WASHINGTON–In separate comment letters, both CUNA and NAFCU have expressed concerns to the CFPB over its section 1071 Proposed Rule, which would require both credit unions and CUSOs that originated at least 25 covered small business credit transactions in each of the two preceding calendar years to collect and report certain small business credit application data.
The two trade groups also submitted a joint response to the proposed rule sharing concerns.
The proposed rule seeks to amend the Equal Credit Opportunity Act (ECOA).
“As community-based financial institutions, credit unions were designed to meet the needs of their local communities. They have a vested interest in helping the small businesses they serve in ways that are equitable and fair,” wrote Elizabeth Eurgubian, CUNA’s deputy chief advocacy officer and senior counsel. “We urge the Bureau to keep the proposed rule as manageable and tailored as possible so that financial institutions of all sizes can continue to deliver to their customers with minimal impact to small business borrowers.”
Eirgibian said CUNA supports the goals of Section 1071 to ensure fair and equitable financial opportunities, but the trade group “cautions against overly broad data collection which could present unintended consequences to community institutions and present substantial compliance costs. Additionally, data collected from credit unions with restricted field of memberships would be inconsistent with lenders that serve a broad consumer base.”
Recommendations Offered
Among the recommendations made to the CFPB by CUNA:
- Increase the covered financial institution threshold to at least 500 covered credit transactions in each of the two preceding calendar years and create a size-based exemption for entities of $600 million assets or less
- Reduce the gross annual revenue threshold used to determine which businesses are “small businesses” for purposes of the rule to no more than $1 million in gross annual revenue in the preceding fiscal year
- Exempt several types of credit transactions from the definition of covered credit transactions, including agriculture-purpose credit, HMDA-reportable transactions, consumer-designated credit, loans under $50,000, and government guaranteed loans
- Exclude credit line increases from the definition of covered application for purposes of the rule
- Consider the firewalling requirement’s potential for negative impacts on smaller lenders serving business borrowers
- Reduce the section 1071 data set to only data points that are statutorily required and avoid unnecessary discretionary data points
- Rescind the requirement for covered financial institutions to conduct a visual observation and surname analysis on applicants declining to provide responses to demographic questions
- Consider the privacy and reidentification concerns in finalizing the rule and conduct a notice and comment period on the Bureau’s “balancing test” for publication of 1071 data
- Adopt a phased mandatory compliance schedule that begins no sooner than three years following the issuance of a final rule
NAFCU ‘Unequivocally Opposes’ Proposal
Meanwhile, in its comment letter, NAFCU Regulatory Affairs Counsel Dale Baker wrote, "NAFCU unequivocally opposes the Bureau’s adoption of any regulation or examination practice that operates to require that any individual make any visual observation concerning any protected demographic information or similarly sensitive data of a small business applicant’s owners.”
NAFCU offered a number of suggestions to the CFPB, including:
- The CFPB should establish a 500 loan-volume threshold for covered financial institutions
- The bureau should also adopt a small business definition based on a $1 million prior-year gross annual revenue threshold
- The CFPB should establish a de minimis threshold that tracks the NCUA Call Report threshold of $50,000.
“NAFCU strongly encourages the Bureau to adopt common sense definitions, right-sized thresholds, a reasonable, phased mandatory compliance schedule, and other changes to the Proposed Rule that protect small businesses’ access to affordable, high-quality credit from trusted, in-community credit unions,” wrote Baker.