This rule—commonly referred to as Small Business Lending Under the Equal Opportunity Act or Section 1071 of the Consumer Financial Protection Act—was originally issued during the Biden administration and requires banks, small business lenders, and other financial institutions to report data on their small-business loans, including applicant demographics, pricing, and approval rates.

In a court filing responding to a challenge brought by a merchant cash advance group, the CFPB indicated its intent to reissue the rule, citing the agency’s new leadership as a basis for its decision.

“New leadership has been assessing the Final Rule and the issues that this case presents to determine the CFPB’s position. CFPB’s new leadership has directed staff to initiate a new Section 1071 rulemaking,” according to the agency’s filing. “The CFPB anticipates issuing a Notice of Proposed Rulemaking as expeditiously as reasonably possible.”

The start of the Trump administration brought a change in the CFPB’s leadership. New leadership arrived at the CFPB on January 31, 2025, when Scott Bessent was named Acting Director of the CFPB, and again on February 7, when Russell Vought replaced Scott Bessent as Acting Director.

Under the Biden administration, the rule faced many legal challenges claiming that it was too burdensome and invasive. While many were against the rule, many supported it on the basis that it reinforced fair lending enforcement.

Although the CFPB previously prioritized defending the rule against legal challenges during the Biden administration, its recent filing indicates a shift in approach, suggesting it will no longer defend the original rule and instead modify and reissue it.

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In its dropped lawsuit, the CFPB claimed that hundreds of thousands of consumers filed fraud complaints to Wells Fargo, JP Morgan, and Bank of America and were denied help, with many being told to contact the fraudsters directly to recover their money. The major banks were alleged of failing to properly investigate the customer complaints and failing to reimburse such their customers for valid fraud claims.

The lawsuit originated from a investigation in 2021. The investigation found that three of the nation’s largest banks allegedly “rushed to launch a payment system without implementing basic protections for their customers.” As a result, “Defendants failed to take steps to ensure consumers were protected from fraud, while nevertheless marketing Zelle as safe and secure.”

This lawsuit was originally brought under the leadership of former CFPB Director Rohit Chopra. Chopra, who was appointed during the Biden administration, was fired in February, weeks after the commencement of the Trump administration. “This is about financial institutions fulfilling their basic obligations to protect customers’ money and help fraud victims recover their losses,” according to former CFPB Director Rohit Chopra said at the time. “These banks broke the law by running a payment system that made fraud easy, and then refusing to help the victims.”

Although the CFPB sought to hold those who failed to protect consumers from fraud accountable, its dismissal of the case has gathered much support. “Banks have and consistently do follow the law in offering services through Zelle,” Consumer Banks Association President and CEO Lindsey Johnson said. “In a time when fraud and scam activity is surging across industries and government alike, we look forward to moving past finger-pointing and political grandstanding and, instead, working constructively with policymakers to counter the root causes of these threats.”

This dropped lawsuit is the latest in a series of voluntary dismissals by the CFPB, which recently withdrew several cases against companies like Capital One and Rocket Homes. All of these lawsuits were initially filed during Chopra’s tenure as CFPB Director.

The CFPB has been rapidly dismantled in a matter of weeks, with employees ordered to halt nearly all work, approximately 150 staff members dismissed, and the bureau’s D.C. headquarters closed. This comes at a time in which President Trump has explicitly expressed his goal in shrinking the agency.  

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McKernan was not the only nominee advanced by the panel. The other three consisted of Bill Pulte, a private equity CEO who is up for the top job at the Federal Housing Finance Agency, Jeffrey Kessler, a trade lawyer who is up for a Department of Commerce role and Stephen Miran, an economist and investment strategist nominated for chair the Council of Economic Advisers.

While President Trump has dedicated much effort in dismantling the CFPB, as he aims to reduce administrative spending and reduce regulation, many perceive the CFPB as a necessary agency purposed for defending American citizens against fraud and scams. “I have deep, substantive reservations about these nominees,” Elizabeth Warren said. “Jonathan McKernan … is clearly being sent in by co-presidents Trump and Elon Musk to unleash the scammers, the fraudsters, and cheats on the American people.”

