December 15, 2020

NAFCU reiterates call to exclude CUs from small biz data collection rule

CFPBIn response to the CFPB's outline of proposals to implement section 1071 of the Dodd-Frank Act requiring financial institutions to collect and report data related to small business lending, NAFCU reiterated its call to exclude credit unions from the rulemaking noting the member business lending constraints credit unions face and the increased costs to implement the data collection.

The outline of proposals, required by the Small Business Regulatory Enforcement Fairness Act (SBREFA), was released in September and explains the scope of proposed rule, various definitions for financial institutions and applications, products covered, potential data points, data privacy considerations, the rulemaking's potential impact on small entities, and the impact on cost and availability of credit to small entities.

While NAFCU has consistently urged the bureau to exempt credit unions from a rulemaking on this issue as it will add significant regulatory burdens on small institutions, the outline of proposals did not include this explicit exemption. However, other combinations of exemptions are under consideration, including whether to combine size- and activity-based approaches to possible collection and reporting exemptions for financial institutions.

NAFCU Senior Counsel for Research and Policy Andrew Morris, in the letter sent to the bureau Monday, highlighted credit unions' support for promoting access to small business credit on fair and equitable terms.

"However, there is widespread concern that the complexity of section 1071 data collection and the accompanying burden of adopting new compliance systems will lead to less favorable outcomes for borrowers," Morris wrote. "In response to a future section 1071 rulemaking, credit unions may need to raise fees and some could exit the small business lending market entirely."

Morris details NAFCU's and credit unions' feedback and concerns – recommending clarifications and changes to avoid unnecessary burden in any future proposal – related to several provisions of the potential rulemaking, including for covered applicants, the definition of small business, covered institutions, covered products, definition of application, mandatory data points, discretionary data points, assumptions for ongoing compliance costs, underwriting firewall, borrower privacy and future balancing test, and implementation period.

In addition, Morris argued that the bureau has not considered the opportunity cost of lost business should application processing slow considerably due to reliance on manual systems for small business data collection.

Morris also asked the bureau to delay the rulemaking timeline by at least a year and to issue a request for information in 2021 before proceeding further to better capture a more normal range of economic conditions and assumptions.

Should the bureau proceed with the rulemaking, Morris urged the agency to provide a more transparent assessment of exemptive relief options using expanded transactional and asset-based thresholds.

The SBREFA panel met in October to discuss the outline of proposals. The bureau's fall rulemaking agenda indicated that a report from the panel is set to be released yet this month.