GAO Report Says CFPB Small Business Panels Could Be More Effective

The United States Government Accountability Office (GAO) released a report last week that found that small business representatives (SERs) participating in the Consumer Financial Protection Bureau’s (CFPB) recent SBREFA processes thought they were too rushed.

According to the report, the Regulatory Flexibility Act requires CFPB to convene Small Business Review Panels (also known as SBREFA panels) for rulemaking efforts that are expected to have a significant economic impact on a substantial number of small entities.

The SBREFA panels are chaired by the CFPB and include other government agency representatives from the Small Business Administration’s (SBA) Office of Advocacy and the Office of Management and Budget’s (OMB) Office of Information and Regulatory Affairs. Once CFPB has made the determination to convene a SBREFA panel, it must identify the appropriate number and mix of small entity representatives for the purpose of obtaining advice and recommendations from the individuals about the potential impacts of the proposed rule.

Before meeting with SERs, CFPB, in collaboration with SBA’s Office of Advocacy and OMB’s Office of Information and Regulatory Affairs, develops an information package to share with the companies. These materials typically contain information about the background and requirements for the proposed rule, an overview of the proposed rule (including a preliminary assessment of the potential impacts), and any alternatives under consideration.

It does seem as though the CFPB has made improvements to the SBREFA process from one panel to the next. For the panels on the TILA-RESPA Integrated Disclosure and Mortgage Servicing rules, CFPB also provided representatives with a draft agenda for the panel meeting and the opportunity to comment. For the HMDA panel only, CFPB conducted two sets of teleconferences before the panel meeting to discuss elements of the draft proposal for rulemaking. Indeed, from what insideARM has learned, both improvements have been incorporated into the debt collection SBREFA process.

The GAO’s report released last week addresses the extent to which CFPB solicited, considered, and incorporated such inputs into its rulemakings, and the views of SERs on CFPB’s rulemaking process. GAO analyzed and reviewed CFPB’s rulemaking processes and documents and conducted semi-structured interviews with 57 of the 69 participants on four panels who agreed to be interviewed. The scope was limited to the four SBREFA panels that had associated final rules as of April 2016, including:

• TRID: Truth in Lending Act – Real Estate Settlement Procedures Act Integrated Disclosure
• MS: Mortgage Servicing
• MLO: Mortgage Loan Originator Compensation
• HMDA: Home Mortgage Disclosure Act

The study found the following:

• When asked their overall views on the SBREFA, 25 of 57 SERs said the SBREFA process was good, 20 stated that they were glad to have served as small entity representatives, and 18 said the process was a good opportunity to be heard.
• Conversely, 13 of the 57 representatives stated that they felt CFPB treated the process as a formality, and 7 representatives felt the process was hindered by CFPB’s lack of knowledge of their industry.
• 15 representatives felt the SBREFA process could be improved. For instance, one said she would have liked more detailed discussion with live beta or mock-up testing with her operational people so they could test some of the things CFPB proposed. She believes this would have produced a better rule. Another said there should have been a second panel meeting after publishing the proposed rule to discuss the topics again and so that representatives could better evaluate it.
• More specifically, 31 representatives believed CFPB’s outreach efforts prepared them to provide constructive input during the SBREFA panel meeting and 15 said CFPB efforts partially prepared them. The HMDA panel had the greatest share of representatives who said CFPB’s outreach efforts prepared them to provide constructive input and the MLO panel had the smallest share.
• 12 stated they needed more time to prepare for the panel, with some saying they didn’t have enough time to reach out to other businesses and suppliers to gauge the proposal’s impacts; and some also saying they didn’t have enough time to perform their day-to-day duties when preparing for the panel. According to the report, CFPB officials stated that the role of small entity representatives does not include reaching out to other businesses or entities.

insideARM Perspective

The SBREFA panel on Debt Collection is scheduled to take place on August 25. SERs were selected in July. The 117-page Outline of Proposed Rules was released on July 28.

The debt collection document “Discussion issues for small entity representatives” was released to SERs on August 11. It is 15 pages single-spaced, with 114 questions; participants have two weeks to prepare responses and prepare for the hearing on August 25.

This is a daunting task for any size company, but for small firms — that also need to keep the trains running during these same period — it’s a nearly impossible task to accomplish in a comprehensive and thoughtful way. The debt collection rulemaking process has been ongoing for almost 3 years. The SERs have less than 30 days to digest the outline of the results of that 3 years of work.

While the CFPB’s position is that the role of SERs does not include reaching out to other businesses or entities, it seems unrealistic to think that this wouldn’t occur. At least some, if not all, SERs likely feel the weight of responsibility to represent themselves – as well as their peers – in the most effective way possible, as this is a critical opportunity to be heard.