Others, including Senate Banking Chair Tim Scott, see McKernan’s nominations as well as the other three nominees as a step in the right direction and believe that they will guide the CFPB towards much needed change.

“As the Director of the Bureau of Consumer Financial Protection, Jonathan McKernan will ensure accountability and much needed reforms to curtail the weaponization of this rogue agency,” according to Scott. “These nominees represent a path forward — a path toward economic resurgence, job creation, and renewed prosperity for every American family. Their confirmation is not just a formality; it’s a commitment to putting our nation back on track after years of uncertainty and stagnation.”

This nomination comes at a time in which the CFPB has essentially shut down. In just the past month, it dismissed numerous lawsuits against top companies and will seemingly continue to do so.  

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The lawsuit specifically alleged that giant real estate company offered referrals to those who directed clients toward the mortgage lender, Rocket mortgage. One of those who took advantage of Rocket Homes’ incentive was Jason Mitchell, founder of the Jason Mitchell Group. The CFPB claimed that Mitchell provided gift cards to his agents who made a significant number of referrals to Rocket Mortgage. The agency explicitly claimed that Mitchell’s agents were trained to manipulate clients into thinking that Rocket Mortgage’s mortgage options were the only available and viable options.

After becoming aware of the dropped charges, Rocket Homes released a statement expressing its gratitude that the charges were dismissed. “It was good to see the truth come to light,” the company said. “This case was a misrepresentation of the facts, as we have said from the day the suit was filed. It was an empty claim brought forth by former CFPB director [Rohit] Chopra for the sole purpose of seeing his name in headlines during the final days in public office.”

CFPB Dismisses Multiple Cases After Litigation Funds Freeze

On the same day that it dropped the Rocket Homes lawsuit, the CFPB also announced that it voluntarily dismissed lawsuits against Capital one, Berkshire Hathaway, and the Pennsylvania Higher Education Assistance Agency, a student loan servicer. These dismissals come shortly after having its litigation and enforcement investigation funds frozen by its newly acting director, Scott Bessent.

President Trump has made it known that his administration aims to eliminate the CFPB as a result of the agency’s alleged politicization. His administration explicitly stated that it intends to create and more “streamlined and efficient CFPB” as a result of this “politicization.” While many view this as a positive step, many others perceive it as providing an outlet to corporations who are engaging in illegal activities.

“We’re getting a very strong message here that if you’re a bank, if you’re a student loan servicer, and you’re violating the law, the CFPB is not only not going to pursue you, they’re going to let you out of your case scot-free, ” according to the director of consumer protection at the Consumer Federation of America, Erin Witte. Public Citizen, a consumer advocacy group, echoed Director Witte’s statement, cautioning that unchecked misconduct could drive the U.S. “hurtling down the path that led to financial crises in the past.”

The CFPB isn’t the only federal agency scaling back enforcement under the new administration. The Securities and Exchange Commission announced that it has closed or paused regulatory enforcement against several cryptocurrency platforms, signaling a shift toward a more crypto-friendly stance under Trump.  

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The leaders of the proposed legislation argue that the original rule, which aimed to protect consumers from high fees, had negative impacts on consumers and diminished their financial protections. “The CFPB’s actions on overdraft is another form of government price controls that hurt consumers who deserve financial protections and greater choice,” said House Financial Service Committee Chairman French Hill. “Our [rule] will help overturn this harmful rule and is a next step toward ensuring the CFPB halts all ongoing rules until it answers to Congress, just like any other non-independent federal agency.”

The effort to repeal the overdraft fees cap has received much support from various Bankers Associations. “Millions of hardworking Americans, including the one in five without access to credit, rely on overdraft services as a valuable financial lifeline, yet the Biden-Chopra CFPB’s overdraft rule threatens to cut off their access to this essential bank product,” Consumer Bankers Association President Lindsey Johnson said in a statement.

