The Consumer Financial Protection Bureau’s rule has significant lending and privacy implications for Mississippi small businesses, and Congress taking action to block this rule is noteworthy and important.
There’s been a lot of political news over the last 6 weeks. In Washington the House of Representatives elected a new Speaker, and in Mississippi our attention has been on our state elections. Meanwhile, a critical legislative development that would strongly support small business growth happened in Washington, and Mississippians should all be aware of it.
In late October, the U.S. Senate voted in bipartisan fashion to overturn a pending data collection rule promulgated by the Consumer Financial Protection Bureau earlier this year. Now the U.S. House of Representatives appears to be headed toward an important vote on this Friday.
This is good news for Mississippi. The CFPB’s rule has significant lending and privacy implications for Mississippi small businesses, and Congress taking action to block this rule is noteworthy and important.
The rule in question implements Section 1071 of the Dodd-Frank Act, which sets up a small business lending data collection regime. Yes, the federal government is still implementing part of Dodd-Frank in 2023 – even though it became law in 2010. And the final 1071 rule, which took three presidential administrations to develop, is an administrative overreach far beyond what Congress intended.
As an example, Dodd-Frank required the CFPB to collect 13 data points – when the final rule was announced that number had ballooned to more than 80 data fields per loan. Here’s another example. Dodd-Frank dedicates three pages of legislative text laying out what the 1071 data collection requirements should entail, but when the rule was finalized, it came in at more than 880 pages.
In addition to overreach, there are several significant problems with the rule. First, the complexity of this going to significantly slow down the credit approval process for small businesses. This will have real world implications. Contractors, subcontractors, and farmers who are used to getting fast credit approvals to buy materials and equipment will now have to wait longer for approval. Retailers who are used to annually renewing lines of credit to purchase inventory with simple phone call will now have to wait longer for approval. These two examples of delays in credit approval will have down-stream impacts on small business customers, and these are just two scenarios.
The rule also defines small businesses as those that have $5 million in annual revenue. In Mississippi, $5 million in annual revenue is overly inclusive. According to the Mississippi Development Authority, nearly 116,000 Mississippi businesses employing more than 916,000 Mississippians fall into this category. And according to the Bureau of Labor Statistics we currently have around 1.2 million people working in Mississippi. So more than 77% of Mississippi workers are employed at companies that fall under this rule. The data this rule will have an indirect impact on many Mississippians.
And finally, there are significant privacy concerns related to both competitor intelligence and data security that Mississippians should be aware of. As it relates to business competitors, this rule will create significant problems. Lenders will be required to report industry classification codes and geographic information about potential borrowers, making it relatively easy for businesses to decipher the financial situation of their competitors–especially in rural states like ours. Bankers have raised this concern with the CFPB for years, and CFPB staff have acknowledged this could be problem. Unfortunately, they do not yet know how they will present the data they collect to the public.
There are also significant cyber security concerns at the CFPB. In 2018, then acting CFPB Director Mick Mulvaney testified to Congress that the Bureau had been hacked at least 240 times that he was aware of. And this April the financial data of more than a quarter million American consumers was compromised by a security breach at the CFPB. Gathering more data makes the CFPB an even more appealing target for cyber criminals.
The CFPB’s final rule has been challenged in the courts and has currently been temporarily delayed by judges in two federal circuits. The rule is overly broad, will slow commerce, creates real privacy and cyber risks, and judges are finding fault with it. These are just a few of the reasons the US Senate voted on a bipartisan basis to overturn the rule in October. It’s likely the House will vote to nullify the rule before Christmas – it is currently scheduled for a vote this Friday.
President Biden has threatened to veto this legislation, even if it passes both chambers of Congress with bipartisan support. He should rethink that – according to a CNC/Survey Monkey poll released last week his current approval rating is at an all-time low with small business owners. Small businesses need help to move the economy forward, not more red tape. Hopefully the House moves to nullify the rule, and the President rethinks his veto threat.