Recently, NADA and NAMAD filed comprehensive joint comments with the Consumer Financial Protection Bureau (CFPB) in response to its proposed rule to implement the small business credit application reporting requirements mandated by section 1071 of the Dodd-Frank Act of 2010. The purpose of section 1071 is to “facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business, community development needs and opportunities of women-owned, minority-owned, and small businesses.” The CFPB’s proposed rule generally requires financial institutions to inquire into whether a credit applicant is a small business and, if the applicant is a small business, to collect 23 data fields related to the application, redact the information to ensure it does not contain personally-identifiable information, report it annually to the federally government, and retain it for a period of three years. While the Federal Reserve Board (FRB) will implement this requirement for dealers engaged in indirect vehicle financing transactions, the FRB and CFPB are expected to issue implementing rules that are substantively similar and, because the CFPB has taken the lead in this effort, NADA and NAMAD have engaged – and continue to engage – both agencies throughout the implementation process.
While expressing support for the purpose of section 1071, NADA and NAMAD argued against its application to dealers because –
(i) any benefits it could produce for the intended beneficiaries (small, minority-owned, and women-owned businesses) are far outweighed by the burden it would impose on such businesses, and
(ii) if section 1071 applies to indirect vehicle financing, the information the government seeks to collect is more appropriately placed with the finance sources to which dealers assign their credit contracts.
In particular, the comments –
(a) explain the relative roles of dealers and finance sources engaged in indirect vehicle financing,
(b) express support for several exemptions, exclusions, and interpretations in the proposed rule which, if adopted by the FRB in its final rule to implement section 1071, will greatly reduce the section 1071 burden on franchised dealers, and
(c) explain and quantify the burden that the proposed rule would impose on dealers if required to comply with section 1071.
In support of the burden argument, NADA retained the Center for Automotive Research (CAR) to conduct a study on the projected costs that dealers would incur to comply with the requirements in the CFPB’s proposed rule if they are ultimately imposed on dealers. While several cost aspects are unknown, CAR projected the average dealer to incur $37,326 in up-front implementation costs and $44,100 in recurring annual costs. The CAR study is attached to the comments at Appendix A. NADA expresses its sincere thanks to the dealers who assisted CAR in its preparation of the study.
NADA and NAMAD will continue to actively engage the CFPB and FRB throughout the rulemaking process.