The overdraft rule was finalized in December under former CFPB Director Rohit Chopra. According to Chopra, this rule was purposed to ensure that junk fees were not the source of a billion-dollar revenue stream. The CFPB perceives the rule as an effort to balance the power between those charging the junks fees and those being charged.

Although the bill is aimed at protecting consumers, the House and Senate’s efforts to nullify the rule has received some criticism. Many consumer advocates hope that the bill does not get passed. They view the overdraft cap as means to protect lower-income families from “junk fees.”

“For too long, banks have gouged economically vulnerable consumers with costly overdraft fees that make it harder for them to stay on track financially,” said Chuck Bell, advocacy program director at Consumer Reports. “The CFPB’s new rule imposes reasonable limits on overdraft fees so they are in line with a bank’s actual costs instead of a way for banks to pad their profits at the expense of those least able to afford it.”

Various banking industry groups have challenged the rule in court on the basis that the CFPB did not have proper authority to impose such a rule. The case remains open but is expected to be thrown out now that the House and Senate intend to invalidate it.

Although the rule seeks to invalidate the overdraft fees rule, it has not effectively done so yet. This bill was enabled by the Congressional Review act, which permits Congress to either nullify or approve new agency rules. The Act authorizes Congress to pass a joint resolution of disapproval if it seeks to invalidate the rule. If the joint resolution of disapproval approved by both houses of Congress and signed by the President, or if Congress successfully overrides a presidential veto, the rule at issue cannot go into effect or continue in effect.  

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Chopra was appointed as director during the Biden administration in 2021, committing himself to making the financial system more reasonable for consumers and opposing any regulations or practices that undermined this goal.

The CFPB was created in the aftermath of the 2008 global financial crisis, which was caused in part by banks’ irresponsible lending and securitization practices. The agency’s mandate is to protect consumers from financial frauds and scams, to fight unfair banking and financial practices, and to offer a recourse for consumers who have been scammed or defrauded.

Although Chopra was initially given a five-year term for his position, the Supreme Court ruled in the case of Seila Law v. CFPB that such a director should be treated as an at-will employee for the purposes of presidential removal. As a result, it was within the President’s constitutional authority to fire Chopra and designate a new director for the Bureau.

During his tenure as CFPB Director, Chopra removed medical debt from credit reports, limited overdraft penalties, and limited credit card late fees. The former director also led an initiative which would ultimately provide consumers with more easy access to and privacy of their financial data.

Under the leadership of Chopra, the CFPB also brought numerous actions against some of the nation’s biggest banks such as Wells Fargo, JPMorgan, and Bank of America, for failing to protect consumers from widespread fraud. The case remains ongoing but seeks to impose a heavy penalty on the banks and implement measures to prevent similar violations in the future.

Although Chopra’s termination fell within President Trump’s executive authority, his administration has faced some criticism over the move. Many critics have pointed to Chopra’s success as support for the argument that President Trump was in the wrong.

President Trump’s Move Faces Praise and Criticism

“One of the most effective consumer champions in government in American history, Rohit Chopra worked tirelessly to protect vulnerable citizens from financial predators. The CFPB under Chopra eliminated many junk fees, capped credit card late charges, reformed reporting of medical debt, sued giant corporations, and elevated the total relief to consumers beyond $21 billion,” according to Co-President of Public Citizen, Lisa Gilbert. “An administration that retreats from the many advances the agency made while under his leadership will betray working Americans. That Trump’s oligarchs want this agency ‘deleted’ attests powerfully to Chopra’s effectiveness and the need for the CFPB – and Trump’s firing of Chopra is as clear a sign as there could be of whose side Trump is on.”

