Am I having an impedance issue in a cable between two devices? And if so, How can I resolve the issue?
Your suspicion is likely correct, you have impedance mismatch somewhere, including unbuffered clock loopback at device 2. You also omitted any information what kind of cable is in use, what impedance it has. It is likely that signal/clock edges have excessive ringing, which confuses the receiver, either double-clocking occurs, or else.

But you already have mentioned the solution. Put a 10pF cap at the Rx end, same place where you did connect your scope.