Members of Congress Respond to Dodd Frank’s Significant Concerns 1071

On February 16, 2022, lawmakers Blaine Luetkemeyer, French Hill and Roger Williams submitted a letter to Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra raising concerns about the regulation of Section 1071 of the Dodd Act -Frank from the office.

As discussed, the CFPB issued its Notice of Proposed Rulemaking (NPRM) under Section 1071 on September 1, 2021. The comment period for this new rule ended on January 6, 2022. During during this period, the CFPB received more than 2,000 comments. This letter responds to feedback received and focuses on four issues we highlighted in a previous NPRM webinar: (1) impact on small financial institutions, (2) timeframe for implementation, ( 3) rules that contradict the law; and (4) the process that the CFPB intends to use to determine what information it will disclose to the public.

Burden on small financial institutions

The letter first outlines the significant burdens the proposed rules would impose on small financial institutions. This is not surprising as even Director Chopra has commented on the regulatory burden the proposed rule will have on smaller banks.

The proposed thresholds require financial institutions to report data if the institution originated at least 25 small business covered credit transactions in each of the past two years. A “small business” would be defined as having gross annual revenue of $5 million or less for the previous year. A “covered credit transaction” would include loans, lines of credit, credit cards and merchant cash advances.

The letter says the proposed reporting thresholds “are far too stringent,” which “would significantly impact the ability of small institutions to lend to small businesses and reduce access to credit for small businesses owned by minorities, to women and to women. ”

Implementation period

As currently drafted, the proposed rule gives financial institutions 18 months after the publication of the final rule to implement the rule. The letter highlights the significant impact the new rule will have on nearly all financial institutions and calls for more time for implementation. According to the letter, 18 months is not enough to train staff and “develop the appropriate systems to carry out this complex regulation which will cover several credit products”.

Conflicting reporting requirements

A question raised regarding conflicting language in the rule versus the law should be of particular concern to all those affected by the new rule: while the law allows borrowers to decline to provide information about race, gender or ethnic origin, the CFPB proposes that “[i]f a candidate does not provide any information about the ethnicity, race or gender of the principal owners. . . the financial institution must collect the race and ethnicity (but not the gender) of at least one primary cardholder by visual observation or surname, . . . whether the financial institution meets with principal owners in person or via electronic media with a video component enabled. »

In addition to the contradiction between the wording of the law and the proposed rule violating the claimant’s right not to submit information, the letter points out that such a process would be based “on racial stereotypes and generalizations and render all 1071 tainted and inaccurate information”. The letter notes that loan officers should focus on the creditworthiness of the borrower, not on becoming experts in determining the race or ethnicity of individuals. This guessing game would also violate the proposal to create a “firewall” to separate race, ethnicity and gender information from “financial institution personnel involved in making any decision related to the application.” “.

CFPB Information Disclosure

Finally, the letter outlines concerns about the CFPB’s proposed process for determining what information will be released to the public. Rather than telling financial institutions what information will be made public before the financial institution reports it to the CFPB, the CFPB proposes to collect data for a year and then determine what information it will share.

Additionally, the CFPB plans to announce changes and deletions to shared data via a policy statement. This process raises concerns because issuing a “policy statement” does not allow consumers or financial institutions to comment on information that becomes public and, in essence, the CFPB “chooses to pursue major regulation through directions”.

Take away food

It is encouraging to see that the concerns we noted earlier have been acknowledged by lawmakers, and we hope to see the CFPB take these and other concerns seriously into consideration as they work toward a final rule. Implementing Section 1071 will be difficult and time consuming, especially for lenders who are not covered by financial institutions under the Home Mortgage Disclosure Act (HMDA) and who do not have policies and existing procedures designed to comply with similar reporting requirements. In the meantime, all financial institutions that offer small business products should stay informed of the evolving regulations implementing Section 1071.

© 2022 Bradley Arant Boult Cummings LLPNational Law Review, Volume XII, Number 80

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