[author: Barbara S. Mishkin]

On August 1, the House Committee on Small Business held a hearing which it titled “Know Before You Regulate: The Impact of CFPB Regulations on Small Business.” A major focus of the hearing was the CFPB’s compliance with the requirement in the Small Business Regulatory Enforcement Fairness Act (SBREFA) for a small business panel to be convened before issuing regulations that the CFPB director expects to have a significant impact on a substantial number of small business entities. 

CFPB Director Cordray was the hearing’s only witness and, in his prepared testimony, he reviewed how the CFPB has implemented the small business panel review process in connection with its proposal combining TILA and RESPA application and closing disclosures for mortgage loans and its upcoming proposals on mortgage servicing and origination standards. 

The American Bankers Association, in a statement submitted for the record, was critical of the CFPB’s implementation of the SBREFA review process. According to the ABA, the two-week period that the CFPB gave the small entity representatives (SERs) to prepare for the convening meeting on the TILA/RESPA proposal “unnecessarily limited” the SERs’ ability to provide input. In the ABA’s view, the CFPB “could have and should have recruited SERs and engaged them in interaction far earlier in the Know Before You Owe process” and the “rushed time-table and the limited opportunity” SERs had to react to the CFPB’s proposal was reflected in the Panel Report. In particular, the ABA believes there should have been an opportunity for further consideration and discussion of “what constitutes an application (triggering  early disclosures and statutory liability for inaccuracies in those disclosures)” and the requirement to provide closing disclosures three days before closing.

The ABA also believes the Panel Report showed a reluctance by the SERs to advocate for small entities, using the failure of the report to challenge the CFPB’s decision to impose the three-day requirement as an example. The ABA wants the CFPB  to have an affirmative duty to gather and share with SERs information from third-party service providers about anticipated system and software changes (and related costs) required by proposals being considered. According to the ABA, during the TILA/RESPA convening meeting, “there were assumptions about required changes and costs, but no real information or data,” such as specific information about the technology changes necessary to satisfy the proposal’s requirement for disclosures to be maintained in machine-readable form. 

Given the concerns that exist regarding the SBREFA process and burdens the TILA/RESPA proposal would impose on small entities, the CFPB is likely to receive comments on the proposal (and other proposals) urging that it provide less burdensome alternatives for small businesses, through thresholds, exemptions or other approaches.