However, many groups praised the President’s move as they saw it as a step in the right direction for the Bureau. “The longer Director Chopra stays, the harder it will be for this pro-growth administration to undo the politically-driven, government-price setting agenda that former President Biden’s appointee has engaged in over the last several years at the Bureau,” according to Consumer Bankers Association press secretary, Weston Loyd.

The CFPB has faced a large number of challenges in the previous years. Many brought challenges seeking to undermine the agency. The challenges were brought on a constitutional basis in which it was argued that the agency is funded illegally.

While most agencies are funded by an annual budget process in Congress, the CFPB is funded directly by the Federal reserve. Although it may be argued that such funding violated the Appropriations Clause of the Constitution—a law of Congress that provides an agency with budget authority—the Supreme Court rejected ultimately such the argument and held that it was not in fact a violation.  

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The CFPB’s lawsuit describes how hundreds of thousands of consumers filed fraud complaints and were largely denied help, with some being told to contact the fraudsters directly to recover their money. Bank of America, JPMorgan Chase, and Wells Fargo also allegedly failed to properly investigate complaints or reimburse consumers for fraud and errors as is required by law.

Jane Khodos, a spokesperson for Zelle, said that the CFPB’s arguments are “legally and factually flawed, and the timing of this lawsuit appears to be driven by political factors unrelated to Zelle.”

“Zelle leads the fight against scams and fraud and has industry-leading reimbursement policies that go above and beyond the law,” Khodos said. “The CFPB’s misguided attacks will embolden criminals, cost consumers more in fees, stifle small businesses and make it harder for thousands of community banks and credit unions to compete. Zelle is relied upon by 143 million enrolled American consumers and small businesses, and we are fully prepared to defend this meritless lawsuit to ensure their service does not suffer.”

The Alleged Failures and Neglect

According to statement made by CFPB Director Rohit Chopra, this lawsuit results from an investigation that launched in 2021. The investigation found that three of the nation’s largest banks allegedly “rushed to launch a payment system without implementing basic protections for their customers.”

The CFPB alleges widespread consumer losses since Zelle’s 2017 launch due to the platform’s and the banks’ failure to implement appropriate fraud prevention and detection safeguards. The CFPB alleges that Bank of America, JPMorgan Chase, Wells Fargo, and Early Warning Services violated federal law through critical failures including:

• Leaving the door open to scammers: Zelle’s limited identity verification methods have allowed scammers to quickly create accounts and target Zelle users. For example, criminals often exploited Zelle’s design and features to link a victim’s token to the fraudster’s deposit account, which caused payments intended for the consumer’s account to instead flow to the fraudster account.
• Allowing repeat offenders to hop between banks: Early Warning Services and the banks were too slow to restrict and track criminals as they exploited multiple accounts across the network. The banks did not share information about known fraudulent transactions with other banks on the network. As a result, the fraudsters could carry out repeated fraud schemes across multiple institutions before being detected, if they were detected at all.
• Ignoring red flags that could prevent fraud: Despite receiving hundreds of thousands of fraud complaints, the banks failed to use this information to prevent further fraud. They also allegedly violated the Zelle Network’s own rules by not reporting fraud incidents consistently or on time.
• Abandoning consumers after fraud occurred: Despite obligations under the Electronic Fund Transfer Act and Regulation E, the banks failed to properly investigate Zelle customer complaints and take appropriate action for certain types of fraud and errors.

The lawsuit aims reimburse those who suffered financial losses due to the alleged neglect of fraud. It also seeks to impose penalties on the banks and implement measures to prevent similar violations in the future.  

Jacob Horowitz is a contributing editor at Compliance Chief 360°

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For at least four years, hundreds of Bank of America loan officers failed to ask mortgage applicants certain demographic questions as required under federal law, and then falsely reported that the applicants had chosen not to respond. Under the CFPB’s order, Bank of America must pay $12 million into the CFPB’s victims relief fund.

“Bank of America violated a federal law that thousands of mortgage lenders have routinely followed for decades,” said CFPB Director Rohit Chopra. “It is illegal to report false information to federal regulators, and we will be taking additional steps to ensure that Bank of America stops breaking the law.”

