March 29, 2023

NAFCU rep tells lawmakers consequences of 1071 rulemaking

House Small Banking Committee Chairman Roger Williams and Mike Wilson
NAFCU witness and Members 1st Federal Credit Union Chief Experience Officer Mike Wilson (right) with House Small Business Committee Chairman Roger Williams, R-Texas, before Tuesday's hearing on the implications of the CFPB's section 1071 rulemaking.

NAFCU representative Mike Wilson, chief experience officer of Members 1st Federal Credit Union (Enola, Pa.), told lawmakers Tuesday how the CFPB’s section 1071 rulemaking could negatively impact credit union small business lending. Wilson was the only credit union witness on the panel before the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access.

In his testimony, Wilson touted Members 1st’s member business lending, which loaned $350 million to small businesses last year. He also stressed that the credit union strives to provide extreme member service “because it’s the right thing to do for the communities we serve,” not because it’s required by law.

Responding to questions from lawmakers, Wilson noted the extensive training and investment that would have to be made to implement the rulemaking requirements – adding that costs would likely be passed on to consumers in some form – as well as the sensitive and “uncomfortable” position some employees may be put in to provide required demographic data.

Wilson on the hearing panel“It’s not something that we want to put our entry-level associates in that situation of having to guess, whether it’s in-person or over the phone, it’s just not right. In addition to that, it could seriously compromise the data if they’re wrong based on assumptions,” Wilson said.

While NAFCU and credit unions are supportive of the CFPB’s goal to increase lending to women-owned and minority-owned small businesses, Wilson outlined concerns with the bureau’s proposed section 1071 rulemaking – which is expected to be finalized in the coming days – including:

  • the definition of covered financial institution, which sets a low reporting threshold of 25 loans and “could drive smaller lenders out of small business lending due to the compliance costs that won’t be worth it if they do a small volume.” Wilson highlighted that the CFPB has acknowledged the significant compliance costs that could drive some credit unions out of small business lending;
  • the small business definition, which does not offer a de minimis threshold to exclude some covered credit transactions from a financial institution’s loan-volume threshold. Wilson recommended the CFPB recognize credit unions’ member business loan (MBL) cap de minimis of $50,000 to protect small businesses’ access to affordable, high-quality small dollar loans;
  • protected demographic information and visual observation requirements, which could threaten the integrity of data and “add unnecessary friction to small business relationships and give rise to avoidable, unreasonable fair lending risks;”
  • one-time and ongoing compliance costs; and
  • the 18-month mandatory compliance schedule, which “would be aggressive even for the largest, most technologically savvy credit unions.” Wilson reiterated NAFCU’s call for a phased mandatory compliance schedule to begin three years after the rule is finalized to give covered institutions time to implement necessary programs and tools.
Wilson shaking hands with Rep. Dan Meuser, R-Pa.
Wilson shaking hands with Rep. Dan Meuser, R-Pa., chairman of the House Small Business Subcommittee on Economic Growth, Tax and Capital Access.

Subcommittee Chairman Dan Meuser, R-Pa., shared similar concerns about the bureau’s small business lending data collection rulemaking imposing “burdensome new reporting requirements that would harm small business lending” and adding “an even larger regulatory cost burden to these small financial institutions,” as well as creating racial profiling concerns.

Throughout the hearing, other subcommittee members echoed these sentiments, with some also discussing the need for data to better inform policy and ways to reach underserved communities. All witnesses agreed that the section 1071 rulemaking would be costly and difficult to implement while harming relationship banking that could put credit unions and other small, community-based financial institutions at a competitive disadvantage.

NAFCU will continue to share concerns about the section 1071 rulemaking with the CFPB and lawmakers and advocate for relief for credit unions under the rule. Stay tuned to NAFCU Today for updates.