ABA Letter to CFPB on Section 1071 Proposals Under Consideration

Kathleen Kraninger, Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552

Dear Director Kraninger,

The American Bankers Association appreciates the opportunity to comment on the Consumer Financial Protection Bureau's Outline of Proposals under Consideration for its Small Business Data Collection Rulemaking under 1071 of the Dodd Frank Act.

Summary of Comments

We support the Bureau's consideration of the costs to small entities of compliance with section 1071. In this regard, we appreciate the Bureau's preliminary decision to consider a simple and clear definition of a small business based on gross annual revenues, to cover only lending to small businesses, and to allow financial institutions to rely on information provided by applicants. These aspects of the outline help address our members' concerns about the burden of compliance with a section 1071 rule.

We summarize our major comments here:

• The Bureau should calibrate the definition of financial institution to avoid undue burden on small institutions, which would ultimately reduce, rather than increase, lending to minority- and women-owned small businesses. This involves careful analysis of data, and considering significantly larger asset-level and activity-level exemptions for small financial institutions than those presented in the outline of proposals.
• The Bureau should retain its preliminary decision to simplify the definitions of "small business," "minority- or women-owned" small business, and "principal owners." Reliance on the applicant's statement of gross annual revenue is a simple and clear definition of a small business, in contrast with the statute's reliance on the Small Business Administration's definition and the NAICs Codes.
• The outline's flexible approach on timing of data collection is appropriate and should be retained. A one-size-fits-all approach to data collection would be very unworkable given the range of products and business models covered.
• The Bureau should adjust the covered products to ensure that the data reflects the full range of small business lending. Merchant cash advance products should be subject to the section 1071 rule.
• We support the Bureau's reliance on Regulation B's definition of an application, as well as the proposed exclusions. We have some concerns about coverage of customer-requested line increases and renewals with new credit advanced, and urge the Bureau to carefully consider the burden on these streamlined processes with existing borrowers.
• The Bureau should only require reporting of the mandatory data elements, and should provide guidance on these with the final rule. Financial institutions do not collect NAICs codes, number of employees, and other discretionary data elements the Bureau is considering, and doing so will entail significant burden.
• We urge the Bureau to exercise its authority to consider the infeasibility of a firewall between underwriters and the data on minority- or women-ownership, and the race, ethnicity and sex of principal owners. The Bureau should allow institutions to provide a Bureau-developed disclosure to applicants explaining that there may be access to the data and explain that the institution must not discriminate based on the information.
• We support redaction of the 1071 data to protect small businesses' privacy. The Bureau should not make privacy decisions via a policy statement, as it initially did for the 2015 HMDA data. It is critical that the Bureau undertake a notice-and-comment rulemaking to decide the privacy protections for section 1071.
• We support a two-year implementation period at a minimum. To implement a rule of this magnitude, which will apply to multiple credit products and loan operation systems within each bank, will require the development of new policies and procedures, systems acquisitions and changes, and extensive training.

Download the comment letter to read the full text.