CFPB forced to complete small-business lending rule
One of the last pieces of unfinished business from the Dodd-Frank Act will finally move forward after the Consumer Financial Protection Bureau agreed Wednesday to develop a small-business lending regulation that has languished for more than eight years.
The 2010 law requires the agency to collect information that might be used to identify instances of discrimination in small-business lending, but so far the CFPB has failed to implement that provision.
The California Reinvestment Coalition is the lead plaintiff in a lawsuit filed last May in an effort to force the bureau’s hand.
Under a settlement agreement filed Wednesday, the CFPB agreed to a court-supervised process that includes public reporting and specific timetables for the development of the regulation.
“The days that they can just kick the can down the road for years at a time are over,” said Nitin Shah, senior counsel at Democracy Forward, a litigation group that represented the plaintiffs.
A CFPB spokeswoman did not immediately respond to a request for comment.
As the first step in the rulemaking process, the CFPB agreed to convene a Small Business Advocacy Review panel no later than Oct. 15, 2020. The report that emerges from that panel’s work must be completed within 60 days.
At that point, the CFPB will meet with the lawsuit’s plaintiffs to discuss an appropriate deadline for the issuance of a notice of proposed rulemaking. If the two sides cannot come to an agreement within 30 days, the plaintiffs can ask a judge to set the deadline.
The settlement agreement also contemplates a court-supervised process after the close of the comment period on the notice of proposed rulemaking. If the two sides cannot agree on a deadline for the issuance of a final rule, the plaintiffs can again ask the judge to establish a timetable.
Shah said Wednesday that it is not unreasonable to expect that a final rule will be completed within two or two and a half years.
“This settlement is a victory for impacted communities and small-business owners of color striving to build wealth and a better life,” Paulina Gonzalez-Brito, executive director of the California Reinvestment Coalition, said in a press release.
The proposed settlement, which was filed in U.S. District Court in Oakland, Calif., is subject to court approval.
Under Section 1071 of Dodd-Frank, small-business lenders are supposed to be subject to data-reporting obligations that resemble the requirements for mortgage lenders under the Home Mortgage Disclosure Act. The law requires the collection of certain information but also gives the CFPB discretion over whether additional data should be gathered.
The battle over which information should be collected — from which lenders and about which specific products — is expected to be fierce. Advocates for small businesses are calling for robust reporting requirements, noting that many small businesses owned by women and minorities have a hard time accessing the capital they need to expand.
But some lenders maintain that the CFPB should take a narrow approach to its statutory responsibilities, citing the costs of a broad requirement and arguing that those costs would be passed along to borrowers.
Former CFPB Director Richard Cordray has attributed the agency’s slow progress during his tenure to the raft of responsibilities that the bureau was given under Dodd-Frank and to the agency's waiting for technology, then under development, to aid the data-reporting process. He has also acknowledged that the CFPB faced pushback from small-business lenders.
The CFPB did conduct pre-rulemaking activities late in Cordray’s tenure. But the agency has failed to move the rulemaking process forward during the terms of former acting Director Mick Mulvaney and Director Kathy Kraninger.
After the California Reinvestment Coalition filed suit, the CFPB convened a forum in November 2019 where various stakeholders had an opportunity to express their viewpoints. At that event, Kraninger alluded to negative feedback that the agency has received from some financial industry officials.
“The bureau fully recognizes the sensitivities here,” she said, “and we know that the rule needs to be done with great care and consideration.”
Shah indicated Wednesday that he is aware of the possibility that the CFPB will attempt to write the rule in a way that the plaintiffs find unsatisfactory, but he also noted the law provides requirements from which the bureau cannot stray.
“The requirements of Section 1071 are clear and mandatory,” he said, “and we fully expect the bureau will issue a rule that complies with those statutory requirements.”