Lenders Subject to Section 1071 of Dodd-Frank May Find Silver Lining in CFPB’s Roll Out of New HMDA Rules
Last week, the CFPB finalized its update to the reporting requirements of the Home Mortgage Disclosure Act (HMDA) regulations. Under the new rules, the CFPB expects that the number of non-depository institutions that will be required to report may increase by as much as 40 percent. This will lead to a sizable increase in the total number of records reported.
Given the breadth of the new rules and the additional compliance efforts they will require, the CFPB has set January 1, 2018 as the effective date of the new regulations. Given that the Bureau could have chosen January 1, 2017 as the effective date, the longer lead time is welcome news for many in the mortgage industry.
The longer lead time may also be positive news for small business lenders that will be subject to the new Small Business Data Collection rule required by the Dodd-Frank act. Section 1071 of the act requires the CFPB to issue implementing regulations. The Bureau has yet to begin its work on the new rule but some small business lenders have already voiced concerns about the costs of other regulations implemented pursuant to Dodd-Frank. They argue that these costs have already begun to restrict access to small business credit.
A well-timed roll out of the new data collection rule could reduce some of these costs. Having adequate time to develop and implement regulatory compliance procedures in a cost-effective manner will lessen the financial impact to small business lenders. This in turn will allow lenders to minimize the new rule’s impact on credit availability to small businesses.
Once the Small Business Data Collection rule is finalized, small business lenders should be given a sufficient period to adjust to the new requirements, just as the CPFB has done for mortgage lenders with the new HMDA rules. HMDA was enacted in 1975 and lenders have been subject its reporting rules for decades. Yet the increased reporting requirements of the revised rules more than justify a two year lead period.
A similar lead period is just as, if not more important for the small business lenders that will be subject to the new data collection rule. The Dodd-Frank act was enacted just five years ago and requires reporting about small business lending that has never been required before. Lenders will need adequate time to develop the new systems required to meet their reporting obligations.
The CFPB’s conscientious roll out of the HMDA revisions is a rare regulatory silver lining. Let’s hope small business lenders get one too.Last modified: October 23, 2015
Patrick Siegfried is the author of usurylawblog.com and smallbusinessfinancelaw.com. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at firstname.lastname@example.org