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76–497 2012

KNOW BEFORE YOU REGULATE: THE IMPACT 

OF CFPB REGULATIONS ON SMALL BUSINESS 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

AUGUST 1, 2012 

Small Business Committee Document Number 112–083 

Available via the GPO Website: www.fdsys.gov 


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HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

ROBERT SCHILLING, Illinois 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

JANICE HAHN, California 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 


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C O N T E N T S 

OPENING STATEMENTS

Page 

Hon. Sam Graves ..................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESS 

The Honorable Richard Cordray, Director, Consumer Financial Protection 

Bureau, Washington, DC ..................................................................................... 3 

APPENDIX 

Prepared Statements: 

The Honorable Richard Cordray, Director, Consumer Financial Protection 

Bureau, Washington, DC .............................................................................. 18 

Questions for the Record: 

Graves Questions for the Record ..................................................................... 26 

Answers for the Record: 

Cordray Answers for the Record ..................................................................... 32 

Additional Materials for the Record: 

American Escrow Corporation Letter for the Record .................................... 48 

American Land Title Association Letter for the Record ................................ 52 

National Association of Realtors Letter for the Record ................................. 56 

Independent Community Bankers of America Letter for the Record .......... 58 

American Bankers Association Statement for the Record ............................ 61 

Credit Union National Association Letter for the Record ............................. 69 


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KNOW BEFORE YOU REGULATE: THE IMPACT 

OF CFPB REGULATIONS ON SMALL BUSINESS 

WEDNESDAY, AUGUST 1, 2012 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 1:00 p.m., in Room 

2360, Rayburn House Office Building. Hon. Sam Graves (chairman 

of the Committee) presiding. 

Present: Representatives Graves, Chabot, Tipton, West, Walsh, 

Hanna, Schilling, Vela ́zquez, Owens, Chu, and Hahn. 

Chairman GRAVES. Good afternoon, everyone. This hearing will 

come to order. And I want to thank our witness, Richard Cordray, 

the director of Consumer Finance Protection Bureau for appearing 

before our Committee today. We very much look forward to your 

testimony. 

Today marks the Committee’s first official look at the work of the 

CFPB, specifically as it affects small businesses. CFPB is drafting 

a number of regulations that will impose new requirements and 

compliance costs on broad segments of the U.S. economy. One of 

those regulations seeks to bring simplicity and transparency to real 

estate transactions. 

For many years, consumers, industry, and regulators have recognized that the mortgage disclosure forms required by the Truth 

and Lending Act and the Real Estate Settlement Procedures Act 

overlap and are a source of confusion. The proposed rule, which is 

required by Dodd-Frank or the Dodd-Frank Act, will integrate 

those disclosure forms. Integrating and simplifying the disclosures 

is a laudable goal but these changes are going to affect small businesses. 

Many of my colleagues here today, including myself, question the 

wisdom of the Dodd-Frank Act and many of the provisions within 

it, including the creation of the CFPB. However, those issues are 

not the subject of this hearing, but rather we are seeking to determine the extent to which the CFPB is complying with another law 

meant to protect small businesses, and that is the Regulatory 

Flexibility Act. 

Much of the public attention on this rulemaking has been focused 

on the disclosure forms that consumers will see when they are taking out home mortgage loans. Our Committee is interested in how 

the regulations will affect small firms—those community banks, 

credit unions, mortgage brokers, mortgage companies, and settlement agents that will need to change business operations so they 

are going to have to upgrade software, retrain their employees to 


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comply. Furthermore, the Committee is looking at the quality of 

the CFPB’s assessment of the likely impacts of the rule, as well as 

the alternatives being considered to lower costs for small firms. 

As the CFPB began developing this regulation, it determined 

that the changes would likely have a significant economic impact 

on a substantial number of small firms under the RFA. As a result, 

the CFPB convened a Small Business Advocacy Review Panel to receive input from affected small businesses and completed an initial 

regulatory flexibility analysis, which was required by the RFA. 

On July 9, 2012, the CFPB posted the 1,100 page proposed rule 

on their website. And while the CFPB has followed the steps the 

RFA requires, there appears to be holes in the agency’s assessment 

of the economic impact of the rule on small businesses and very little discussion of how the alternatives may reduce economic burdens. 

Even with the sluggish economy, the CFPB is expected to issue 

many more rules, some as a direct mandate from the Dodd-Frank 

Act and others at its discretion. Despite our concerns with the latitude the CFPB has been granted, we hope they will honor the spirit and the letter of the RFA, and become a model actor with respect 

to this law that seeks to protect small business firms so they can 

thrive, which is something our economy sorely needs. 

We appreciate the director’s participation today on this oversight 

hearing. I now yield to Ranking Member Vela ́zquez for her opening 

statement. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Since its enactment two years ago, Dodd-Frank has attracted significant attention from both critics and supporters. Of all the act’s 

provisions, it has been Title X, which creates the Consumer Financial Protection Bureau that has attracted the greatest amount of 

scrutiny. This new agency is responsible for protecting consumers 

from unfair, deceptive, and abusive financial products. Last July, 

the CFPB started operations, making this an opportune time to review how it is affecting American small businesses. 

Although the CFPB’s primary role is to regulate financial products marketed to consumers, this rule also impacts small business 

owners. Small firms are major consumers of financial products, too. 

Nearly half use personal credit cards to finance their enterprises, 

while one in five utilize home equity loans for business purposes. 

It is clear that CFPB rules will influence small businesses seeking 

capital and credit. With the agency’s broad responsibility, it is important that it balance the need to prevent abusive practices without adversely affecting the credit conditions facing small firms. 

It was for this very reason that meaningful safeguards were incorporated into CFPB’s enacting legislation. These efforts were designed to mitigate the potentially negative effects of this new agency on the small business community. For this reason, small community banks with assets of less than $10 billion were excluded 

from the reach of the agency as were retailers and merchants. So, 

too, were businesses that are already subject to insurance or securities regulation at the state level. Some entire industries dominated by smaller entities are also excluded from CFPB authority, 

such as realtors and auto dealers. Clearly, lawmakers recognize 


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that small businesses were not the cause of the financial crisis and 

should not bear the burden of new regulations. 

Beyond these exclusions, small businesses were given additional 

protections. CFPB must conduct small business advocacy review 

panels for certain rules, becoming only the third agency required 

to do so. Along with the Regulatory Flexibility Act safeguards, this 

will allow small firms concerns about CFPB’s regulation to be 

heard. Doing so can help reduce the impact on small firms while 

minimizing any additional costs of credit to them. 

The real issue before this Committee is one of oversight. Our responsibility today is not to exhume all arguments of ancient political battles, but to examine whether the agency is carrying out its 

mission in a way that safeguards consumers without overburdening 

small businesses. If done properly, this agency can make the entire 

financial system and economy more stable without constricting our 

nation’s entrepreneurs. 

With this in mind, it is not only the lingering memories of the 

financial crisis that make us remember why we created the CFPB 

in the first place. Almost every day we hear from a constituent 

about an erroneous credit report, pressure tactics from credit card 

companies, abusive payday loans, or coercive financing scams. As 

long as financial products are laden with fine print, scare tactics, 

and incoherent penalties, consumers will be unable to truly drive 

our economy forward. 

I want to thank Director Cordray for being here and I look forward to his testimony. I yield back, Mr. Chairman. 

Chairman GRAVES. Thank you, Nydia. 

Our witness, Richard Cordray, is the first director of the Consumer Financial Protection Bureau and he was appointed to the 

position in January 2012. Prior to becoming director, he led the 

CFPB’s Enforcement Division. He is a native of Ohio, and Director 

Cordray has served the state of Ohio in several elected positions, 

which included attorney general, treasurer, the Franklin County 

treasurer, and state representative for the 33rd Ohio House District. Director Cordray has also appointed the first solicitor general 

in Ohio’s history. We are very pleased to have you today and your 

entire written testimony will be entered in the record. So, please. 

STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER 

FINANCIAL PROTECTION BUREAU 

Mr. CORDRAY. Thank you, Chairman Graves, Ranking Member 

Vela ́zquez, and members of this Committee for having me here 

today. I look forward to talking with you about the Consumer Financial Protection Bureau’s work and how it does and does not affect small businesses. 

When I served as the Ohio Treasurer, I revived a small business 

lending program that pumped hundreds of millions of dollars into 

buying down the interest rate on small business loans to encourage 

job creation. From this experience of working closely with small 

businesses in Ohio, alongside the National Federation of Independent Businesses, I came to learn a great deal about how small 

businesses work, what conditions they need in order to grow, and 

their vital importance to local economies. I personally visited many 

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as you know. It is critical for everyone in government to understand what is necessary for small businesses to grow and prosper 

in today’s economy. 

The Consumer Bureau is responsible for administering and enforcing the laws that relate to the provision of financial products 

and services to consumers for personal or household use. Small 

community banks and credit unions, and certain other small providers, are an essential source of financing for many of these consumers. 

Since the Bureau was launched just over a year ago, we have designed a number of ways to invite small businesses to provide their 

opinions about our work. We believe good public policy means getting as much feedback as we can, and that is exactly what we do 

with owners and representatives of small providers from across the 

country. 

