On February 22, 2022, the CFPB submitted its eighth status report with the California Federal District Court hearing the lawsuit brought by the California Reinvestment Coalition, the National Association for Latino Community Asset Builders, and two individual plaintiffs in 2019. The purpose of the lawsuit was to force the Bureau to release a proposal implementing small business data requirements of Section 1071 of the Dodd-Frank Act of 2010 after years of delay.
The status report reiterates that the CFPB has met the deadlines to date under the stipulated settlement agreement with the plaintiffs, including the release of the draft Small Business Regulatory Enforcement Fairness Act (“SBREFA”) ) on September 15, 2020; convene a SBREFA panel on October 15, 2020; and complete the SBREFA report by December 14, 2020. More recently, the Bureau met the deadline for publishing the Section 1071 notice of proposed rulemaking (NPRM), which was scheduled to be released on September 30, 2021, but released slightly earlier on September 1, 2021. The status report indicates that the comment period on the NPRM ended on January 6, 2022, the Board is currently reviewing the approximately 2,100 comments that have been submitted, and the Bureau will discuss with claimants an appropriate timeline for the issuance of a final rule.
The regulations of section 1071 of the CFPB are the subject of a letter dated February 16, 2022 sent to Director Chopra by three Republican congressmen: Blaine Luetkemeyer, Roger Williams and French Hill. In the letter, the lawmakers:
- Argue that the thresholds for the NPRM’s activity-based exemption and small business definition are too stringent and “would significantly impact the ability of small institutions to lend to small businesses and reduce access to Credit for Minority-, Women- and Small-Business-Owned Small Businesses”. businesses.” (In the NPRM, the CFPB proposes an activity-based exemption that would exempt financial institutions that originate less than 25 “covered credit transactions” to “small businesses” in each of the two preceding calendar years. It also proposes to define a “small business” as a business whose gross annual revenue was $5 million or less for its preceding fiscal year.)
- Seek a longer implementation period for the final rule than the 18-month period proposed in the NPRM.
- Request the removal of the NPRM requirement for a financial institution, if an applicant does not provide information on the ethnicity, rate or gender of at least one primary owner, to collect the race and ethnicity of ‘at least one primary owner (but not gender) by visual observation and/or last name if the financial institution meets with the primary owners in person (including meetings via electronic media with a video component enabled.)
- Seek a decision from the CFPB in a separate regulation regarding what information collected under Section 1071 will be made public. (Section 1071 requires publication of collected data but gives the Bureau the power to “delete or modify” data to be made public if the Bureau determines that deletion or modification would advance privacy interests. NPRM, the Bureau said it would issue a policy statement outlining changes and deletions that would be made to data after a full year of Section 1071 reporting.)
Lawmakers also introduced the following three bills to address concerns expressed in their letter to Director Chopra:
- Small lenders exempt from new data and excessive reporting law, HR 6732. The bill would create an activity-based exemption that would exempt financial institutions that made less than 500 “covered credit transactions” to “small businesses” in each of the previous two calendar years, would define a “small business” such as one that had $1 million or less in gross annual revenue for its prior fiscal year, and create a 3-year implementation period for a final rule.
- Business Loan Confidentiality Act, HR 6739. The bill would require the Bureau to engage in developing rules to establish what changes and deletions it will make to Section 1071 data and how those changes and deletions will advance a privacy interest.
- Prevention of Racial Profiling in Lending Act, HR 6802. The text is not yet available. However, according to a letter to the three legislators from the Independent Community Bankers of America In support of all three bills, the bill seeks to prevent the Bureau from requiring a financial institution to collect race and ethnicity information based on visual observation and/or Last name.