ABA: CFPB Section 1071 Proposal Is ‘Unnecessarily Far-Reaching’

While expressing support for fair lending laws and regulations, ABA and the state bankers associations yesterday raised concerns about the CFPB’s long-awaited proposed rule to implement Section 1071 of the Dodd-Frank Act, which concerns the collection of credit application data for small businesses, including women-owned and minority-owned small businesses. In an extensive comment letter, the associations said that the costs of the proposed rule could have significant effects, particularly on smaller banks and their small business customers, and recommended a broader exemption for small institutions.

“The proposed rule’s scope is unnecessarily far-reaching; it would exempt very few community banks, define small businesses so broadly as to include tens of thousands of large businesses, and require institutions to collect and report data on numerous data points in addition to the congressionally required data points,” they wrote. “All of these actions combine to negatively impact community banks and their customers, in stark contrast to Director Chopra’s assertions of support for community banks and relationship banking.”

Specifically, the associations called for banks making no more than 500 small business loans in the two preceding years to be exempt from the data collection requirements, and also recommended defining a “small business” for the purpose of the rule as one with gross annual revenue of $1 million or less, rather than $5 million or less as proposed. In addition, the associations urged the CFPB not to require the collection of data points that were not specifically mandated by Congress, and opposed a requirement for lenders to identify the race and ethnicity of business owners “by visual observation or surname” if they decline to provide that information.

ABA also raised concerns about the rule’s potential to affect the privacy of small businesses—noting that business could be easily re-identified when the data is released to the public, as required by law—and called for a separate rulemaking regarding the modification or deletion of data prior to it becoming public. Finally, with regard to implementation, the groups called for a three-year timeline, rather than the proposed 18-month implementation period.