To this end, we are setting up advisory councils to help us focus 

on how our work affects community banks and credit unions in 

particular. We have also created an Office of Community Banks 

and Credit Unions within our Office of External Affairs. And we 

have had hundreds of meetings and discussions thus far with small 

banks and credit unions, reaching every state in the country. 

We have also been holding small business review panels during 

our rulemaking process. So far, we have convened three such panels, along with the Office for Advocacy of the SBA and the Office 

of Information and Regulatory Affairs within OMB as required by 

law. These meetings consist of intensive, in-depth discussions about 

our upcoming rulemakings with small providers early in the process to help us shape our proposals around their specific input. 

This process makes us unique among the banking agencies as 

the only one that holds such panels. Fifteen to 20 people from 

small businesses and small nonprofit organizations may join us for 

each of these panels. They come from urban and rural areas, different segments of the market, and different parts of the country. 

We purposely seek this diversity to better inform the whole picture 

of the relevant marketplace throughout the United States. They get 

advance notice about the early shape of our proposed rules, and 

they come prepared to discuss with us how these proposals would 

affect their businesses, both substantively and operationally. We 

come prepared to listen to their input, address their questions, and 

learn. 

During the panel meetings, our staff discusses the background, 

objectives, and elements of the proposed rule under consideration. 

The small businesses usually talk about the costs, operational 

changes, and other impacts from their perspective. They give their 

frank opinions—positive and negative—about the proposal and 

offer suggestions on how to improve it. It is a collaborative effort 

all around, and the participants have told us that they appreciate 

the care and effort involved. 

These small business review sessions, which typically last a full 

day, have proven to be valuable to us. From the panel we held on 

proposed changes to the federally required mortgage disclosure 

forms, we learned, for example, that we needed to provide more detailed guidance to accompany the rule, which smaller providers 

viewed as helpful for their compliance efforts. Indeed, the small 


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businesses told us that smaller settlement agents can lose a halfhour per closing because they struggle to understand various issues 

with the current rules. And that is multiplied across millions of 

real estate closings. 

So we took that insight in drafting our proposal, which now contains extensive commentary that details precisely how to complete 

the proposed forms; it also includes samples of completed forms. 

This extra material has become more specific in order to make it 

easier to implement the rules once they are adopted. 

These panels and the detailed reports they write afterward have 

played an important part in these rulemakings. As in everything 

we do, we are open to feedback and will continue to refine our processes as we gain more experience. The bottom-line is we are committed to include small businesses in our rulemaking and to shape 

our proposals based on their input. 

Let me close by saying that at the Consumer Bureau we believe 

in smart regulation. Although we are seeking to streamline and 

simplify rules, when we are told it would be helpful to provide 

more detail and more specifics—which is a suggestion we hear 

often from industry—we take that into account. We recognize that 

while we are issuing regulations to protect consumers, we are also 

issuing regulations to provide certainty to financial providers. Because we believe in the free enterprise system, we want to see honest, fair consumer financial businesses compete and thrive. Clear 

rules of the road that reflect the input of small providers help 

achieve that goal. That is good for consumers and for the overall 

economy. 

Thank you. I look forward to your questions. 

[The statement of Mr. Cordray appears in the Appendix.] 

Chairman GRAVES. Thank you very much. I appreciate the testimony. We will start out, Alan. 

Mr. WEST. Thank you, Mr. Chairman and Madam Ranking Member. Thank you, Mr. Cordray for being here today. 

And you are right. I was not here when Dodd-Frank was passed, 

so we are not going back to do a history lesson. We are going to 

look at the law of unintended consequences. 

One of the things and your written testimony talks about tight 

statutory deadlines. And I guess that is part of the law that was 

written in there. But my concern is that when I look at these small 

business advocacy panels that you have, review panels, that some 

of the individuals, these small entity representatives were only notified, you know, a couple weeks before and then yet we are asking 

for written input back a week later. Do you really feel when you 

look at the economic impact of some of these rules and regulations 

that that really is enough time for them to operate? And do you 

think that you can come back to us and ask for, you know, extended times if that does constrain you? 

Mr. CORDRAY. Thank you, Congressman. It is actually a very 

good question. It is—— 

Mr. Well, thank you. 

Mr. CORDRAY [continuing]. Part of the landscape that we are 

dealing with over this first year in particular. We have some very 

tight statutory deadlines. We have a number of mortgage rules 

that are required to be in place by January. If they are not in 


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place, I would note that there are statutory provisions that kick in 

of their own accord. So whether we write the rules or not, things 

are going to change according to what Congress has done. But writing the rules allows us to get a lot of input from people and perhaps soften or change or modify some of the provisions. So I think 

for the most part, a lot of the industry is very supportive of us 

meeting our deadlines and being tight on that. 

Mr. WEST. But do you think the one—the one week gives them 

really enough time—— 

Mr. CORDRAY. Yes. 

Mr. WEST [continuing]. To look at this? 

Mr. CORDRAY. So as to the balance of your question, in retrospect, we would have preferred to have had more time to prepare 

the panels. And we will in the future have more time to prepare 

the panels. I will say it is a self-selected group. This 15 or 20 people from around the country, who very much wanted to participate 

in this process, were picked out in part by themselves and organizations that sponsored them. So they had a real incentive to be involved in the process. They did comment that it was a very quick 

timeframe and that is what we are living under. In the future, it 

will be nice to have more time for that and we expect to allow more 

time. 

Mr. WEST. So is there a way that we can come back and say if 

we do not get this thing right we need more time to get it right 

instead of rushing into it? You know, one of the things in the military we say you are always trying to a standard, not to a time. So 

I want to make sure that we get the standard correct and not just 

worry about the time. I mean, do you feel that you have the flexibility to come back and ask for more time if the industry members 

ask for that? 

Mr. CORDRAY. By the way, I noticed your Army background. We 

have some real leaders at the Bureau who have an Army background and they keep us pretty straight. 

Mr. WEST. Good. That is better than the Navy. 

Mr. CORDRAY. But what I would say is we will always be subject 

to any dictates that Congress lays down for us. If Congress decides 

we should have more time, we will be glad to take more time. If 

Congress wants us to be faster, we will be faster. We are a law enforcement agency and what you tell us to do is what we will do. 

Mr. WEST. Okay. The second question. If there are other agencies 

outside of CFPB that provide rules or regulations, are those rules 

and regulations also going to go through the same type of advocacy 

review panels or will they be able to slip under the radar screen 

and get implemented without having that process? 

Mr. CORDRAY. In the law as it currently stands, the small business review panels, which we have actually found to be quite valuable, only apply in the federal government to the EPA, OSHA, and 

now to the CFPB. They do not apply to other financial regulators. 

That was the wisdom of Congress and that is the statute that we 

are enforcing. So the answer to your question is other than us, the 

EPA, and OSHA, that process does not apply to the rest of the federal government. 

Mr. WEST. Do you think that that is something where we should 

go back and look at amending in case you have the Federal Reserve 


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or someone else that tries to, you know, send in a rule and regulation that we need to make sure that they have to go through the 

exact same process? 

Mr. CORDRAY. I find that I have my hands full trying to run my 

own new agency. I typically do not go out of my way to offer suggestions to Congress about how other agencies can be governed. 

They can certainly offer that perspective themselves. I do not really 

have a position on that. 

Mr. WEST. But I guess the question that I am asking in the last 

40 seconds is do you want to make sure that other federal government agencies cannot slip under the radar screen and implement 

rules and regulations that do not end up going through your small 

business advocacy review panels? And the next thing you know this 

is, you know, surprise, surprise. Here is something else. And again, 

the unintended consequences, the economic impact is exacerbated 

even more. 

Mr. CORDRAY. Again, I would defer to Congress. I would leave it 

to them. I would say that we are working hard to collaborate closely with our fellow banking agencies and other agencies and departments of the federal government and state and local government. 

We think that we will do our work better if we are in partnership 

with others and that we are on the same page so that the kind of 

small businesses you all are looking out for are not confused because different people come at them from different perspectives. I 

do think that is quite important. 

Mr. WEST. Thank you, Mr. Chairman. I yield back. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Mr. Cordray, in the last Congress, the House passed the Medical 

Debt Relief Act requiring paid or settled medical debt to be removed from credit reports within 45 days. That bill directly addressed the negative impacts such information has on a consumer’s 

credit score. With your recent announcement that the CFPB would 

regulate credit bureaus, do you plan to address how medical debt 

is created on credit reports? 

Mr. CORDRAY. That is a very interesting question and something 

that we have been grappling with at the Bureau. Not only as medical debt affects credit reporting bureaus as your question goes to, 

but also as it affects debt collection, which intersects obviously with 

credit bureaus. That is often the way things end up getting reported to credit bureaus. 

We have found medical debt is a particularly difficult challenge 

because it is hard at times to define when a debt begins in the 

medical debt realm. You know, you will go to your doctor and you 

will receive services and it may be understood by the doctor’s office 

that you do not necessarily pay on the spot. They will bill you later. 

