Consumer Financial Protection Bureau Convenes First Small Business Review Panel

March 2, 2012 at 2:55 pm

Early last week the Consumer Financial Protection Bureau (CFPB), which was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, announced that it will be holding its first Small Business Review Panel.  According to the law, when a proposed regulation will significantly impact small entities, the CFPB is required to convene a panel to get input directly from these entities on how they will be impacted and how those impacts can be mitigated.

CFPB’s new mortgage disclosure regulations aim to streamline disclosure forms and more clearly provide information to consumers about the costs of their loans. This will make some things much easier for banks. For example, CFPB will be simplifying the information required by the Truth in Lending Act and the Real Estate Settlement Procedures Act, which require separate but overlapping documentation.  The new rules will also simplify information for consumers. CFPB’s proposal includes:

  • Adding a disclaimer to clearly state that the preliminary loan estimates that banks provide, which outline the terms and cost of the loan, are estimates and are not the final cost.
  • Requiring that the costs of services provided by affiliates of the lenders, which consumers are required to use for certain services, do not exceed any estimates provided. Currently, this rule only applies to the lenders.
  • Requiring that all costs associated with a loan are provided three days in advance of the loan closing.

These new rules will apply across the board, to all banks large and small. Some community banks fear that the stricter lending standards and new regulations will increase the cost of mortgages, causing an undue burden for these smaller banks. Cam Fine, the CEO and president of the Independent Bankers Association (IBCA), expressed his concern in a recent article in the Washington Post. “The ICBA is very concerned that many of the new proposed mortgage rules will actually cause community banks to experience high costs,” he said, adding that agencies often “act with a broad brush.”

With the Small Business Review Panel, the CFPB is seeking to take these concerns into account to develop “thoughtful, research-based rules that take into account not only the benefits of consumers but also how businesses of all sizes will be affected,” according to Richard Codray, director of the CFPB.  What feedback will be received and how it will be used is yet to be seen, particularly since this is the first panel.  But we will get some insight 60 days after the panel, when CFPB will issue a report on the panel and the input provided.  It expects to release a rule for public comment in July.

-by Sadaf Knight, Policy & Research Director

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Entry filed under: Financial Reform, Small Business. Tags: , .

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