WASHINGTON—Concerns over the CFPB’s proposed rule under section 1071, as well as support for legislation to provide member business cap lending relief for credit unions have been expressed in a letter from NAFCU to the House Financial Services Subcommittee on Consumer Protections and Financial Institutions.
The letter was sent ahead of its hearing on small and minority-owned businesses.
In addition, NAFCU Vice President of Legislative Affairs Brad Thaler also shared the trade association’s concerns on new legislative proposals before the subcommittee, pointing out the effect they could have on credit unions trying to help small business members.
“These bills could end up removing flexibility for credit unions and increase their regulatory compliance burdens, making it harder to help small businesses,” wrote Thaler. Instead, the association suggests focusing legislation on increasing access to funding for small businesses and granting temporary relief from the arbitrary cap on credit union member business lending (MBL), such as the Access to Credit for Small Businesses Impacted by the COVID-19 Crisis Act.
Thaler urged the committee to support the Member Business Loan Expansion Act as well as the Expanding Access for Underserved Communities Act, both of which would substantially help small businesses, according to NAFCU.
Section 1071
Meanwhile, NAFCU also shared concerns around section 1071, which would require 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 small business credit application data, including data related to the ethnicity, race, and sex of small business applicants’ principal owners.
Thaler said the CFPB to establish a clear threshold for exempting smaller community leaders under section 1071, stating that “the proposed 25 loan threshold is far too low and would unjustifiably impact many smaller lenders.”
Other Points Raised
Other points raised in the NAFCU letter include:
- The proposed rule’s definition of small businesses, which defines any businesses with prior-year gross annual revenue of five million or less, is far too broad and would raise the cost of small business borrowing, NAFCU suggests lowering the revenue threshold to one million under this definition
- While the CFPB does define covered credit transactions under the proposed rule, it does not exempt loans under the de minimis definition of MBL found in the Federal Credit Union Act (FCU Act); since the NCUA does not require credit unions to report these loans as MBLs, subjecting non-MBL loans to section 1071 coverage could affect the availability of these loans due to increased compliance costs, NAFCU stated.
- The proposed rule’s 18-month mandatory compliance deadline is aggressive even for the largest financial institutions, especially for credit unions, NAFCU instead urges the CFPB to extend the compliance deadline to more than 36 months after the final rule is issued