When do you actually owe the debt? Is it as soon as services are 

rendered or is it after the first round of billing is done? There are 

often disputes between insurance companies as to what they cover 

and do not cover. I know from my family we may not know for a 

period of months exactly whether we owe a $10 co-pay or whether 

we owe $250 or whatever it is. So whether you would consider that 

debt or whether it is still a disputed item not yet firmed up, it is 

a hard issue. 


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So what I would say is this. We have announced recently the finalization of our Larger Participant Role. This is the special process that is laid upon us if we are going to be overseeing financial 

providers that are not banks in new realms such as credit reporting. We are going to be overseeing and supervising the larger participants in the credit reporting industry. That will cover about 30 

or so credit reporting companies, including the three very largest 

that are the ones that people are most familiar with, which keep 

consumer files on millions and millions of Americans. We will be 

overseeing all of their approach to this, including medical debt. 

We are in the process of working through issues of medical debt 

as it relates to what will soon be our supervisory coverage of debt 

collectors. We will continue to work through those issues. It is a 

sensitive spot. I know from my experience at the local level, where 

I collected real estate taxes at one time that one of the big issues 

that created delinquency for people was illness, injury, or death in 

the family. The debts that piled up around that often put people 

into default or foreclosure. So it is an issue we are very concerned 

about. We will be looking at the credit reporting bureaus with respect to that debt and all debt. 

Ms. VELA ́ ZQUEZ. Thank you. 

One of the key responsibilities given to the CFPB is the supervision of nonbanks. What role can these nonbank entities play in 

providing alternative sources of capital for consumers and small 

businesses? 

Mr. CORDRAY. We have seen in a number of markets that 

nonbank firms have been providing significant access to capital for 

individual and family consumers. We saw that in the mortgage 

market significantly before the mortgage breakdown and financial 

meltdown of 2007–2008, a tremendous amount of financed mortgages that did not go through any kind of bank or credit union or 

thrift or any kind of chartered institution. One of the problems in 

that market was that some parts of it were regulated and some 

parts of it were not regulated. And, you know, whatever your regime is, whether you think regulation can be a good thing or a bad 

thing, whether it is good in these circumstances and not in those 

circumstances, whatever your view is, the notion you would regulate part of a market and leave part of it unregulated, that does 

not work. I mean, that just does not work. 

Ms. VELA ́ ZQUEZ. You put at a disadvantage—— 

Mr. CORDRAY. It is unfair advantages for some and disadvantages for others. It tends to reward the irresponsible who do not 

bear the same costs as the responsible. That was part of the problem in the mortgage market and it is part of what was changed, 

and I think much for the better, under Dodd-Frank. So we are now, 

for example, overseeing and enforcing the law against both bank 

and nonbank mortgage originators and mortgage servicers, which 

has been a significant source of problems for individuals in districts 

across this country. 

In other markets as well, you know, the market for short-term 

small dollar loans, which is a difficult market, one that is supplied 

often these days by payday lenders or other providers, maybe pawn 

brokers, maybe rent-to-own, other things. It is a market where 

there is a lot of concern about how consumers are treated. On the 


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other hand, it is a market where consumers have a demand for 

that credit. So that is another area where we will cover both bank 

and nonbank sides of that, and I think that is helpful. 

But there is no question that the banking system alone has not 

provided access to credit that satisfies the needs of the American 

public. We have estimates of 80 to 90 million people who are either 

not banked at all or who have a bank account but use many other 

services outside the banking system to meet their needs. This Bureau cares about all of those consumers as well. It is not just if you 

are in the banking system or get yourself into the banking system; 

it is also how can we meet your needs in that space with the prepaid cards and other things? And it is very fast evolving, so it is 

hard for us to keep up with it. 

Ms. VELA ́ ZQUEZ. Can you talk to us about the memorandum of 

understanding that the CFPB signed with the STC to deal with jurisdiction or overlap between the agencies? Will these be enough to 

limit bureaucratic duplication or do you think that there might be 

something else that needs to happen? 

Mr. CORDRAY. What you are inquiring about is the fact that we 

now have authority over many nonbank providers of financial products and services, but Congress decided to retain overlapping jurisdiction with the Federal Trade Commission in many of these areas. 

They typically do not have jurisdiction over banks, but they do over 

nonbanks. 

Congress specified that we needed to work out a memorandum 

of understanding between us and the FTC as to how we would 

jointly use our combined resources to address problems in that 

space. We have worked very closely with the FTC. They have been 

a great partner, unusual among federal agencies from what I know 

from over the years. They have really reached out and worked with 

us. We did reach a memorandum of understanding in July, which 

was the deadline for us doing so. And we have been working with 

them very productively on a number of different issues. 

The other actors that have some role in the same space are state 

regulators and state attorneys general. 

We have also been trying to forge a constructive partnership with 

them. Ultimately, what you would want, I think, is for all of us in 

this space who do have the ability to oversee and crack down on 

illegal practices by nonbank providers, to coordinate our efforts and 

resources, to create the best bang for the buck for consumers. And 

also in ways that do not do stupid things by double teaming or duplicating. There is plenty enough for us to do without us trying to 

do the same things as one another. But that requires a lot of communication and coordination. 

Ms. VELA ́ ZQUEZ. My last question. Because, you know, we basically, this is the Small Business Committee and a lot of concerns 

have been raised by small firms who are concerned that they will 

be subject to the CFPB oversight for financial transactions. So my 

question to you is will your agency attempt to exercise oversight 

over financial products when no consumer is involved? 

Mr. CORDRAY. I do not think that we have the authority to be 

involved in a financial product where no consumer is involved. Our 

statutes are pretty clear that we are supposed to be—as a general 

matter, there may be some specific provisions in the statute that 


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are different from that—but as a general matter, our authority is 

over consumer financial products and services defined as credit and 

financial products for individuals, households, for their families, for 

their personal purposes, not business credit, not business-to-business dealings. Again, there are a few odds and ends in our statute 

where that somehow relates, but that is in general not our field. 

Ms. VELA ́ ZQUEZ. Thank you. Thank you, Mr. Chairman. 

Chairman GRAVES. Scott. 

Mr. TIPTON. Thank you, Mr. Chairman. Thank you, Mr. Cordray, 

for being here today. 

I would like to be able to explore just a couple issues with you. 

Recently, you were testifying today that the CFPB is taking some 

steps to be able to mitigate some of the criticism that you regard 

in some of the—is it the Tell a RESPA Rule? Is that how it is referred to? 

Mr. CORDRAY. Yes. 

Mr. TIPTON. And it being 1,099 pages and you put up a blog post 

that said it was actually only 400 and some odd pages and the rest 

was regulatory just to be able to get some definitions out. Did you 

get feedback? And can you understand that for small businesses, 

when we start issuing 400 new pages of regulatory requirements 

that this actually becomes a burden? 

Mr. CORDRAY. Let me say several things. First of all, to sort of 

correct the record, there is about 200 pages of that that is the rule. 

There are about 200 pages of guidance that we included; particularly in response to input from small providers who told us that absent guidance and clarification on things they found that they lost 

time trying to figure things out, trying to interpret it. That is what 

I referred to up to half an hour per real estate closing multiplied 

by millions of closings. 

So that is what they told us, and it is kind of counterintuitive 

for me. I mean, I would prefer to have short, simple rules, but 

these are complicated matters. They have asked for more detail, 

more specificity, which ultimately means more pages in order that 

they will not have lots of questions afterwards. And by the way, if 

we issued a short rule, simple rule, but left things vague, what 

happens is everything still has to be figured out. It gets worked out 

on the back end. It often involves litigation. It involves going into 

court to get a court to tell you what it actually means. That is expensive for businesses. It obviously takes time. There is uncertainty all during that time. 

You know, a comparison I would make is the U.S. Constitution. 

It is a simple, very elegant document. For 200 years, courts have 

been construing what it means, and there is a huge amount of 

pages now that have been generated by that. What industry has 

told us—again, it was contrary to my initial instinct on this—was 

if they can have more specificity and clarity up front, then there 

will be less to argue about afterwards, less litigation, and also more 

certainty for them on how to proceed. So again, optically, I do not 

like the look of a longer rule, but they have told us in some respects that makes their work easier. 

Mr. TIPTON. And with respect to your statements, did you do a 

cost benefit analysis on this? 


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Mr. CORDRAY. We are required by our statute to do an analysis 

of the burdens, impacts, and benefits of any rule. 

Mr. TIPTON. What did that show? 

Mr. CORDRAY. I beg your pardon? 

Mr. TIPTON. Are you doing that now? 

Mr. CORDRAY. We have been doing that. We have to do that at 

the proposal stage, so we have done that. We have to do that as 

we go. 

Mr. TIPTON. Just out of curiosity, what are those costs going to 

be? 

Mr. CORDRAY. Well, I think the costs are the ones that people 

told us about. First of all, there is always a transitional cost with 

any change. Even when you streamline. 

Mr. TIPTON. Do you have a dollar amount? 

Mr. CORDRAY. Well, there is a lot of analysis provided in the rule. 

