ON JAN. 4, ELFA submitted our comments to the CFPB regarding their proposal to implement Section 1071 of Dodd Frank. Once implemented, Section 1071 will require covered financial institutions to report certain information to the CFPB for their small business credit applicants. The information required is extensive and includes demographics of the ownership of the applicant company, and detailed information about the terms offered (or not offered) in response to the application.
ELFA began our comments by crediting the work the CFPB has done exempting leases, which utilizes UCC Article 2A to differentiate between leases and loans. We also supported the efforts the CFPB made at balancing the costs and benefits of making Section 1071 information available to the public.
ELFA’s comments include significant
concerns about the proposed rule.
The rest of the comments focused on the significant concerns with major portions of the proposed rule. We made sure to reiterate the benefit that ELFA continues to see in setting up a portal structure whereby small businesses could report their demographic information directly to the CFPB. However, since the CFPB has shown little indication that they are moving in this direction (even though multiple trade associations are now endorsing this type of solution) we focused the bulk of our comments on the following areas:
• Compliance Deadline
• 1071 Information Collection Timing
• Collection on Customers Who Opt Out
• Ethnicity Surmising
• Exemption for Small Institutions
• Anti-Competitive Issues
• Support for Trade Credit Exemption
The implementation timeframe for this rule is dependent upon the timing of the issuance of the final rule. The proposal is that it become effective six months after publishing, with enforcement beginning 18 months after the rule goes final. Many in the financial services world are pushing for a longer implementation time period, especially because the CFPB has not yet provided the industry with the technical specifications on how to report the 1071 data. ELFA has heard that it is very important to the Administration that this be implemented sooner rather than later, so implementation timeframes that are much longer than those in the proposal are unlikely.
Additionally, since ELFA has submitted our comments, the Small Business Administration’s (SBA) Office of Advocacy published their comments that they submitted to the CFPB. Notably, the SBA’s comments echoed many of those comments ELFA made. It will be interesting to see how the CFPB handles those comments from a fellow government agency.
In the coming years ELFA members are going to have to deal with training requirements for staff that participate in the origination process. This could range from training staff how to deal with the ethnicity surmising requirements, to training sales representatives on what is and what isn’t an application for credit. While the final parameters of the rule are still up in the air, it may be worth looking at the training landscape now to identify a provider that might be able to meet your needs. Additionally, if you run a vendor program, you may need to make significant changes to your vendor agreements to ensure that the vendor is capturing the information at the application stage. Of course, the software changes that will be necessary to implement this new process are dramatic as well and may require additional modules to be developed or implemented.
Stay tuned to this space and our other communications channels for further developments in this arena—it’s likely to be a busy one in the coming months. ELFA’s full comments can be read on the federal advocacy section of the ELFA website under "Financial Services." If you would like to discuss these issues further, please contact Andy Fishburn, ELFA’s Vice President of Federal Government Relations, at [email protected].
