The CFPB Director Expresses Concern About Section 1071 Regulatory Burdens on Small BanksAfter the Consumer Financial Protection Bureau (CFPB) issued their Notice of Proposed Rulemaking (NPRM) related to Dodd-Frank 1071, Rohit Chopra, the new CFPB director, expressed his concern regarding the regulatory burden that the proposed rule would have on small banks. Director Chopra stated that he hoped the CFPB could move towards bright-lined rules that are both easy to follow and enforce. He further expressed the importance of helping small banks remain successful, as opposed to forcing small banks into consolidation.

Director Chopra’s concerns stem from the NPRM’s definition of a “covered financial institution,” which did not include an asset-based exemption for banks. Currently, regardless of the size of the depository institution, the proposed rule will impose significant reporting obligations for any “financial institution” that meets the activity-based threshold – originating at least 25 credit transactions in each of the two preceding calendar years. As we previously discussed in our webinar, Section 1071 deals with the collection of credit application data for small businesses, including women-owned and minority-owned small businesses. Section 1071 will require lenders to report a number of data points, including the amount and type of small business credit applied for and extended; the race, ethnicity and sex of the small business owners; and several key elements of the price of the credit offered.

Takeaway

For many small banks, the complete elimination of an asset-based exemption in the NPRM came as a surprise, especially given the discussion of the exemption in the SBREFA Outline. However, Director Chopra’s statement certainly suggests that we may see an addition of the exemption in the final rule or potentially a softening of requirements for smaller depository institutions. We will continue to monitor the progress of the proposed rule during the comment period. Of course, if you have feedback, we certainly suggest that you work with your trade groups and attorneys to provide a comment on the NPRM.

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Photo of Christopher K. Friedman Christopher K. Friedman

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated…

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated sector. Chris focuses on both small business lenders and alternative business finance products and has helped non-bank small business lenders, banks who make small business loans, commercial credit counselors, lead generators, and others in the industry. He helps clients launch new products, conduct due diligence, engage in compliance reviews, evaluate litigation risk, and solve some of the unique legal problems faced by companies who work with small businesses. In that vein, Chris has written extensively about the upcoming rulemaking related to Dodd-Frank 1071, which will require data collection and reporting by companies making loans to certain small businesses.

Photo of Brian R. Epling Brian R. Epling

Brian Epling assists financial services clients, including small dollar lenders, auto finance companies, and mortgage servicers, with navigating regulatory compliance and litigation issues.

On the regulatory compliance side, Brian has assisted financial services clients with policies and procedures to comply with state and…

Brian Epling assists financial services clients, including small dollar lenders, auto finance companies, and mortgage servicers, with navigating regulatory compliance and litigation issues.

On the regulatory compliance side, Brian has assisted financial services clients with policies and procedures to comply with state and federal law and investor requirements. With respect to litigation, practicing in both Tennessee and Kentucky, Brian has successfully argued dispositive motions and appeals involving alleged violations of the Truth in Lending Act, Real Estate Procedures Act, and Fair Debt Collection Practices Act. Additionally, he has represented auto finance companies in administrative matters against the state. View articles by Brian.

Photo of Beryl Newchurch Billings Beryl Newchurch Billings

Beryl Billings is an associate in the Banking and Financial Services Practice Group.

Beryl received her J.D. from the University of Tennessee College of Law. While in law school, she was a judicial intern for the Hon. R. David Proctor of the United…

Beryl Billings is an associate in the Banking and Financial Services Practice Group.

Beryl received her J.D. from the University of Tennessee College of Law. While in law school, she was a judicial intern for the Hon. R. David Proctor of the United States District Court for the Northern District of Alabama. She earned a B.S. in Political Science from Spring Hill College, where she was captain of the women’s soccer team and served as president of the Student Athletics Advisory Committee.