I would hesitate to summarize, you know, what is, as you know—— 

Mr. TIPTON. Ballpark? 

Mr. CORDRAY [continuing]. Hundreds of pages. Well, there are 

costs that are implementation costs of making a transition. 

Mr. TIPTON. Right. 

Mr. CORDRAY. And then as we go—— 

Mr. TIPTON. I just want a ballpark figure. 

Mr. CORDRAY. It is important to recognize here, as we go, since 

we will have integrated these two forms as Congress has been 

wanting to do for 20 years and nobody has succeeded in doing it 

yet, that will mean less cost per individual real estate closing. 

Mr. TIPTON. So you do not have an actual dollar number? A 

vague dollar number? 

Mr. CORDRAY. There are dollar numbers provided. Again—— 

Mr. TIPTON. That is what I was asking. 

Mr. CORDRAY. Okay. I can refer you to our rule and you can— 

your staff—there are different dollar figures for different kinds of 

providers. 

Mr. TIPTON. Did you give us dollar figures? 

Mr. CORDRAY. I beg your pardon? 

Mr. TIPTON. Did you give us—just curious. 

Mr. CORDRAY. Sure. What I wanted to note was over time this 

is going to save money. 

Mr. TIPTON. You are 101 million. Does that sound familiar? 

Mr. CORDRAY. That is a potential figure, depending on what assumptions you are making about who uses vendors and who does 

things on their own. But again, there is going to be a savings, sir. 

It is important to realize. 

Mr. TIPTON. I would like to be able to—we are running out of 

time here. At the beginning of your statement you had noted— 

made the statement ‘‘critical for people in government to know 

what makes small business grow.’’ 

Mr. CORDRAY. Yes. 

Mr. TIPTON. And you talked about access to capital. If those dollars are being spent more and more on regulatory compliance, $101 

million, is that draining money out of resources that can be applied 

to be able to grow jobs, to be able to get people back to work and 

get this economy moving? 


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Mr. CORDRAY. Okay. So we are talking here about a multi-trillion 

dollar market for real estate transactions. 

Mr. TIPTON. My world $100 million is big dollars. 

Mr. CORDRAY. I understand. But it is not like there are a million 

dollars falling on each business. That is not what we are talking 

about here. And there is going to be savings in each real estate settlement closing. Each one over time that will pile up year by year 

by millions of transactions. And that needs to be taken into account 

as well. 

Mr. TIPTON. Actually, we received comment, and I believe you 

probably have the written testimony as well from the realtors that 

they are concerned about this rule. Who is going to have to be filling out the forms? What some of those costs are actually going to 

be, and I think they are deeply questioning a lot of those actual 

cost estimates that are being taken so for granted by the administration. 

Mr. CORDRAY. We met with them and we welcomed their input. 

At this point, this is at a proposal stage. It is not yet a final rule. 

And so everybody is going to have a chance, including what I hear 

today, but also as we go through the notice and comment process, 

to give us their input and we will take that into account on the 

final rule, including from the realtors, settlement agents, all of the 

people involved with these transactions. Yes. Yes, sir. 

Mr. TIPTON. You know, with your permission, Mr. Chairman. 

Chairman GRAVES. We are short on time. 

Mr. TIPTON. Okay. I apologize. I yield back. Thank you. 

Chairman GRAVES. Before I turn to Bill, we do have a series of 

votes coming up. And we are going to stay—we will stay here for 

the first 10 minutes after they are called, but I hate to keep you 

through that series, so we may—if anybody has got questions that 

can be submitted and then you give us answers, because I know 

I do, we will make that a part of the record. 

Mr. CORDRAY. I am at your service. 

Chairman GRAVES. Phil. 

Mr. OWENS. Thank you, Mr. Chairman. Thanks, Mr. Cordray, for 

coming over to testify today. 

When you talk about small business, how do you define that 

term for purposes of inclusion in the Small Business Advisory 

Groups? 

Mr. CORDRAY. So, again, that is another interesting question. 

The term ‘‘small business’’ is somewhat in the eye of the beholder. 

It is defined differently often market by market. So what is a small 

business in the aerospace industry would look very different from 

what is a small business in the hardware business, for example. 

The Small Business Administration has a working definition that 

they apply as a rough cut for many markets that if you have revenues of $7 million or less, that is a small business. I can imagine 

markets where that would be a very large business, but that is one 

cut on it. 

It is likely for us going to be something that we will have to define, taking into account the size of markets. I think the assets of 

a bank, for example, would be larger than the assets of many retail 

businesses. So it is very contextual. But that is one definition to 


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begin from and think about and then work from that. So that is 

one of the things that we have taken into account. 

Mr. OWENS. How did you define it for purposes of the groups that 

you assembled? 

Mr. CORDRAY. So, for us, it is as laid out in the Regulatory Flexibility Act and the small business review panels, which as I have 

said have been used previously by the EPA and by OSHA, who are 

required by law to use them. We are the first banking agency of 

any kind that has been required to use this process. 

And the other thing for us is we do have this other hurdle we 

jump through before we can supervise nonbank firms in some of 

these other markets besides the mortgage, student loan, and payday lending markets. We have to define who are larger participants. And thereto, we started off by taking as one of the factors— 

we considered the SBA definition of a small business. It is $7 million or less. That definition is under review, by the way, by them 

right now. But there are some industries where that makes sense 

and some industries where that is probably well off the mark. 

Mr. OWENS. It has been my experience that settlement agents 

tend to be relatively small businesses, a couple of people. Mortgage 

brokers in small communities tend to be a couple of people. 

Mr. CORDRAY. Yes. 

Mr. OWENS. So that puts, I think as some of my colleagues were 

pointing out—some real burden on them in terms of compliance. 

I see in your testimony that you are considering potentially not 

requiring electronic retention of records and allowing paper retention for smaller businesses. Are you seeing any development by 

other entrepreneurs of software for this industry that is graded, if 

you will, from the couple of person business up to the 50-person 

business? 

Mr. CORDRAY. That is happening. That is obviously a tremendous 

business opportunity. Part of it is that 30 years ago there was very 

little computer involvement. Going back to my undergraduate days 

where to do anything on the computer you went across campus. It 

was a garage-size thing and you put in your cards and it took several hours. But now computers obviously are more and more integrating workplaces everywhere. And this is a vendor opportunity. 

So that is developing. But we have, in response to the input we got 

from small providers, some of whom have not gotten to that point 

and may never get to that point. They have been in business 20, 

25 years. It is working for them. They do not really see the need 

to do the expensive upgrade in computer services. We have put into 

our proposal to consider exempting them from this electronic standard format which we otherwise prefer because it is going to make 

things very comparable. But that may not make sense for all providers and it is something we have listened to them on, heard from 

them on, and we are going to consider that as we finalize a proposal. 

Mr. OWENS. I also noted that you said that in some of the instances the small businesses requested that you expand on the regulatory statements. 

Mr. CORDRAY. Yes. Yes. 

Mr. OWENS. And that was because they felt that with greater 

clarity there would be less litigation and less confusion. After you 


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did the expansion, what was the response of those small businesses 

to the additional information you provided? 

Mr. CORDRAY. I think in general there was appreciation that we 

heard from them, listened to them, and responded to them. Now, 

of course, people have various disagreements about the substance 

of what is in there, you know, whether we took their proposal or 

the escrow association’s proposal or the credit union’s proposal or 

something else. There is obviously always room for substantive disagreements. But I think they like the fact that we heard their suggestion to include more guidance. 

Again, every problem we can solve for them without making 

them sort of solve it on their own, which not only involves uncertainty about whether they are getting it right. You know, they can 

be sued under the Truth and Lending Act if they do not get things 

right. That can involve expense, or they may feel the need to consult lawyers, which is expensive. Not something small businesses 

want to have to do if they can avoid it. 

So everything we can do to clarify that up front, again, it feels 

perhaps to some, boy, all these pages. Why all these pages? Every 

one of those pages is trying to help solve problems that people have 

told us about and we are going to try to do it as best we can. 

Mr. OWENS. Thank you very much. I appreciate your answers. I 

yield back, Mr. Chairman. Thank you. 

Chairman GRAVES. Joe. 

Mr. WALSH. Thank you. Thank you, Mr. Chairman. There we go. 

Thank you, Mr. Chairman. Mr. Cordray, welcome. 

We have heard recently about CFPB’s examination notification 

process, and it has raised some questions. From what I understand, 

financial regulators usually will contact the entity to be examined 

by letter to make them aware that an examination has been 

planned and send that entity a pre-examination checklist. I have 

been told recently that CFPB has been contacting these entities 

and on very short notice asking them to come to Washington, D.C. 

and meet directly with you. Why are you calling these entities— 

you, not yourself—but why are you calling these entities to Washington, D.C. to simply notify them of an examination? Or do I have 

that wrong? 

Mr. CORDRAY. To be frank, Congressman, I am not sure where 

that is coming from. That is not, in fact, our practice. I am not calling people in to meet with me. I do not really see what the point 

of that would be. 

Mr. WALSH. Are people being—Mr. Cordray, are people being 

called to Washington to notify them of a pending examination? 

