Letter to CFPB on the Plan for the Review of Bureau Rules Pursuant to the Regulatory Flexibility Act

The American Bankers Association (ABA) is pleased to comment on the Bureau of Consumer Financial Protection’s (Bureau) plan for the review of rules which have or will have a significanteconomic impact upon a substantial number of small entities pursuant to §610(a) of the Regulatory Flexibility Act (RFA). Section 610(a) of the RFA provides that each agency must publish a plan for theperiodic review of the rules issued by the agency that have a significant economic impact on a substantial number of small entities. The purpose of the review is to determine whether such rules should be continued without change or should be amended or rescinded consistent with the stated objectives of applicable statutes, to minimize any significant economic impact of the rules upon asubstantial number of such small entities. However, the Bureau has indicated its intent to exercise its discretion to review rules that might not otherwise be subject to a §610 review. The RFA further provides that the plan shall provide for review of the relevant rules within ten years of their publication as final rules.

The impact of regulations on “small entities” is an important measure of the effectiveness, burden,and necessity of regulations. As defined by the Small Business Administration’s Office of Advocacy, adepository institution with less than $550 in assets is considered a “small entity.” These small banks, inparticular, can be overwhelmed by burdensome and complicated compliance requirements (and theresulting risk of non-compliance) that may offer little, if any, benefit to their customers andcommunities. ABA appreciates that the Bureau is planning to review, re-evaluate, and possibly reviserules based on their impact on small banks and that it is dedicating resources to the effort.

We also support the Bureau’s intent to expand its review to rules that might not otherwise besubject to §610 review as it will offer additional opportunities to reduce compliance burden on smallbanks without compromising consumer protection. As the SBA’s Guide for Government Agencies: Howto Comply with the Regulatory Flexibility Act recognizes (the Guide), “[L]imiting section 601 reviews onlyto rules that were found to have a significant economic impact on a substantial number of small entities at the time of promulgation would significantly undercut the intent of section 610.” As time passes, the Bureau (along with regulated small entities) may be better able to measure and understand the impactof a rule. Therefore, we support the Bureau’s willingness to use the review process to update rules asnecessary. Changing market conditions and technological changes may alter the impact of a rule onsmall banks and necessitate modifications of the rule to ensure that it does not impede the growth anddevelopment of small banks and the communities they serve.

The request for comment indicates that the Bureau’s §610 reviews “will generally be separate fromand in addition to other Bureau reviews of its regulations,”such as reviews based on: (1) its March 2018 request for information on inherited and adopted regulations, (2) §1022(d) of the Dodd-Frank WallStreet Reform and Consumer Protection Act (Dodd-Frank Act) which requires the Bureau to conduct anassessment of significant Bureau rules and orders and to publish a report on each assessment not laterthan five years after the effective date of the rule or order, and (3) regular reviews of inheritedregulations to ensure that outdated, unnecessary, or unduly burdensome regulations are regularlyidentified and addressed.

We recommend that, to the degree appropriate and possible, the timing of any §610 review becoordinated with any other review or assessment of a particular rule. This will not only promote theefficiency and effectiveness of the Bureau and the public’s review, it is more likely to result in a singlerulemaking process when regulatory amendments are necessary. This will minimize the costs,disruption, and confusion associated with major regulatory changes.

For example, although the timing requirements of §610 reviews and Dodd-Frank Act §1022(d)assessments are different, there may be opportunities to coordinate those reviews. The former must beconducted “within” ten years of the rule’s publication and the latter “not later than” five years after therule’s effective date and the §610 review.” Thus, it is not necessary to wait ten years before finalizing a§610 review. Although the Bureau plans to initiate §610 reviews “roughly nine years after each rule’spublication, there may be situations when the review should be initiated earlier to coincide with a§1022(d) assessment to achieve the efficiencies discussed above. Relatedly, the SBA’s Guide encouragesagencies to “take advantage of the opportunity afforded in section 605(c) of the RFA to consider a seriesof ‘closely related rules’ as one rule for periodic review purposes” in order to achieve efficiencies andreduce agency resources.

The Bureau anticipates it will require one year to gather data and evaluate the impact of aregulation on small entities. We generally believe this is a realistic estimate of the time required.However, each rule is different. The level, scope, and complexity of analysis may vary significantly, whichin turn, will affect the time necessary to conduct a thorough analysis, to allow public comment, and to consider those comments in the review. For these reasons, §610 does not limit the time for review of arule, and we caution the Bureau against setting internal expectations for all reviews to be completed within one year.

Further, the plan should be clear that the §610 review is limited to gathering data and informationand evaluating the impact of the rule on small entities based on the factors delineated in the RFA. Theone-year timeline does not encompass the actual rulemaking process (e.g., obligations under the SmallBusiness Regulatory Enforcement Act, advance notice of proposed rulemaking, and request forcomment on a specific regulatory proposal). The actual rulemaking process typically entails much morethan a year.

ABA also urges the Bureau to ensure it assigns sufficient staff, especially economists, and allocatesadequate resources to gather and analyze data when conducting its §610 reviews. Dedicatedeconomists and good data are critical if such reviews are to achieve the statutory objectives of the RFA— empirically supported analysis of a rule’s impact on small entities and whether market andtechnology developments present viable alternatives to accomplish the statutory goals while minimizingthe economic impact on small entities. The Bureau’s Division of Research, Markets, and Regulations andits recently created Office of Cost Benefit Analysis should be appropriately staffed and funded toconduct effective §610 reviews.

While we recognize the challenge of estimating compliance costs and burdens, we urge the Bureauto gather and share with the public information from third-party service providers about system andsoftware changes (and their costs) required by the rule under review. ABA believes that the Bureau —whose access to third-party service providers is far superior to that of small entities — should have anaffirmative duty to obtain this information and make it publically available so small entities maycomment on it.

ABA appreciates the opportunity to comment on this important matter. We encourage theBureau’s focus on the impact of regulations on small banks and its interest in identifying alternativesthat achieve the regulation’s goals while minimizing the burdens, costs, and risks to small institutions.We are happy to provide any additional information.

Sincerely,
Nessa Feddis
Senior Vice President and Counsel
Consumer Regulations & Compliance Solutions
Regulatory Compliance and Policy