Enacted in 1975, the Home Mortgage Disclosure Act (HMDA) requires mortgage lenders to report information about loan applications and originations to the CFPB and other federal regulators. The data collected under HMDA are the most comprehensive source of publicly available information on the U.S. mortgage market. The public and regulators can use the information to monitor whether financial institutions are serving the housing needs of their communities, and to identify possible discriminatory lending patterns.

The Home Mortgage Disclosure Act requires financial institutions to report demographic data about mortgage applicants. The CFPB’s review of Bank of America’s HMDA data collection practices found that the bank was submitting false data, including falsely reporting that mortgage applicants were declining to answer demographic questions. This conduct violated HMDA and its implementing regulation, Regulation C, as well as the Consumer Financial Protection Act.

Specifically, the CFPB found that Bank of America:

• Falsely reported that applicants declined to provide information: Hundreds of Bank of America loan officers reported that 100 percent of mortgage applicants chose not to provide their demographic data over at least a three month period. In fact, these loan officers were not asking applicants for demographic data, but instead were falsely recording that the applicants chose not to provide the information.
• Failed to adequately oversee accurate data collection: Bank of America did not ensure that its mortgage loan officers accurately collected and reported the demographic data required under HMDA. For example, the bank identified that many loan officers receiving applications by phone were failing to collect the required data as early as 2013, but the bank turned a blind eye for years despite knowledge of the problem.

The enforcement action comes on the heels of a massive July settlement with the CFPB and the Office of the Comptroller of the Currency (OCC). The bank was forced to pay total penalties of $150 million for systematically and illegally double dipping on fees imposed on customers, withholding reward bonuses promised to credit card customers, and opening fake accounts without customer knowledge or authorization.

The CFPB has taken numerous other actions against Bank of America for violating federal law. In 2022, CFPB and OCC ordered Bank of America to pay $225 million in fines and refund hundreds of millions of dollars to consumers for botched disbursement of state unemployment benefits. That same year, Bank of America also paid a $10 million penalty for unlawful garnishments of customer accounts. And in 2014, the CFPB ordered Bank of America to pay $727 million to consumers for illegal and deceptive credit card marketing practices.  

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The guidance describes how lenders must provide specific and accurate reasons when taking adverse actions against consumers. “Creditors cannot simply use CFPB sample adverse action forms and checklists if they do not reflect the actual reason for the denial of credit or a change of credit conditions,” the Bureau said in a statement. This requirement is especially important with the growth of A.I., advanced algorithms, and personal consumer data in credit underwriting, said the CFPB.

“Technology marketed as artificial intelligence is expanding the data used for lending decisions, and also growing the list of potential reasons for why credit is denied,” said CFPB Director Rohit Chopra. “Creditors must be able to specifically explain their reasons for denial. There is no special exemption for artificial intelligence.”

Creditors are increasingly using A.I.-based complex algorithms and other predictive decision-making technologies in their underwriting models. Creditors often feed these complex algorithms with large datasets, sometimes including data that may be harvested from consumer surveillance. As a result, a consumer may be denied credit for reasons they may not consider particularly relevant to their finances. Despite the potentially expansive list of reasons for adverse credit actions, some creditors may inappropriately rely on a checklist of reasons provided in CFPB sample forms. However, the Equal Credit Opportunity Act does not allow creditors to simply conduct check-the-box exercises when delivering notices of adverse action if doing so fails to accurately inform consumers why adverse actions were taken.

CFPB: Provide Specific Reasons

In fact, the CFPB confirmed in a circular from last year that the Equal Credit Opportunity Act requires creditors to explain the specific reasons for taking adverse actions. This requirement remains even if those companies use complex algorithms and black-box credit models that make it difficult to identify those reasons. The CFPB guidance expands on last year’s circular by explaining that sample adverse action checklists should not be considered exhaustive, nor do they automatically cover a creditor’s legal requirements.