Mr. CORDRAY. No, they are not. Let me say this. We are a new 

agency, so when we notify someone of a pending exam, it is the 

first time they have ever heard from us. So what we typically try 

to do is set up a meet and greet, but I believe that we almost always go on site. We do not put the people out. We go there. And 

I do not mean me. I mean, our examination staff. And meet with 

them and have an initial meeting. 

For the other agencies where typically they have been regulating 

and supervising and examining those people for years, you know, 

they just were there three years ago. Now they are coming again. 


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It is very common that they would send a letter. We are trying to 

do a meeting but we are not calling them to Washington for that. 

Mr. WALSH. You do not know of any instances where you are 

calling people to Washington where people are having to come to 

Washington to be notified of an examination? 

Mr. CORDRAY. No. What we are doing is there are times when 

we are having people come to Washington, or if it is more convenient we can go to them. Or they may be coming to Washington anyway and want to come in to see us where we are talking to them 

about specific issues of concern. 

But in terms of the normal examination process, no, we are not 

dragging people to Washington just to tell them we are going to 

come to see you in three weeks. That seems kind of stupid. 

Mr. WALSH. Did you simply notify them of an examination? 

Mr. CORDRAY. Yeah. Yeah. 

Mr. WALSH. Because you concur that makes no sense? 

Mr. CORDRAY. That would be pretty dumb. We are not doing 

that. 

Mr. WALSH. Do you have to be present when you are notifying 

any small banks or mortgage companies of a pending examination? 

Mr. CORDRAY. No. 

Mr. WALSH. You, yourself. 

Mr. CORDRAY. And, in fact, you know, I am running an agency 

that is growing and is doing work all across the 50 states. I could 

not possibly do that. That would not make any sense for me. That 

would be a very poor delegation of authority on my part. 

Ms. VELA ́ ZQUEZ. Would the gentleman yield? 

Mr. WALSH. Yes, I would be happy to. 

Ms. VELA ́ ZQUEZ. I just would like for Mr. Cordray to correct for 

the record the question itself when he asked small banks are cold. 

They are exempted. 

Mr. CORDRAY. Well, small banks, anything under $10 billion in 

assets, we do not even examine. So none of them would be called 

anywhere. But it is also not our practice to call people to Washington to inform them of an upcoming exam. 

Mr. WALSH. And you have made that clear. And I thank—— 

Mr. CORDRAY. Yeah. Although there are some special issues 

where we need to talk to someone about a particular issue that 

might or might not warrant a meeting. 

Mr. WALSH. So banks and mortgage lenders, you have made that 

clear that you do not know of any instances. And again, it is not 

at all a requirement that you or your deputy director, Mr. Dante, 

needs to be present or is present during any of these meetings. 

Mr. CORDRAY. Frankly, our examiners are much better equipped 

to manage and handle all aspects of the exams than I would be. 

Mr. WALSH. Thank you. I yield back, Mr. Chairman. 

Chairman GRAVES. Janice. 

Ms. HAHN. Thank you, Chairman, and ranking member for holding this hearing. 

You know, look, our economy is still reeling and recovering from 

what I believe was the damage that was caused by this housing crisis. And I know my small businesses, their biggest complaint is 

they have lost customers. So they are really concerned when folks 

are losing their homes and surrounding cities are contemplating 


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bankruptcy as a result of it. So my small businesses want their 

customers to stay in their homes. So I, for one, am grateful that 

you are going to be able to do anything you can to make sure that 

folks really understand what they are getting into when they are 

getting into a mortgage. 

You know, before, even—we now know that before the housing 

crisis, several banks were participating in predatory lending and 

were in some cases blatantly targeting minorities. And we know 

that even after controlling for income differences, the Center for 

Responsible Lending found that African American and Latino borrowers were about 30 percent more likely to get higher rate 

subprime loans than white borrowers with similar risk characteristics. 

Can you tell me how the proposed rule will help to end this discrimination? And anything else that you can share that the CFPB 

is doing to protect minority borrowers from these, what I consider 

shameful predatory lending practices. 

Chairman GRAVES. Quickly. 

Mr. CORDRAY. Thank you Congresswoman. There have been, as 

you have probably seen, several enforcement actions in recent 

months taken by our fellow regulators. We work closely with them. 

We now have the authority to enforce the Equal Credit Opportunity Act, which will govern a lot of this kind of discrimination. 

We take that responsibility very seriously. We have an Office of 

Fair Lending in the Bureau. It is, I would say at this point, superbly staffed by high quality people who are very dedicated to this 

work. We are working closely with the Department of Justice as 

well, and there are times where we will coordinate with them on 

actions. And we are working with state attorneys general where 

that is appropriate. 

But we feel that everybody in the United States is entitled to access credit on the same terms as one another. It should certainly 

not be affected by gender or by race or by ethnic background. Too 

often that has occurred in the past. The laws are now meant to 

prevent that. They have to be enforced effectively if we are going 

to accomplish that. That is part of our mission. 

Chairman GRAVES. Thank you. I do not want to keep you, so I 

am going to ask the members that have questions, including myself, to submit them to you and get—in fact, my question is just 

about you said in your statement that the panels are a very valuable component of our rulemaking process. And I am very curious 

as to if you think that other federal agencies should incorporate the 

panel process to their rulemaking? And I would like an answer. 

Just submit it back. You do not have to answer now but I want 

an honest answer. 

Mr. CORDRAY. We will be happy to address anything anybody 

wants to submit to us in writing, Mr. Chairman. 

Chairman GRAVES. And that way we do not have to keep you. I 

know you are a very busy director. 

Mr. CORDRAY. Okay. 

Chairman GRAVES. This Committee is going to continue to be 

very active in watching how you move through the Reg Flex Act. 

Mr. CORDRAY. I am at your service any time. 


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Chairman GRAVES. We appreciate it. And in fact, and I would 

ask unanimous consent, too, before I finish with the ranking member, unanimous consent that we have 10 legislative days for members to support materials and questions, whatever the case may be. 

And without objection, so ordered. Go ahead. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Two questions. Can you state for the record how much—did the 

housing collapse cause this nation? 

Mr. CORDRAY. It was trillions of dollars in household wealth, let 

alone trying to assess people who lost jobs and how much, you 

know, the downturn affected our broader economy. 

Ms. VELA ́ ZQUEZ. And I am interested in knowing when the agency is going to comply with section 1071. That is aimed at helping 

regulators understand credit conditions for small women-owned 

businesses and minority-owned businesses. It is important that you 

implement the rule requiring the collection of that data. 

Mr. CORDRAY. Yes, we are mindful of that. We also, as you may 

know, we have a separate window on this through our Office of Minority and Women Inclusion. And that gives us some ability to 

work with the financial industry on diversity in the industry which 

we take seriously as well. So I think all those things fit together. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Chairman GRAVES. Again, thank you very much Director 

Cordray. We appreciate you coming in. And with that, the hearing 

is adjourned. 

[Whereupon, at 1:53 p.m., the Committee was adjourned.] 


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Written Testimony of Richard Cordray 

Director, Consumer Financial Protection Bureau 

Before the House Committee on Small Business 

Augnst 1, 2012 

Chairman Graves, Ranking Member Velazquez, and Members of the Subcommittee: thank you 

for inviting me here today to talk about the CFPS's compliance with the Regulatory Flexibility 

Act (RFA) and its implementation of section 11 OOG of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act). My name is Richard Cordray, and I am the 

Director of the Consumer Financial Protection Bureau. I am honored to represent the Bureau 

here this afternoon. 

Small businesses are a critical growth engine for our economy and an essential source of 

financial services for many consumers. For this reason, the CFPB believes that it is very 

important to understand the impacts of its actions on small businesses. Since our inception, the 

CFPB has actively and consciously designed a number of mechanisms to seek the input of small 

businesses to support its mlemaking, supervision, enforcement, consumer education, research, 

and reporting nmctions. In order to create good public policy, we consider it a priority to 

integrate direct input and advice from small businesses into the CFPB's decision-making 

process. 

Section 11 OOG of the Dodd-Frank Act, which requires the Bureau to convene panels to seek 

direct input fi'om small businesses prior to proposing certain rules, is a critical piece of that larger 

effort. We have now convened three such panels in conjunction with the Chief Counsel for 

Advocacy of the Small Business Administration (SBA), and the Office of Management and 

Budget's Office ofInformation and Regulatory Affairs (OMB). While we are still learning and 

refining our panel processes, we are pleased with the results to date. We have found the 

opportunity to have intense, in-depth discussions with small financial services providers to be 

invaluable as we evaluate potential rulemaking options. And our interaction with SBA and 

OMB has been cordial and extremely productive. 

We welcome this opportunity today to repOlt on our implementation process. I want to describe 

both the panel process and how the panels fit into the Bureau's larger eflorts to engage in 

evidence-based rulemaking and to sensitize itself to the issues and concerns of small bnsinesses. 

*** 

Before turning to the implementation of section 11 ~OG, I believe it may be helpful to explain 

briefly the nature of the Bureau's jurisdiction over and early eflbrts to engage with small 

businesses. 

