On February 22, 2022, the CFPB filed its eighth status report with the California federal district court hearing the lawsuit brought by the California Reinvestment Coalition, National Association for Latino Community Asset Builders, and two individual plaintiffs in 2019. The purpose of the suit was to force the Bureau to issue a proposal implementing the small business data requirements of Section 1071 of the Dodd-Frank Act of 2010 after years of delay.
The status report reiterates the fact that the CFPB has met the deadlines to date under the Stipulated Settlement Agreement with the plaintiffs, including issuing the Small Business Regulatory Enforcement Fairness Act (“SBREFA”) outline on September 15, 2020; convening a SBREFA panel on October 15, 2020; and completing the SBREFA report on December 14, 2020. Most recently, the Bureau met the deadline for issuance of the Section 1071 notice of proposed rulemaking (NPRM), which was due on September 30, 2021, but published slightly earlier on September 1, 2021. The status report indicates that the comment period on the NPRM closed on January 6, 2022, the Bureau is currently reviewing the approximately 2,100 comments that were submitted, and the Bureau will confer with the plaintiffs regarding an appropriate deadline for issuing a final rule.
The CFPB’s Section 1071 rulemaking is 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:
- Assert that the thresholds for the NPRM’s activity-based exemption and small business definition are too stringent and “would drastically impact the ability of small institutions to make loans to small businesses and decrease access to credit for minority-owned, women-owned, and small businesses.” (In the NPRM, the CFPB is proposing 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 is also proposing to define a “small business” as one that had $5 million or less in gross annual revenue for its preceding fiscal year.)
- Seek a longer implementation period for the final rule than the 18-month period proposed in the NPRM.
- Seek the removal of the requirement in the NPRM for a financial institution, if an applicant does not provide any ethnicity, rate, or sex information for at least one principal owner, to collect at least one principal owner’s race and ethnicity (but not sex) via visual observation and/or surname if the financial institution meets in person with any principal owners (including meetings via electronic media with an enabled video component.)
- Seek a determination by the CFPB in a separate rulemaking regarding what information collected pursuant to Section 1071 will be made public. (Section 1071 requires publication of the data collected but gives the Bureau authority to “delete or modify” data to be made publicly available if the Bureau determines the deletion or modification would advance privacy interests. In the NPRM, the Bureau indicated that it would issue a policy statement outlining what modifications and deletions would be made to the data after one full year of Section 1071 reporting.)
The lawmakers also have introduced the following three bills to address the concerns set forth in their letter to Director Chopra:
- Small Lenders Exempt from New Data and Excessive Reporting Act, H.R. 6732. The bill would create an activity-based exemption that would exempt financial institutions that originate less than 500 “covered credit transactions” to “small businesses” in each of the two preceding calendar years, define a “small business” as one that had $1 million or less in gross annual revenue for its preceding fiscal year, and create a 3-year implementation period for a final rule.
- Business Loan Privacy Act, H.R. 6739. The bill would require the Bureau to engage in rulemaking to establish the modifications and deletions it will make to Section 1071 data and how such modifications and deletions will advance a privacy interest.
- Preventing Racial Profiling in Lending Act, H.R. 6802. The text is not yet available. However, according to a letter to the three lawmakers from the Independent Community Bankers of America in support of the three bills, the bill is intended to block the Bureau from requiring a financial institution to collect race and ethnicity information based on visual observation and/or surname.