Specifically, the guidance explains that even for adverse decisions made by complex algorithms, creditors must provide accurate and specific reasons. Generally, creditors cannot state the reasons for adverse actions by pointing to a broad bucket. For instance, if a creditor decides to lower the limit on a consumer’s credit line based on behavioral spending data, the explanation would likely need to provide more details about the specific negative behaviors that led to the reduction beyond a general reason like “purchasing history.”

Creditors that simply select the closest factors from the checklist of sample reasons are not in compliance with the law if those reasons do not sufficiently reflect the actual reason for the action taken. Creditors must disclose the specific reasons, even if consumers may be surprised, upset, or angered to learn their credit applications were being graded on data that may not intuitively relate to their finances.

The CFPB has also issued an advisory opinion that consumer financial protection law requires lenders to provide adverse action notices to borrowers when changes are made to their existing credit.

“The CFPB has made the intersection of fair lending and technology a priority. For instance, as the demand for digital, algorithmic scoring of prospective tenants has increased among corporate landlords, the CFPB reminded landlords that prospective tenants must receive adverse action notices when denied housing,” the CFPB said. The CFPB also has joined with other federal agencies to issue a proposed rule on automated valuation models, and is actively working to ensure that black-box models do not lead to acts of digital redlining in the mortgage market.  

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Unethical sales tactics, in part, resulted in the CFPB enforcement action. For example, OneMain’s “written training materials directed employees to attempt to sell optional add-on products to consumers even when the employees [thought] the consumer [would] not want them, or the consumer previously declined optional add-on products when obtaining a prior loan,” the consent order stated.

Additionally, individual sales employees’ performance reviews were based, in part, on their coverages-per-loan (CPL) rate. According to some of OneMain’s former employees, “low CPL rates could lead to adverse employment consequences, including termination,” the order stated.

Deceitful Sales Tactics

According to the CFPB order, some of OneMain’s former employees explained that “a common method of selling optional add-on products was adding them onto a loan before showing the paperwork to the consumer (referred to by some former employees as “pre-packing”) and without verbally informing the consumer that the products were included or optional.”

“If the consumer identified the products and asked for their removal, employees were expected to make it seem difficult to remove the products,” the order stated. In other instances, “employees obscured written disclosures from consumers’ view or verbally contradicted them,” according to the order.

Fraudulent Refund Policy

The CFPB also found that OneMain “kept $10 million in interest charges despite its ‘full refund’ policy.” OneMain told borrowers they would receive a “full refund” on add-on purchases if they cancelled within a certain period, between 30 and 45 days.

“However, OneMain unfairly failed to refund interest charges for about 25,000 borrowers who signed up for add-ons—such as roadside assistance benefits, identity theft protection, or entertainment discounts,” the CFPB said. “Because of how OneMain precomputed interest on some loans, customers had already been charged significant amounts of interest that the company did not refund.”

Over the past four years, OneMain kept approximately $10 million in interest charges attributable to add-ons cancelled within its purported full refund period. Moreover, these practices violated the Consumer Financial Protection Act’s prohibition on unfair practices and amounted to a fraudulent refund policy, the CFPB said.

Settlement Details

OneMain will pay $10 million in consumer redress and an additional $10 million penalty to the CFPB’s victims’ relief fund. “We are ordering OneMain to refund borrowers it cheated and to clean up its business practices,” said CFPB Director Rohit Chopra.

In addition to the $20 million in redress and penalties, the CFPB also ordered OneMain to take measures to ensure future compliance. Specifically, OneMain must “stop its unlawful activities, adjust its policies to make cancellation of add-on products easier, double the period in which a consumer can cancel an unused add-on product without cost from 30 to 60 days, and include interest in refunds after add-on product cancellations at any time,” according to the CFPB’s order. 

PHOTO: BY TONY WEBSTER, USED UNDER LICENSE, CC-BY-2.0

Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.

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