum also analyzes whether the term “combined earnings” means the Fed’s net interest income (essentially, its interest income minus its interest expenses), or its overall net income after deducting operating expenses and dividends from its net interest income (which the Fed’s statute refers to as “net earnings”), and concludes the term “combined earnings” refers to the Fed’s net interest income. The memorandum notes that the Fed has described its own statutory accounting requirements using the term “earnings” to refer to its net interest income, and that the Fed’s own financial statements deduct its required transfers to the CFPB from its net interest income.
The DOJ’s memorandum also states that it believes there would be “constitutional concerns” with the CFPB merely attempting to requisition funds from the Fed after determining that no “ combined earnings” are available, because the Constitution’s Appropriation Clause prohibits any withdrawal of Treasury funds except by “Appropriations made by law,” and the Constitution’s Oath or Affirmation Clause “prevents the CFPB Director from instructing other federal officers to violate what he knows to be the dictates of the Constitution.” The memorandum then discusses the CFPB Director’s obligation under the Dodd-Frank Act, after determining that funds available from the Federal Reserve will not be sufficient, to submit a “report regarding the funding of the Bureau to the President and Congress.” The memorandum notes that the CFPB can request additional funds from Congress through this report.
It would appear that the current Congress would not respond to any request for additional funds favorably. The recent federal government shutdown is evidence that Congress cannot even agree on funding the normal, basic operations of the government, let alone approving entirely new and novel funds for an agency. For this reason, it would appear reasonable to expect the CFPB to effectively be shut down once it runs out of funds in early 2026. This may be why Acting Director Vought was recently reported to state in a media interview that he planned to shut down the CFPB in a matter of months, while the CFPB had also submitted recent filings in the NTEU lawsuit indicating that there was no formal agency decision to shut down the agency. The lack of funding excuse gives the appearance of an unplanned unfortunate turn of events that stops the CFPB from operating, without a formal agency plan having caused it. This also leaves the door open for new funding in the future to restart operations. Unfortunately, this leaves some important questions unanswered about the future of certain required CFPB functions on which the industry depends, like the publishing of APOR. Hopefully the CFPB will provide guidance on such issues before it shuts off the lights.
II. Proposed Rules: Brief Summary of Proposal to Narrow Regulation B
On November 13, 2025, the CFPB will publish in the Federal Register two new proposed rulemakings. The first will propose to narrow Regulation B, which implements ECOA’s fair lending provisions, in three key areas: (1) disparate impact; (2) discouragement of applications; and (3) special purpose credit programs. The second will propose to narrow the CFPB’s Small Business Loan Data Collection Rule, which implements Dodd-Frank Act section 1071 (which I’ve written about here), and has been essentially on pause (which I’ve written about here). I will briefly summarize the CFPB’s Regulation B proposal below, including the CFPB’s terrible statutory interpretation of ECOA with respect to the regulation’s “discouragement” provision.
A. Eliminate Disparate Impact Theory
The Regulation B proposal would eliminate references to disparate impact theory in Regulation B. The CFPB stated that the Supreme Court has only upheld disparate impact theory under antidiscrimination statutes that contain effects-based language, and “the relevant language of ECOA does not include similar effects-based language supporting disparate-impact liability.” The CFPB also stated that it is “concerned that disparate-impact liability may lead some creditors to consider prohibited characteristics in developing policies and procedures, contrary to ECOA’s purposes, in order to minimize potential liability.” The CFPB also noted that the Federal Reserve Board’s basis for originally concluding that ECOA supported disparate impact theory was only ECOA’s legislative history, but stated that “consistent with Supreme Court precedent, the most important consideration is the statutory language.”
B. Bless, but Narrow the Regulatory Discouragement Provision
Regarding the “discouragement” provision of Regulation B, which prohibits creditors from making oral or written statements to applicants or prospective applicants that would discourage a reasonable person from applying for credit, the CFPB espoused a flat-out terrible interpretation of ECOA’s rulemaking authority. The CFPB essentially stated that ECOA’s general discretionary rulemaking authority allows the discouragement provision of Regulation B that extends to prospective applicants, even though ECOA itself is only limited to applicants. This statutory interpretation of ECOA is totally inconsistent with the CFPB’s statement about statutory interpretation in the previous disparate impact section of its proposed rule. There, the CFPB stated with respect to statutory interpretation that “the most important consideration is the statutory language.” But then for the discouragement provision, it completely ignores the statutory scope of ECOA. The CFPB noted that ECOA only applies to applicants, defined as persons that have applied for credit. But then, the CFPB asserted that it had the rulemaking authority to broaden the scope of ECOA because “in the absence of a discouragement provision, creditors could sidestep this prohibition entirely by discouraging prospective applicants from applying for credit in the first place,” and that “a well-tailored discouragement provision that prohibits such practices protects ECOA’s purpose of making credit available on a non-discriminatory basis.” As our firm argued in the Townstone Financial lawsuit, this completely ignores ECOA’s statutory language and scope and allows the CFPB to create new law out of whole cloth. This interpretation should be anathema to the current administration. Congress did not apply ECOA to “prospective applicants,” and the CFPB does not have authority to use its general rulemaking authority to do so. It is quite frankly shocking that the current Acting Director of the CFPB would allow this interpretation of ECOA to go forward.