Congress established the Bureau to focus specifically on the regulation of consumer financial 

products and services that are provided primarily for personal, family, or household use. There 

are also a few limited areas in which the Bureau has authority with respect to financial products 

and services for small businesses. First, the Equal Credit Opportunity Act (ECOA) prohibits 
19 


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lenders from diseriminating in the provision of business (as well as consumer) credit on the basis 

of race, national origin, sex, or other protected bases. The Bureau implements ECOA by 

regulation and supervises compliance with ECOA for certain lenders. In addition, Congress has 

applied two credit card protections of the Truth in Lending Act (TlLA) to business cardsliniiting the liability of cardholders for unauthorized use of the card and restricting unsolicited 

issuance of new cards. 

The Bureau's jurisdiction over small businesses that provide consumer financial products and 

services has been carefhlly crafted by Congress, and reflects the intent of Congress to 

consolidate in the Bureau rulemaking authority that had previously been spread across several 

different Federal agencies. This consolidation helps ensure that the entire consumer financial 

market is subject to consistent regulations and standards that apply equally to all businesses, 

including small businesses. 

Small business review panels are a valuable component of our rulemaking process. The panels 

provid.e a m~c~isVJ.f~r us to se~k i~t~~si,:,e input from sma~l ~u~inesses abont the impacts and 

potential alternBtiv~s for ruiemaklllg IIlltiatlves. However, thIS 18 Just one of several Otltreach 

initiatives. For example, the CFPB has created an Office of Small Business, Community Banks, 

and Credit Unions, within its Office of External Affairs, to specifically engage with small 

depositories and businesses in carrying Ollt the Bureau's functions. In addition, the CFPB is 

currently working to convene various advisory councils that focus specifically on c01111nunity 

banks and credit unions. 

With this backgro1111d in mind, I would like to talk about how the CFPB is implementing the 

RFA and section 1100G of the Dodd-Frank Act. 

*** 

The RFA, as amended by Small Business Regulatory Enforcement Fairness Act (SBREFA) of 

1996, general1w~tliI Federal agencies to consider the potential economic impact of 

regulations dn slnall entities, including small businesses, small governmental units, and small 

not-for-pro£ilt o.ganJlatfons.! RFA requirements apply to rules that are subject to notice-andconunent rufeffibking requirements, unless the agency certifies that the rule will not have a . 

significant economic impact on a substantial number of small entities.2 Accordingly, the RF A 

and small busiqess panel requirements do not apply to rules for which notice and conunent is not 

required, such as the procedural rules issued by the Bureau to set up its own internal operations, 

but they do apply OCfnotice and conunent rules including many of those that we issue to 

implement laws governing the provision of consumer financial products and services. 

Like other Federal agencies, the RFA requires the Bureau to mal<e a threshold assessment of 

whether regulations covered by the statute could have a significant economic impact on a 

substantial number of small entities. Where the Bureau certifies that it does not expect such 

impacts, the RF A requires that it provide a factual basis for this conclusion_ For example, the 

Bureau recently certified that it does not expect a proposal to implement amendments to the 

I 5 U.s.c. 601 et seq. 

25 U.s.C. 603, 604. 

2 
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Home Ownership and Equity Protection Act of 1994 (HOEPA) to have a significant economic 

impact on a substantial number of small entities.3 HOEPA regulates the provision only of "highcost mortgages," which due to various factors are extremely rare in the housing market. For 

example, of the 5.3 million originations potentially covered by HOEPA in 2010, only about 

3,400 loans were actually covered by HOEPA. Although the Dodd-Frank Act expands the scope 

of the law in several ways, the Bmeau concluded after extensive quantitative analysis that the 

proposed rule was not likely to have a significant economic impact on a substantial number of 

entities. 

Where the Bmeau does not make such a certification, the RF A and Dodd-Frank Act section 

11000 require it to take several additional steps. First, the Bureau is one of three Federal 

agencies that are required to convene a small business review panel to gather input directly fi'om 

small entities prior to issuing the proposed rule. Second, like all other Federal agencies, the 

Bureau is required to conduct a written analysis of the potential impacts and alternatives at both 

the proposal and final rule stage. Third, the Bureau is required to separately assess and gather 

input on the potential etfects of the proposed and final rules on the cost of credit for amaH 

businesses, and to evaluate alternatives to minimize any cost increases while achieving the 

objectives of applicable statutes. 

1'd like to spend most of our time today discussing how the Bureau is implementing the first 

requirement. As I mentioned at the outset, the CFPB has conducted three small business review 

panels to date with the SBA and OMS: 

• In February 2012, the Bureau convened its first small business review panel, regarding 

the Bureau's proposal to combine the disclosure requirements ofTlLA and the Real 

Estate Settlement Procedures Act (TILA-RESPA rulemaking). This panel gathered 

information from representatives of small banks and credit unions, mortgage finance 

companies, mortgage brokers, settlement agents,· and nonprofit organizations. The panel 

report was released at the same time as the Bureau's proposed mle, on July 9, 20]2.4 

• In April 2012, the Bureau convened a small business review panel regarding the Bureau's 

upcoming proposal regarding mortgage servicing. This panel gathered information from 

representatives of small banks and credit unions, mortgage finance companies, mortgage 

servicers, nonprofit housing organizations, and other small businesses engaged in the 

servicing of mortgages. The final panel report will be released within the next few weeks 

at the same time as the proposed rule. 

• In May 2012, the Bureau convened a small business review panel to discuss the Bureau's 

upcoming proposal regarding residential mortgage loan origination standards. This panel 

gathered information from representatives of small banks and credit unions, mortgage 

finance companies, mortgage brokers, and nonprofit housing organizations. The final 

panel report will be released within the next few weeks at the same time as the proposed 

rule. . 

'See http://www.regulations.gov!#!documel1tDetail;D~CFPB-2012-0029·0001 (HOBPA proposed rule). 

4 See http://www.regulations.gov!#!documentDetail;D=CFPB-2012-0028-0001 crll.A-RESPA proposed rule). 

3 
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For each panel, we have consulted with the small entity representatives eoncerning the potential 

impacts of the proposals under consideration by the Bureau on small financial services providers 

and on the cost of credit for small businesses. I'd like to talk first about the processes we are 

using to organize and run the panels, and then about the feedback that we have received. 

Convening a small business review panel under the processes laid out in the RF A involves a 

substantial commitment of time and resources from all three pmiicipating agencies, as well as the 

individual small entity representatives. We are finding that the panel process requires a 

minimum of three to fotJl' months of intensive work to complete, including preparation time. We 

have provided a description of the processes that we are using to implement the small business 

review panels in a "Fact Sheet," which is accessible through the Bureau's website. 5 

Where the Bureau determines that a panel is warranted under section II OOG, it reaches out to 

SBA and OMB to begin preparations. The first steps are (1) to draft a detailed description of the 

proposals under eonsideration by the Bureau and an analysis of their potential impacts on small 

businesses and (2) to identify and recmit representative small entities to consult with the paneL 

Both the SBA and OMB provide feedback to the Bureau about the background materials, and as 

directed by the statute, the CFPB consults with the SBA on selection of the small entity 

representatives. By law, the representatives must be selected from businesses that are likely to 

be directly subject to the requirements of the rule. In part because of this requirement, the 

Bureau has been convening a number of other roundtables at roughly the same time that it 

convenes the small business review panels in order to obtain feedback from a broader range of 

stakeholders. The SBA typically suggests candidates for the small business review panels in 

addition to ones that the Bureau has identified through a variety of means, including its own 

previous outreach efforts and discussions with State and national trade associations. 

For each of the panels to date, we have identified approximately 15 to 20 small entity 

representatives to meet with the panel. We find that this size allows significant diversity among 

the businesses represented, while also permitting extensive and frank dialogue. For each panel, 

the Bureau has attempted to recmit a wide range of small entities, including businesses from 

different pUlis of the country, mral and tJl'ban markets, and different segments of the market 

(such as servicel's that may concentrate in particular types of loans). Final representatives are 

designated after consultation with the SBA. Representatives may participate in the panel 

outreach meeting in person or by teleconferenee, though to date we have been extremely pleaSed 

that most have been able and willing to travel to participate in the meeting in person. 

Prior to a scheduled panel outreach meeting, the CFPB distributes background materials to each 

small entity representative. Although not required by the statute, the Bureau also posts the 

materials on its website and provides a general email address for other stakeholders to provide 

feedback. 6 The outreach materials typically contain: 

5 See http://files.consumerfinance.gov/f/201205_CFPB.Jlublic _ factsheel-small-business-review-panel.process.pdf. 

6 See http://www.consumerfinance.govlblogfsbrefa-small-providers-and-mortgage-disclosurel (TlLA·RESPA 

rulemaking panel materials); http://files.consumerfinance.gov/f/201204_cfpb_small-business-reviewoutline_mortgage-servicing-rulemaking.pdf (mortgage servicing rulemaking panel materials); 

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• Information on the background of the proposed rule under development; 

• An overview of the proposed rule or regulatory options under consideration; 

• Other information that will enable small entity representatives to provide meaningnu 

comments on the likely economic impacts of the proposed rule and advice on 

potential alternatives; and 

• A detailed list of questions and issues on which the CFPB will seek small business 

input at the panel outreach meeting. 

