The Government Accountability Office has issued a report on the CFPB’s use of Small Business Regulatory Enforcement Fairness Act (SBREFA) panels in its rulemaking process. The report, “Observations from Small Business Review Panels,” addresses the extent to which the CFPB solicited, considered, and incorporated small entity inputs into rulemakings, and the views of small entity representatives (SER) on the rulemaking process.
The GAO looked at the CFPB’s rulemaking process and documents in the four final rulemakings for which the CFPB convened SBREFA panels, all of which were mortgage-related: TILA/RESPA integrated disclosure rule, mortgage servicing rule, mortgage loan originator compensation rule, and HMDA. (The CFPB has also convened SBREFA panels in connection with its proposed arbitration and payday lending rules, and will soon be convening a SBREFA panel in connection with its debt collection rulemaking.)
The GAO contacted all of the 69 SERs who participated on the SBREFA panels for the four final rulemakings and completed interviews with 57 SERs. (6 SERs declined to be interviewed and 6 SERs were unavailable for interviews during the GAO’s audit time frame.) In addition to the GAO’s specific findings, the report provides a detailed step-by-step description of the SBREFA process in the background section.
The report’s key findings include the following:
- The SBREFA process requires the panel to complete its report within 60 days after the panel is “convened.” The CFPB defines “convened” to mean the date on which the panel is formally established by the CFPB, SBA and OMB rather than the date of the panel meeting with the SERs. According to the report, in the earlier panels, the CFPB convened the panels shortly before or concurrently with providing SERs with materials. The SERs then had from 10 to 11 business days to review the materials before panel meetings. For the HMDA panel (the most recent panel reviewed by GAO), the CFPB provided SERs with materials 13 business days before convening the panel and held the panel meeting 5 business days after convening the panel, thereby giving SERs 18 business days to review the materials before the panel meeting. The CFPB also gave SERs time after the panel meetings to provide comments, with such additional time ranging from 5 to 10 business days.
- 13 of the 57 SERs stated that they felt the CFPB treated the process as a formality and 7 SERs felt the process was hindered by the CFPB’s lack of knowledge of the industry. For example, one SER stated that “CFPB staff did not have enough practical experience and during the panel meeting there was limited time to talk about the actual rule because the [SER] had to explain certain banking processes to CFPB.”
- 12 SERs stated that they needed more time to prepare for the panel.
- 10 SERs stated that the CFPB’s pre-meeting outreach could be improved by having the CFPB obtain more knowledge of industry practices before convening the panels. For example, one SER “believed CFPB was surprised by answers [SERs] provided to their questions because the agency lacked real world experience; the [SER] suggested CFPB do site visits with typical small entities to become better informed.”
- While 38 of the 57 SERs stated the CFPB had selected participants who represented their respective industries, most SERs on the mortgage loan originator compensation panel did not believe their industry was well represented.
- 17 SERs stated that they believed the CFPB considered their views in its rulemaking, 19 stated the CFPB partially considered their views, and 15 stated the CFPB did not consider their views. (6 said they did not know.)
- 7 SERs stated that they were satisfied with the CFPB’s final rules, 26 stated they were not satisfied, and 23 stated they were partially satisfied. (1 stated he or she did not know.)
The dissatisfaction of the SERs with the CFPB’s final rules suggests the CFPB is not giving sufficient weight to SERs’ input and is deserving of the criticism it received from SERs that the CFPB “treated the process as a formality.” According to the report, one of the SERs who expressed that criticism “said CFPB was good at following processes but felt it did not listen to input. He added that he felt CFPB’s mind was made up before the panel took place.”