At the same time as blessing this regulatory expansion, the CFPB did express concerns about how this provision “has been interpreted to prohibit conduct that it is not necessary or proper to prohibit to prevent the circumvention or evasion of ECOA’s purposes,” and that “the overbroad coverage of the regulation and its potential interpretations may constrain free speech and commercial activity in ways that are unwarranted.” This should have been a sign to the CFPB that this lawmaking endeavor is unwise and flawed, and that these policy questions should be left to Congress.
Regarding the actual proposal, the CFPB proposed to narrow the discouragement provision in three ways, which appear designed to prevent the types of “modern-day redlining” enforcement actions under Regulation B that were undertaken by the previous administration:
Definition of “oral or written statement.” The CFPB proposed to limit the definition or “oral or written statement” in the discouragement provision to mean “spoken or written words, or visual images such as symbols, photographs, or videos,” rather than as “acts or practices” as it is currently defined in the commentary. The CFPB expressed concerns that the current “acts or practices” definition has been used to enforce against the types of business decisions used in past redlining enforcement actions, such as decisions “where to locate branch offices, where to advertise, or where to engage with the community through open houses or similar events.”
Encouragement is not Discouragement. The CFPB also proposed to revise the commentary to provide that “encouraging statements directed at one group of consumers cannot discourage applicants or prospective applicants who were not the intended recipients of the statements.” The CFPB was concerned that the discouragement provision has been interpreted to “prohibit selective encouragement of certain applicants or prospective applicants (for example, geographically targeted advertising) on the basis that such encouragement could discourage applicants or prospective applicants who did not receive it.”
Standard for Discouragement. The CFPB proposed to limit discouragement to statements that a creditor “knows or should know” would cause a reasonable person to be discouraged. The CFPB also proposed to narrow the prohibition to statements that “would cause a reasonable person to believe that the creditor would” take an adverse action on a prohibited basis. The CFPB stated its concern that there could be enforcement where there is no statement that an “objective creditor would know, or should know, would cause a reasonable person to believe that the creditor would deny them credit or offer them credit on less favorable terms than other.” The CFPB stated “that there is a difference between a statement by a creditor that an applicant or potential applicant may not like or may disagree with, and a statement that would cause a reasonable person to be discouraged from applying for credit with that creditor.” The proposal would also add examples to the commentary of statements that a creditor would not, or should not know, would violate the provision, which include statements: (i) in support of local law enforcement, (ii) recommending that consumers investigate a neighborhoods crime statistics and proximity to grocery stores, and (iii) encouraging consumers to seek out resources to develop their financial literacy. These examples appear designed to address the fact scenario in the CFPB’s lawsuit against Townstone Financial, which our law firm represented.
Somehow, I doubt this narrowing of the discouragement provision will prevent future administrations from enforcing its redlining theory, because they will just ignore the unhelpful commentary provisions or cite the general prohibition against discrimination instead. In addition, most of these investigations and supervisory actions settle, because challenging the government is so expensive and difficult. Any arguments about the narrowed regulatory provisions would be swatted away by the regulators as noise, as they increase their settlement demands. The only way to prevent these types of redlining actions under ECOA would be to ditch the discouragement provision altogether, or expressly reject it in the regulation.
C. Narrow Special Purpose Credit Programs
The CFPB also proposes to amend Regulation B’s special purpose credit program (SPCP) provisions to prohibit SPCPs “from using the prohibited basis of race, color, national origin, or sex, or any combination thereof, of the applicant, as the common characteristic in determining eligibility for the SPCP,” and also proposes restrictions on SPCPs that use “religion, marital status, age, or income derived from a public assistance program as
eligibility criteria.” The CFPB states that if the prohibition provisions were to become inoperative, SPCPs that use race, color, national origin, or sex would become subject to the aforementioned proposed restrictions on SPCPs. The CFPB stated that “fifty years of legal prohibitions against credit discrimination—at the Federal and State level and across multiple laws working in concert—have substantially reshaped credit markets relative to what Congress, the Board, and consumers would have encountered in 1976,” and that it is not aware of markets where consumers “would be ‘effectively denied credit’ because of their race, color, national origin, or sex in the absence of SPCPs.”
III. Conclusion
There is a lot going on with the CFPB right now, and it’s hard to make sense of it all. As I’ve written about before (here and here), the CFPB has a lengthy regulatory agenda and some pending potential rulemaking for the mortgage industry that would be very important. But it is unclear how the CFPB can finalize most of its proposed rules, or yet-to-be-proposed rules, if it will be forced to shut down in early 2026. Finalizing a rulemaking takes time for some necessary steps, including reviewing and responding to public comments, drafting revisions to proposed rules and commentary, drafting new preamble, and finalizing cost-benefit analyses. There appears to be a disconnect between the Acting Director’s plans to shutter the agency and the day-to-day management’s regulatory agenda. Is there an internal race to get these important regulatory reform rules finalized? As some of these rules would be very beneficial to the industry, I hope so. In case there is a plan to finalize these proposed rules, it is worth submitting a comment letter. Plus, if the CFPB is able to restart operations in the future, it would be important to have a comment letter on the administrative record, in case the agency takes up the proposal again.
The final thing I have to say is, in the words of the famous Kansas song, carry on CFPB, there will be peace when you are done.
If would like assistance with submitting a comment letter, or would like to discuss any of the issues in this post, please email me at rich@garrishorn.com.
