Credit Union/Consumer Finance Client Alert

The Consumer Finance Protection Bureau (CFPB) issued a long-awaited proposed rule that could significantly impact credit union operations and their third-party loan operating system vendors. 

 

The proposed rule, pursuant to Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), is designed to help small businesses gain access to the credit they need and deserve by increasing transparency in the lending marketplace. With this proposed rule, mandatory collection and reporting requirements would increase to a total of 21 data points from the initial 7 data points required by statute.

Background
Section 1071 of the Dodd-Frank amended the Equal Credit Opportunity Act (ECOA) requiring covered financial institutions to collect and report to the CFPB certain data regarding applications for credit for women-owned, minority-owned, and small businesses, among other requirements. The rule defines a “covered financial institution” as one that originated at least 25 covered credit transactions for small businesses in each of the two preceding calendar years. There is no carve out for credit unions under a certain asset threshold.

To accomplish its policy objective, Section 1071 of Dodd-Frank required the collection and reporting of seven data points, such as the amount and type of small business credit applied for and extended, demographic information about small business credit applicants, and key elements of the price of the credit offered. However, Section 1071 allowed the CFPB to add “any additional data that the Bureau determines would aid in fulfilling the purposes of [Section 1071].” 

The CFPB proposes to publish application-level data but to address privacy concerns it would modify or withhold data from public disclosure. The data would be based on an assessment of the risks to privacy interests and the benefits of publication.

The Bureau is seeking comment on the overall proposal but specifically seeks comments on other proposed issues, including 

1. the definition of a small business (proposed as $5 million or less in gross annual revenue for its preceding fiscal year)
2. where to set the activity threshold for when lenders are required to report information (proposed as at least 25 covered credit transactions for small businesses in each of the two preceding calendar years);
3. the best method of collecting pricing information;
4. whether to collect certain information about the sex of an applicant’s principal owners, and how to collect it;
5. how to balance the benefits of public disclosure and the risk to privacy interests;
6. the number of data points required to collect and report on; and
7. the appropriate implementation period once the rule becomes final.