WASHINGTON—NAFCU and CUNA are warning a proposed regulation from the CFPB could lead to increased compliance costs for credit unions.
In response to the CFPB's outline of proposals to implement section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and report data related to small business lending, NAFCU repeated its call for credit unions to be excluded from the rulemaking, pointing to the member business lending constraints credit unions face and the increased costs to implement the data collection.
The outline of proposals, required by the Small Business Regulatory Enforcement Fairness Act (SBREFA), was released in September and explains the scope of proposed rule, various definitions for financial institutions and applications, products covered, potential data points, data privacy considerations, the rulemaking's potential impact on small entities, and the impact on cost and availability of credit to small entities.
While NAFCU said it has consistently urged the Bureau to exempt credit unions from a rulemaking on this issue as it will add significant regulatory burdens on small institutions, the outline of proposals did not include this explicit exemption, NAFCU explained.
“However, other combinations of exemptions are under consideration, including whether to combine size- and activity-based approaches to possible collection and reporting exemptions for financial institutions,” NAFCU explained.
CUs Could ‘Exit’ Market
NAFCU Senior Counsel for Research and Policy Andrew Morris, in a letter sent to the Bureau, said CUs support small business credit on fair and equitable terms, but added, "However, there is widespread concern that the complexity of section 1071 data collection and the accompanying burden of adopting new compliance systems will lead to less favorable outcomes for borrowers. In response to a future section 1071 rulemaking, credit unions may need to raise fees and some could exit the small business lending market entirely."
Morris shared these concerns in a previous CUToday.info report.
Morris’ letter details NAFCU's and credit unions' feedback and concerns – recommending clarifications and changes to avoid unnecessary burden in any future proposal – related to several provisions of the potential rulemaking, including for covered applicants, the definition of small business, covered institutions, covered products, definition of application, mandatory data points, discretionary data points, assumptions for ongoing compliance costs, underwriting firewall, borrower privacy and future balancing test, and implementation period.
Lost Opportunity Costs
In addition, Morris argued that the Bureau has not considered the opportunity cost of lost business should application processing slow considerably due to reliance on manual systems for small business data collection.
Morris also asked the Bureau to delay the rulemaking timeline by at least a year and to issue a request for information in 2021 before proceeding further to better capture a more normal range of economic conditions and assumptions.
CUNA’s Comment
In its letter to the Bureau, CUNA expressed support for the goals of section 1071, but added, “As community-based financial institutions, the section 1071 data collection will likely add substantial strain on credit unions’ finite compliance resources but provide an unknown tangible benefit It is important for the Bureau to keep its rule as simple and tailored as possible to avoid creating unintended barriers for small business borrowers seeking credit while also ensuring community lenders can maintain the privacy of their members’ data.”
CUNA told the CFPB that despite special commercial lending limitations, credit unions have a history of supporting businesses in distresses economic times, including last decade’s recession and the current pandemic.
Other Points Raised
Other points made in the letter r include:
- CUNA, in addition to supporting an exemption for all credit unions, would also support the Bureau’s plan to provide exemptions for smaller lenders based on size and activity. CUNA called on the Bureau to take a hybrid approach and adopt both a size-based exemption and an activity-based exemption
- The CFPB should limit its data set to data points that are statutorily required, and not add discretionary data points. The CFPB could revisit its data set in the future and build out additional data points should they be found to be necessary
- CUNA cautioned the CFPB against aligning the annual reporting dates for section 1071 with the reporting dates for the Home Mortgage Disclosure Act, as for many mandatory reporters, complying both at the same time could strain finite compliance resources
- CUNA noted privacy concerns about broad collection of financial data about consumers that could be used in ways not intended by the Dodd-Frank Act