The outreach meetings between the panel members from the three agencies and the small entity 

representatives have each lasted a full day, and in some cases we have held follow up calls to 

answer additional questions or to request additional information about specific topics. During 

the panel outreach meetings, the CFPB walks through each set of proposals and options or 

alternatives under consideration with the small entity representatives, as well as the questions 

and issues that have been identitled in advance. The small entity representatives provide 

extensive comments on the substance of the proposals and their potential impacts. The panel 

may ask the representatives to help identify other Federal regulations that may overlap or conmc! 

with the CFPB's proposed rule. In addition, the panel solicits advice regarding potential 

alternatives that would minimize any significant economic impacts of the proposed rule on small 

businesses while accomplishing thC objectives of applicable statutes. 

In addition to providing oral comments on these issues during thc outreach meeting, the small 

entity representatives are provided an opportunity to submit supplemental writtencol111nents, 

typically within about a week of the in-person meeting. The panel members from the three 

agencies then review the materials received along with materials provided by thC Bureau, and 

draft a report that summarizes both the feedback received from the small entity representatives 

and the panel's findings and recommendations. The statute requires the report to be completed 

60 days after the panel is convened. 

The CFPB then carefully considers the panel's report and the comments and advice provided by 

small businesses as it finishes preparing the proposed rule and the initial written impact analysis 

that is required under the RF A for publication. Once the proposed rule and analysis are issued, 

the panel's final report is placed in the public rulemaking record. Any small business or 

organization, ineluding those that participated in the panel outreach meeting, may submit formal 

written comments during the public comment period that occurs after the rule is proposed. We 

email the small entity representatives to alert them to the issuance and specifically ask for further 

feedback. After issuing the proposed rule, the CFPB will carefiJlly evaluate the public comments 

and will prepare and issue [mal rules, which will include the additional regulatory impact 

analysis of the final rule as required by the RF A. 

*** 

http://files.consumerflnance.govlfI201205_cfpb_MLO 3BREFA_ Outline _ of]roposals.pdf (residential mortgage 

loatl origination standards l'ulemaking panel materials). 

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Finally, I want to talk about how valuable we find the feedback we receive through the 11 OOG 

process and how we are incorporating it into our further deliberations. Because we have not yet 

released the proposals on servicing and mortgage loan origination, I want to focus primarily 

today on how the 11 OOG process affected the TILA-RESP A proposal, which was released on 

July 9. 

As discussed in both the proposal and panel report, it was helpful to be able to spend a full day 

discussing the disclosure integration project with a variety of small financial services providers 

who deal with the existing forms and regulations on a daily basis and many of whom have close 

interaction with consumers. In this rulemaking, the information provided through the small 

business panel process helped us to draft a better IRFA analysis, which by law must describe the 

impact of the proposed rule on small entities, .and include any significant alternatives to the 

proposed rule which accomplish the statutory objectives and minimize significant impact ofthe 

proposed rule on small entities. 

We responded to every panel recommendation and every major concern raised by the small 

business participants, whether by adopting the recommendation, changing the proposal, seeking 

comment on a particular issue, or other action. To take just a few examples, 

• During the panel outreach meeting, small entity representatives expressed the concern 

that current rules implementing TILA and RESP A disclosure requirements create 

significant unceltainty about how to comply. For example, a joint letter from four 

settlement agents stated that small settlement agents currently lose at least 30 minutes per 

closing due to regulatory uncertainty and compliance burdens associated with the current 

mles. Consistent with the panel's recommendation, the proposal contains extensive 

commentary that provides detailed guidance 011 how to complete the integrated forms 

including, as appropriate, samples of completed forms for a variety of loan transactions. 

• The small entity representatives also expressed concern about the Bureau's proposal to 

harmonize different timing requirements under TlLA and RESP A by requiring 

disclosures to be completed three days prior to closing. While the Bureau had expected 

to make limited accommodations for last-minute changes, the small entity representatives 

identified that there may be other potential complications. Following the panel's 

recommendation, the proposed rule permits certain specific changes after provision of the 

disclosure and also solicits comment 011 whether additional exceptions are appropriate. 

• The small entity representatives expressed concern that certain statutory disclosures 

would be difficult to calculate and would likely not be helpful to consumers. The panel 

recommended that the CFPB consider revisions to the disclosures that would minimize 

the burden on small entities while ensuring that consumers receive importllnt information 

about mortgage transactions. Consistent with the panel recommendation, the proposal 

solicits comment on whether the CFPB should use its authorities to remove the 

disclosures from the integrated forms. 

These are just a few examples of the valuable contributions the review panel and small business 

representatives made to the TILA-RESP A rulemaking, which are discussed in detail in the 

proposed rule that was published on the Bureau's website on July 9. While I cannot go into the 

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details of the servicing and mOltgage loan origination proposals today, I can say that the 

feedback we received in those panels has helped us to think significantly about the basic 

premises of proposals under consideration and about altematives and accommodations for small 

businesses. In short, this is not a "check the box" kind of exercise but rather a vitally important 

source of information as we carry out the mandates that Congress has imposed. 

*** 

In closing, I want to note that implementation of section 11 OOG has been a learning process. We 

have convened our first panels at a time when the Bureau is both standing itself up and working 

under tight statutory deadlines to implement extensive new protections that Congress enacted to 

fundamentally reform the mortgage market. As you know, that market is critical to the nation's 

broader economy, and we must issue regulations to provide certainty to both financial services 

providers and protections to consumers. 

In light of these time pressures, we have worked very hard to develop an inclusive process that 

will allow us to consider fully the effects of proposed regulations on small businesses, as well as 

meet the statutory deadlines. We have consulted extensively with the SBA and OMB in this 

effort, as well as with the Environmental Protection Agency and the Occupational Health and 

Safety Administration, which are the other two agencies that are required to hold small business 

review panels. We have also consulted with trade associations and other stakeholders, 

particularly to recruit small entity representatives. 

Our procedures have already evolved over the course of the first three panels, and will continue 

to evolve, based on lessons leamed from each rulemaking. 

*** 

Mr. Chairman, thank you for the opportunity to testify on this important topic. I look forward to 

continuing to work with you and the Committee, and I will be happy to take your questions. 

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About Rich Cordray 

Richard Cordray serves as the first Director of the Consumer Financial Protection Bureau. He 

previously Jed the Bureau's Entorcement Division. 

Prior to joining the Bureau, Mr. Cordray served on the front lines of consumer protection as 

Ohio's Attomey General. Mr. Cordray recovered more than $2 billion for Ohio's retirees, 

investors, and business owners and took major steps to help protect its consumers from 

fraudulent foreclosures and financial predators. In 20 I 0, his office responded to a record number 

of consumer complaints, but Mr. Cordray went further and opened that process for the first time 

to small businesses and non-profit organizations to ensure protections fbr even more Ohioans. To 

recognize his work on behalf of consumers as Attorney General, the Better Business Bureau 

presented Mr. Cordray with an award for promoting an ethical marketplace. 

Mr. Cordray also served as Ohio Treasurer and Franklin County Treasurer, two elected positions 

in which he led state and county banking, investment, debt, and financing activities. As Ohio 

Treasurer, he resurrected a defunct economic development program that provides low-interest 

loan assistance to small businesses to create jobs, re-Iaunched the original concept as 

GrowNOW, and pumped hundreds of millions of dollars into access for credit to small 

businesses. Mr. Cordray simultaneously created a Bankers Advisory Council to share ideas about 

the program with community bankers across Ohio. 

Earlier in his career, Mr. Cordray was an adjunct professor at the Ohio State University College 

of Law, served as a State Representative for the 33rd Ohio House District, was the first Solicitor 

General in Ohio's history, and was a sole practitioner and Of Counsel to Kirkland & Ellis, Mr. 

Cordray has argued seven cases before the United States Supreme Court, including by special 

appointment of both the Clinton and Bush Justice Departments. He is a graduate of Miehigan 

State University, Oxford University, and the University of Chicago Law School. Mr. Cordray 

was Editor-in-Chief ofthe University of Chicago Law Review and later clerked for U.S. 

Supreme Court Justices Byron White and Anthony Kennedy. 

MI'. Cordray lives in Grove City, Ohio with his wife Peggy - a Professor at Capital University 

Law Sehool in Columbus - and twin children Danny and Holly. 
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ltongress of the tinitcd ~tat£s 

'lll.,s. ~ousc of'lRcpresmmtiucs 

\tommimc on J5maU )Business 

The Honorable Richard Cordray 

Director 

no) RUllbum !~onsc ellicr ,BuUding 

ll11,lshington, Dlt 2lljlHlii 

August 22,2012 

Consumer Fiuancial Protection Bureau 

180 I L Street, NW 

Washington, DC 20036 

Dear Director Cordray: 

NYD!A M. VELAZQUEZ, NEw YORK 

RANKING MrM8fR 

On behalf of the Committee on Small Business, I would like to thank you for testifying at our 

hearing on August 1,2012, titled "Know Before You Regulate: The Impact ofCFPB Regulations 

on Small Business." Because the hearing was adjourned early due to a series offioor votes and 

out of respect for your time, the Committee appreciates your commitment to respond to written 

questions. Attached plcase find questions stemming from your appearance before the 

Committee. Your responses will be made pmt of the official record for the hearing. 

