Today, House Republicans will vote on S.J.Res. 32, expressing our disapproval of the Consumer Financial Protection Bureau’s (CFPB) burdensome and overly complex final rule implementing Section 1071 of the Dodd-Frank Act. This legislation ensures that the CFPB rule does not take effect and that small businesses are able to maintain access to affordable credit to support and grow our economy.
MAKE NO MISTAKE: House Republicans will always fight to protect America’s small businesses, which are the backbone of our economy, from unnecessary bureaucratic red tape that hampers economic growth.
FACTS ABOUT S.J.RES. 32 (Courtesy of House Financial Services Committee): Top Line: Republicans are fighting to protect small businesses, the backbone of our economy, by rescinding the CFPB’s burdensome and overly complex final rule implementing Section 1071 of the Dodd-Frank Act.
Section 1071 – a remnant of the Dodd-Frank Act enacted more than a decade ago – is an attempt by the CFPB to collect and publish information on small businesses and small business lenders with the intent to facilitate the naming and shaming of lenders whose business activities are unfavorable to the progressive left.
By overturning the final 1071 rule, Congress will force the CFPB to reengage small businesses and their lenders to create a rule that is better tailored to their concerns and less likely to reduce the availability of credit.
The 1071 rule will be difficult to comply with and asks for information beyond what is necessary to encourage fair and impartial lending.
What does Section 1071 do?
The final 1071 rule goes well beyond the CFPB’s statutory authority to require small business lenders to collect and report onerous amounts of information, ultimately limiting small businesses’ access to credit.
What is the impact of 1071? The final rule implementing Section 1071 is overly broad. Despite the CFPB removing a controversial provision requiring lenders to use visual observation or surname to provide a business loan applicant’s race and ethnicity data, the final 1071 rule remains overly broad in what it considers a small business and a covered transaction.
The rule’s definition of small business as any business with $5 million or less in annual gross revenue does not align with SBA definitions, which vary by North American Industry Classification System Code (NAICS). This threshold is too low and the inconsistency with SBA definitions creates further confusion for lenders.
Similarly, the CFPB rule’s definition of “covered transactions” includes credit card accounts and even requests for increases to lines of credit.
It will be difficult to implement. There are also concerns over the short timeframe for lenders to create necessary compliance systems.
The rule itself is nearly 900 pages and requires lenders to report 81 data fields. Developing compliance systems to achieve this will be costly for firms, and the artificially tight timeline the CFPB imposes will only exacerbate such concerns. Each hour that the rule demands a lender to spend on overly broad data demands is an hour not devoted to ensuring credit is available and affordable for small businesses.
The CFPB’s compliance timeline provides insufficient time for firms to develop the necessary systems to adhere to such a complex and onerous rule.
It is unclear what CFPB intends to do with its overly expansive data demands. The CFPB’s recent history with “name and shame” tactics validates lenders’ concerns that the CFPB and activists will automatically view low response rates as a sign of nefarious lender behavior. Firms will likely feel compelled to expend significant resources to ensure that small businesses respond to burdensome and often unnecessary CFPB information demands.
A February unauthorized major data breach by a CFPB employee further underscores concerns regarding the CFPB’s inability to protect highly sensitive data.