After 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.
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.