On February 16, 2022, legislators Blaine Luetkemeyer, French Hill, and Roger Williams submitted a letter to Shopper Monetary Safety Bureau (CFPB) Director Rohit Chopra elevating issues relating to the Bureau’s Dodd-Frank Act Part 1071 rulemaking.
As we now have mentioned, the CFPB issued its Part 1071 Discover of Proposed Rulemaking (NPRM) on September 1, 2021. The remark interval for this new rule closed on January 6, 2022. Throughout this era, the CFPB acquired over 2,000 feedback. This letter comes as a follow-up to the feedback acquired and focuses on 4 points we identified in a earlier webinar on the NPRM: (1) the influence on small monetary establishments, (2) the implementation timeframe, (3) guidelines that contradict the statute, and (4) the method the CFPB intends to implement when figuring out what info it is going to confide in the general public.
Burden on Small Monetary Establishments
The letter first highlights the numerous burdens the proposed guidelines would have on small monetary establishments. This comes as no shock as a result of even Director Chopra commented on the regulatory burden the proposed rule could have on small banks.
The proposed thresholds require monetary establishments to report information if the establishment originates not less than 25 coated credit score transactions for small companies in every of the final two years. A “small business” can be outlined as having $5 million or much less in gross annual income for the previous 12 months. A “covered credit transaction” would come with loans, strains of credit score, bank cards, and service provider money advances.
The letter asserts that the proposed thresholds for reporting “are far too stringent,” which “would drastically impact the ability of small institutions to make loans to small businesses and decrease access to credit for minority-owned, women-owned, and small businesses.”
As at the moment drafted, the proposed rule offers monetary establishments 18 months after the ultimate rule is issued to implement the rule. The letter factors out the numerous influence the brand new rule could have on practically all monetary establishments and requests extra time for implementation. In accordance with the letter, 18 months isn’t sufficient time to coach employees and “develop the appropriate systems to carry out this complex rulemaking which will cover multiple credit products.”
Contradictory Reporting Necessities
One concern raised relating to contradictory language within the rule versus the statute needs to be of explicit concern to all impacted by the brand new rule: Whereas the statute permits debtors to refuse to offer info on race, gender, or ethnicity, the CFPB is proposing that “[i]f an applicant does not provide any ethnicity, race, or sex information for any principal owners . . . the financial institution must collect at least one principal owner’s race and ethnicity (but not sex) via visual observation or surname, . . . if the financial institution meets with any principal owners in person or via electronic media with an enabled video component.”
Except for the contradiction between the statutory language and proposed rule violating the applicant’s proper to not submit info, the letter highlights that such a course of would rely “on racial stereotypes and generalizations and would render all 1071 information tainted and inaccurate.” The letter notes that mortgage officers needs to be targeted on borrower creditworthiness, not on changing into consultants in figuring out the race or ethnicity of people. This guessing recreation additionally would violate the proposal of making a “firewall” to separate race, ethnicity, and gender info from “financial institution personnel involved in making any determination related to the application.”
CFPB Disclosure of Data
Lastly, the letter highlights issues relating to the CFPB’s proposed course of for figuring out the data that shall be disclosed to the general public. Somewhat than telling monetary establishments what info shall be made public earlier than the monetary establishment reviews the data to the CFPB, the CFPB proposes to gather information for one 12 months after which decide what info it is going to share.
Moreover, the CFPB plans to announce modifications and deletions to the info being shared by way of a coverage assertion. This course of raises issues as a result of the issuance of a “policy statement” doesn’t permit customers or monetary establishments to touch upon what info turns into public and basically the CFPB is “choosing to conduct major rulemaking through guidance.”
It’s encouraging to see that the issues we beforehand famous have been acknowledged by lawmakers, and we hope to see the CFPB take these and different issues below critical consideration as they work in direction of a remaining rule. The implementation of Part 1071 shall be troublesome and time-consuming, particularly for lenders who aren’t coated by monetary establishments below the Dwelling Mortgage Disclosure Act (HMDA) and don’t have present insurance policies and procedures designed to adjust to related reporting necessities. Within the meantime, all monetary establishments that supply small enterprise merchandise ought to stay knowledgeable in regards to the improvement of Part 1071’s implementing rules.