Rulemaking process for small business lending data still a ways off, report to advisory groups indicates

The date of the issuance of a controversial final rule on small business lending data collection and reporting is “to be determined,” but it will be well into the administration of the new president and likely under a new director of the federal consumer financial protection agency, according to a timetable presented to advisory groups to the agency.

In the joint meeting of the advisory groups to the Consumer Financial Protection Bureau (CFPB) – which included the Consumer Advisory Board (CAB), Community Bank Advisory Council (CBAC), and Credit Union Advisory Council (CUAC) – staff for the agency presented the timetable for the final rule. It would implement section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), which amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, report, and maintain data regarding applications for credit for women-owned, minority-owned, and small businesses.

But the agency has been in the process of developing a final rule since at least as early as May 2017 – which included a two-year “request for information.” According to a “rulemaking roadmap” issued for Tuesday’s joint meeting of the advisory groups, the next action on the proposal was not until November 2019, when the bureau sponsored a symposium on the subject.

Under the 2010 law, the CFPB is charged with prescribing “such rules and issue such guidance as may be necessary to carry out, enforce, and compile data pursuant to this section” under the Dodd-Frank law.

Last February, a settlement was reached between the CFPB and a California group which had sued the agency in federal court arguing the bureau had failed to issue the rules. Under the terms of the court-approved agreement, the CFPB agreed to a court-supervised process that includes public reporting and specific timetables for the development of the regulation.

But it remains unclear when the rulemaking process will begin – except that it won’t likely begin until the administration of President-elect Joseph Biden in mid-January. (Biden is also widely expected to replace current CFPB Director Kathleen Kraninger.)

By mid-December, the bureau must release a report on input from small businesses that are likely to be directly affected by the information collection regulation. Following that, the bureau is required to negotiate with the plaintiffs in the lawsuit (the California Reinvestment Coalition [CRC]) to establish a deadline for issuing a notice of proposed rulemaking (NPRM). Once the NPRM comment period ends, the bureau must negotiate with the CRC to set a deadline for issuing the final rule. An effective date will also be outlined in the final rule.

Some have estimated the process to take up to 2.5 years.

In the presentation Tuesday, bureau staff outlined a number of proposals under consideration for an NPRM, including:

  • Scope of the rulemaking.
  • Covered lenders – definition of “financial institution.”
  • Covered applicants – definitions of “small business,” “women-owned business,” “minority-owned business,” and “minority individual.”
  • Covered products – definition of “credit.”
  • Definition of “application.”
  • Data points (mandatory and discretionary).
  • Shielding data from underwriters and other persons (firewall).
  • Applicants’ right to refuse to provide certain information.
  • Compiling, maintaining, and reporting 1071 data to the bureau.
  • Privacy considerations involving bureau publication of 1071 data.
  • Implementation period.

The rulemaking is itself controversial. On the one hand, those advocating robust reporting requirements argue that availability of more data will help women- and minority-owned small businesses access the capital they need. On the other hand, those opposing the reporting claim financial institutions will not take on the cost of complying with burdensome reporting requirements to borrowers.