Rule 1071 is in Need of Changes

by U.S. Rep. French Hill

The Consumer Financial Protection Bureau (CFPB) is moving forward with a rulemaking that should concern small banks and lenders across Arkansas.

The CFPB, under the leadership of Chairman Rohit Chopra, is working on a small business data collection rule, commonly referred to as “Rule 1071,” that will require lenders to collect and report data on credit applicants. While the rulemaking’s intent has merit – ensuring all Americans regardless of race, ethnicity, or gender have access to capital and credit – CFPB’s onerous reporting requirements will hurt small businesses by making the cost of credit more expensive and impose significant compliance costs on smaller companies, especially those owned by women and minorities.

The comment period for the rulemaking closed on January 6, 2022, and the CFPB received over 2,100 comments on its proposed rule with several organizations voicing their concerns with CFPB’s costly and excessive compliance standards, specifically with the proposed timeline for implementation and the proposed definitions for “financial institutions” and “small business.” I share these concerns and that’s why I introduced H.R. 6732, the Small LENDER Act, alongside Rep. Blaine Luetkemeyer (MO-03) and Rep. Roger Williams (TX25) to protect small banks and lenders from the CFPB’s overreach.

In their comments on CFPB’s proposal, the American Bankers Association expressed concern with CFPB’s definition of a “credit institution” as one that originates 25 transactions, stating, “The proposed 25-loan threshold is much too low and would force many community banks to raise prices, set minimum loan amounts, or even exit banking entirely to avoid the costs of the 1071 rule.” I agree. This is far too

“The Proposed Rule’s 18-month mandatory compliance schedule would be aggressive even for the largest most technologically savvy credit unions. [T]he vast majority of credit unions likely to be covered financial institutions under the Proposed Rule will be forced to rely on multiple IT vendors to develop, redeploy, and cross-test section 1071-compliant small business lending programs and tools.” Our bill extends the compliance date with the final rule to be three years after publication in the Federal Register, plus a two-year grace period, instead of the 18-month implementation period in CFPB’s rule.

Too often, one-size-fits-all rulemakings from Washington have a detrimental impact on small and local lenders. Having been involved in community banking on narrow of a definition, which is why my bill would change the definition of “financial institution” as one that originates at least 500 covered transactions in each of the last two years, as opposed to the 25-transaction threshold proposed in the rulemaking.

Additional commenters expressed concern with the CFPB’s proposal to codify “small business” as one with revenues of $5 million or less. In their comments, The Credit Union National Association said, “This threshold would unreasonably classify some clearly large businesses as small for purposes of the rule and vastly increase the size of 1071 data collection, the risk to data privacy, and the costs associated with compliance for covered financial institutions.” The Hill, Williams, Luetkemeyer bill codifies “small business” as one with gross annual revenues of $1 million or less in the last year instead of $5 million or less as defined in CFPB’s rule.

In regard to the 18-month timeline for implementation of the rule, The National Association of Federally-Insured Credit Unions expressed their concern, stating and off for 40 years, I’ve seen first-hand how important access to capital is for small businesses. It is the lifeblood of our local communities and smaller lenders often lead the way in investing in the neighborhoods they serve. We should be making it easier for small banks and lenders to invest in our local businesses, not harder. While the comment period has closed, I encourage you to continue to make your voices heard and express your concerns to the leadership at CFPB as they move forward with their final rulemaking.

ABOUT THE

Author

U.S. Rep. French Hill, R-Little Rock, represents the 2nd Congressional District of Arkansas. He is a former banker and U.S. Treasury official.