Trump Administration Completes Rule Eliminating ‘Invasive’ DEI Standards for Small Business Loans

CFPB Finalizes Rule to Eliminate DEI Requirements for Small Business Lending

The Consumer Financial Protection Bureau (CFPB) has finalized a new rule that removes diversity, equity, and inclusion (DEI) requirements along with other regulations affecting small business lending. This change is expected to save over $166 million annually.

“This is a long-awaited win for both borrowers and small businesses,” said CFPB Acting Director Russ Vought. “The savings from this replacement of the Biden-Harris rule—exceeding $166 million per year—will make borrowing more affordable not just for small businesses, including farmers, but will also alleviate the stresses of invasive DEI questions.”

During the Trump administration, the CFPB aimed to replace the previous administration’s Section 1071 rule, which many found overly intrusive. The new proposal intends to align closer with the original intent of the Dodd-Frank banking law, prioritizing financial relief for borrowers and supporting small businesses’ access to credit.

The Dodd-Frank Act instructs the CFPB to regulate small business loan data collection. Section 1071 modified the Equal Opportunity Act (ECOA), requiring financial institutions to gather and submit data related to loan applications from women-owned and minority-owned businesses.

The updated rules will scale back on data points introduced during the Biden administration, focusing on essential categories outlined by the Dodd-Frank Act. These include only a few selective discretionary data points, like hours of operation and NAICS codes. Notably excluded are:

Application method (whether in-person or online)

Application recipients (direct submissions vs. third-party submissions)

Reasons for loan refusal

Pricing details (interest rates, fees)

Number of employees

Status of LGBTQI+ management

This rule also alters how demographic data is collected. It adheres to an executive order from the Trump administration, mandating binary gender classifications and removing references to gender identity. Additionally, it limits racial and ethnic data to aggregated categories to avoid complexity.

The revised rule upholds applicants’ rights to decline demographic inquiries and mandates that institutions must inform borrowers of this right.

Moreover, the scope of “covered credit transactions” will shrink, with the CFPB focusing on core lending products for small businesses, like loans and credit lines. The changes are expected to include:

Exclusion of Merchant Cash Advances (MCAs), which had previously been counted under the broad credit definition.

Exemption for agricultural loans, as these are already overseen by the Farm Credit Bureau.

Exclusion of small business credits for transactions under $1,000.

The CFPB is also refining the definition of “small business,” setting it for entities with annual revenues of $1 million to $5 million, which aims to enhance data collection efforts related to smaller businesses.

Banking groups, like the American Bankers Association (ABA), commented that prior regulations were “too broad,” compromised small businesses’ privacy, and could deter banks from lending due to the high costs associated with data collection.