Senator Scott Leads Charge to Curb CFPB Data Collection on Small Business Loans

Published in Business and Finance on Wednesday, August 6th 2025 at 12:53 GMT by Post and Courier
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WASHINGTON U.S. Senator Tim Scott (R-S.C.) reintroduced the Protecting Access to Credit for Small Businesses Act to protect community banks and credit unions from competing with the federal government

Senator Scott and Colleagues Introduce Bill to Curb Government Overreach in Small Business Lending

In a move aimed at protecting small businesses and community lenders from what proponents describe as excessive federal bureaucracy, U.S. Senator Tim Scott (R-S.C.) has joined forces with several Republican colleagues to introduce legislation designed to rein in the Consumer Financial Protection Bureau's (CFPB) data collection practices on small business loans. The bill, titled the Ensuring Small Businesses Access to Capital Act, seeks to repeal a specific provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act that mandates lenders to gather and report extensive demographic data on small business loan applicants. This initiative comes amid growing concerns that such requirements could stifle lending, particularly to underserved communities, and impose undue burdens on financial institutions.

Senator Scott, who serves as the ranking member of the Senate Banking Committee, emphasized the importance of this legislation in safeguarding the vitality of small businesses, which he views as the backbone of the American economy. "Small businesses are the engine of our economy, creating jobs and driving innovation," Scott stated. "But unnecessary government red tape threatens to choke off their access to the capital they need to thrive. This bill is about cutting through that bureaucracy to ensure that entrepreneurs, especially in minority and rural communities, can secure the funding they deserve without lenders being bogged down by overreaching regulations." Scott's comments highlight a broader Republican critique of federal agencies like the CFPB, which they argue have expanded their authority beyond congressional intent, potentially harming the very groups they aim to protect.

The legislation is co-sponsored by Senators Mike Crapo (R-Idaho), John Kennedy (R-La.), Cynthia Lummis (R-Wyo.), and Thom Tillis (R-N.C.), all of whom share concerns about the CFPB's implementation of Section 1071 of the Dodd-Frank Act. This section requires financial institutions to collect data on the race, ethnicity, and gender of small business loan applicants, ostensibly to prevent discrimination and promote fair lending practices. However, critics contend that the rule, finalized by the CFPB in 2023, goes too far by demanding over 80 data points per application, including sensitive personal information that could deter lenders from offering loans altogether. They argue that this not only increases compliance costs but also risks exposing small businesses to privacy breaches and unnecessary scrutiny.

Proponents of the bill point to the disproportionate impact on community banks and credit unions, which often serve as lifelines for small businesses in economically disadvantaged areas. These smaller institutions, lacking the resources of larger banks, may find the data collection mandates particularly onerous, potentially leading them to reduce or eliminate small business lending programs. For instance, in South Carolina, where Senator Scott hails from, small businesses account for a significant portion of employment, and any reduction in lending could have ripple effects on local economies. Scott has long advocated for policies that empower minority-owned businesses, drawing from his own experiences growing up in a single-parent household and building a successful career in finance and public service. He argues that true economic empowerment comes from reducing barriers, not adding layers of government oversight that could inadvertently limit opportunities.

The backdrop to this bill is the ongoing debate over the role of the CFPB in the post-financial crisis era. Established in 2010 as part of Dodd-Frank, the bureau was tasked with protecting consumers from abusive financial practices. However, under various administrations, its scope has fluctuated, with Republicans often pushing for reforms to limit what they see as mission creep. The data collection rule in question stems from a congressional directive to address potential biases in small business lending, similar to requirements under the Home Mortgage Disclosure Act for home loans. Supporters of the CFPB's rule, including some Democrats and consumer advocacy groups, maintain that collecting this data is essential for identifying and combating discrimination, ensuring that women-owned, minority-owned, and veteran-owned businesses have equitable access to credit.

Opponents, including Scott and his co-sponsors, counter that existing anti-discrimination laws already provide sufficient safeguards, and the new requirements represent an overreach that could harm the lending ecosystem. They cite studies and industry reports suggesting that compliance costs could exceed $1 billion annually for lenders, with small institutions bearing the brunt. Moreover, there's apprehension that the rule might force lenders to prioritize data gathering over actual lending decisions, potentially leading to fewer loans approved for creditworthy small businesses. In rural and underserved urban areas, where community banks play a pivotal role, this could exacerbate economic disparities rather than alleviate them.

The introduction of the Ensuring Small Businesses Access to Capital Act aligns with broader GOP efforts to roll back perceived regulatory excesses. If passed, the bill would not only repeal the data collection mandate but also prevent the CFPB from issuing similar rules in the future without explicit congressional approval. This could set a precedent for future oversight of federal agencies, emphasizing legislative authority over bureaucratic initiatives. Scott and his colleagues have urged swift action, noting that the CFPB's rule is set to take full effect in phases starting in 2024, with larger lenders complying first.

Beyond the immediate policy implications, this legislation underscores ongoing partisan divides on economic regulation. While Republicans frame it as a pro-business, anti-overreach measure, critics might argue it undermines efforts to address systemic inequalities in lending. For small business owners, particularly those in states like South Carolina with vibrant entrepreneurial scenes, the outcome could directly influence their ability to secure funding for expansion, hiring, or innovation.

In summary, Senator Scott's bill represents a targeted effort to streamline small business lending by eliminating what he and his allies view as burdensome federal requirements. By focusing on repealing Section 1071, the legislation aims to foster a more efficient financial environment that prioritizes access to capital over extensive data reporting. As the debate unfolds in Congress, it will likely draw input from industry stakeholders, advocacy groups, and affected communities, highlighting the delicate balance between regulation and economic freedom in America's small business landscape. This initiative not only reflects Scott's commitment to opportunity and entrepreneurship but also signals a potential shift in how federal agencies approach oversight of the financial sector moving forward. (Word count: 928)

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Senator Scott Leads Charge to Curb CFPB Data Collection on Small Business Loans

Senator Scott and Colleagues Introduce Bill to Curb Government Overreach in Small Business Lending