Please submit your responses to the Committee by September 12, 2012. Should you or your staff 

have any questions concerning this request, please contact Barry Pine1es, Chief Counsel, or 

Viktoria Ziebmth, Counsel for the Committee, at (202)225-5821. 

/ Chairman 

Committee on Small Business 
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Committee on Small Business 

"Know Before You Regulate: The Impact ofCFPB Regulations on Small Business" 

August 1,2012 

Questions for the Record 

1. On July 9,2012, the CFPB posted the "Integrated Mortgage Disclosures under the Real 

Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation 

Z)" proposed rule (the TILA-RESPA Rule) on its website. However, the TILA-RESPA 

Rule still has not been published in the Federal Register, as required under 5 U.S.C. § 

553(b). The TILA-RESPA Rule became available to view on the Office of the Federal 

Register's Electronic Public Inspection Desk webpage on August 6, 2012 but is not 

scheduled to be published in the Federal Register until August 23,2012. 

a. On what date did CFPB transmit the TILA-RESPA Rule to the Office of Federal 

Register for publication? 

b. The version ofthe TILA-RESPA Rule posted on CFPB's website on July 9, 2012 is 

1,099 pages. The version of the TILA-RESPA Rule posted on the Office of the 

Federal Register's Electronic Public Inspection Desk webpage on August 6, 2012 is 

1,096 pages. What changes have been made to the documents that account for the 

three page discrepancy? 

c. Did the CFPB ask for the publication of the TILA-RESPA Rule to be delayed until 

August 23, 2012? If yes, why did the CFPB ask for pUblication to be delayed for an 

extended period of time? 

2. In your written testimony you stated that CFPB's procedures for the Small Business 

Advocacy Review (SBAR) panels have "already evolved over the course of the first three 

panels ... based on lessons learned from each rulemaking." 

a. How have CFPB's procedures evolved? 

b. What lessons have you learned from the first three SBAR panels? 

3. What is the CFPB's process for determining whether a SBAR panel needs to be conducted 

for a proposed rule? 

4. What is the CFPB's process for identifying and selecting small entity representatives 

(SERs) for a SBAR panel? 

5. Why has the CFPB ehosen not to make public the names of the SERs upon their selection? 
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6. What is CFPB's process for preparing materials to provide to the SERs participating in the 

SBAR panel process? 

7. In response to Representative Allen West's question regarding whether CFPB had provided the 

SERs selected for the TILA-RESPA SBAR Panel enough notice in advance of the March 6, 

2012 meeting and enough time to adequately respond to the questions CFPB raised, you stated 

that "in retrospect, you know, we would have preferred to have had more time to prepare the 

panels. And we will in the future have more time to prepare the panels." The SERs and their 

trade association representatives have stated that two weeks' notice was insufficient. 

a. How much notice (e.g., a month, six weeks, two months) will CFPB give to SERs in 

advance of the panel outreach meeting so that SERs have adequate time to make 

work and travel arrangements and review the regulatory proposal? 

b. SERs have also commented that they were unable to provide detailed information 

and feedback in the time frame that CFPB mandated, one week after the March 6, 

2012 meeting. How much time will CFPB give SERs to provide written feedback? 

c. Will the CFPB prepare more detailed guidance for its rulewriters on how to comply 

with the Regulatory Flexibility Act (RFA) and conduct robust SBAR panels, and 

will thc CFPB make that guidance document public as the EPA has done? 

8. The CFPB completed the SBAR Panel Final Report (Panel Report) for the TILA-RESPA 

Rule on April 23, 2012. However, CFPB did not make the Panel Report public until it 

posted the proposed rule on its website on July 9, 2012. The CFPB has stated that one of its 

primary missions is to make the financial products and services that consumers use more 

transparent. 

a. Why did the CFPB decide not to release the Panel Report for the TILA-RESPA Rule 

when it was completed? 

b. In the spirit of transparency, will the CFPB make panel reports public when they are 

completed? 

9. According to the TILA-RESPA Rule, the CFPB interviewed 92 consumers and 22 industry 

participants between May 2011 and March 2012 to determine if they understood the form 

and liked the design. The SERs recommended that you test the forms on actual, real-world 

real estate mortgage closings before finalizing the rule. 

a. Will the CFPB test the forms on actual real estate mOltgage closings? 

b. If not, why not? 

10. The initial regulatory flexibility analysis for the TILA-RESPA did not include economic 

impact analysis or cost estimates for several parts of the regulatory proposal. 

a. How many Ph.D. level regulatory economists does the CFPB have on staff? 

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b. How many regulatory economists does the CFPB have analyzing the costs and 

benefits of CFPB regulations? 

c. Please describe the process that CFPB is using to estimate the costs and impacts of 

proposed rules, in paliicular the small business impacts. 

d. Is the CFPB conducting its own research and attempting to estimate costs before 

conducting SBAR panels? 

11. Under Section llOOG of the Dodd-Frank Wall Street Reform and Conswner Protection Act 

(Dodd-Frank Act), which amended the RFA, the CFPB is required to include in each initial 

regulatory flexibility analysis, "any projected increase in the cost of credit for small 

entities," and advice and recommendations of representatives of small businesses relating to 

that issue. We are concemed that CFPB's analysis of cost of credit is lacking in the 

mortgage disclosure rulemaking. 

a. Cal1 you describe how CFPB is analyzing the impacts to the costs of credit? 

b. Does CFPB have economists working on this type of a!1alysis? 

c. Is CFPB only relying on small entities to try to explain these impacts? 

d. Will CFPB a!1alyze the impact on the cost of credit for small entities for every rule 

a!1d make that a!1alysis public? 

12. Cunently, CFPB is working on several rulemakings iliat are inter-related, including the 

Qualified Mortgage (QM) Rule, Qualified Residential Mortgage Rule, and the TILARESPA Rule that will impact the residential mortgage industry. 

a. Is the CFPB considering how these rules are going to work together? 

b. What steps are you taking to a!1alyze and mitigate the cumulative impact of these 

rules on the affected small businesses? 

13. Will the CFPB conduct SBAR panels for rules that are tra!1sfened from other agencies, such 

as the QM Rule, if the proposed rule is expected to have a significant economic impact on a 

substantial number of small businesses? If not, how will the CFPB ensure that it meets its 

a!1alytical requirements under the RF A? 

14. On page 577 ofilie TILA-RESPA Rule the CFPB states that it "believes that the ongoing 

costs of compliance with the proposed disclosure requirements would likely be equal to or 

less than cunent ongoing compliance costs." 

a. What led you to this conclusion? 

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b. Wouldn't you need to test these fonus in a real world setting to actually validate this 

statement? 

15. In the TILA-RESPA Rule, the CFPB estimates that the total one-time costs of revising 

software and systems and training employees to implement the changes to the disclosure 

forms is $100, 100,000. However, on pagc 575 of the regulation the CFPB states that, "the 

Bureau does not believe that adoption of the integrated Loan Estimate or Closing Disclosure 

would impose any direct costs on consumers." 

a. Who do you believe will pay this $100,100,000? 

b. Isn't it logical to assume that businesses may find it necessary to pass some costs 

onto consumers? 

16. One part of the TILA-RESPA Rule may changc which party, the lender or a settlement 

agent, is responsible for providing the Closing Disclosure form to a consumer. In analyzing 

the costs of the proposed rule on small business, the CFPB only analyzes the impact of the 

rule on lenders. No information is provided on the impact to settlement agents or mortgage 

brokers. Yet, settlement agents serving as SERs to the SBAR panel provided specific 

information to CFPB on the costs a settlement agent will incur upgrading software and 

training employees. 

a. Why did the CFPB fail to assess the impact to settlement agents, which consists 

mainly of small businesses, and mortgage brokers? 

b. Why didn't the CFPB use the data and cost estimates provided by the settlement 

agents to estimate the economic impact ofthe TILA-RESPA Rule on settlement 

agents? 

c. Isn't it likely that if the role of settlement agents in the mortgage closing process is 

changed, there will be an economic impact? 

d. Do you think this could lead to fewer choices for consumers? 

17. Industry has stressed to the CFPB that they will need a significant amount of time to 

implement any final TILA-RESPA Rule. Small businesses have told CFPB that they will 

need 12 to 18 months to upgrade software and systems and train their employees. 

a. Will CFPB provide a compliance period of 12 to 18 months to allow small 

businesses to come into compliance with the new regulation? 

18. The design of the new Closing Disclosure eliminates the current line numbering that exists 

on settlement statements. According to the SBAR Panel Final Report, several SERs wrote 

that "changes of location or numerical reference cause significant system programming 

issues and are one of the largest drivers of software development costs and implementation 

time." The CFPB stated in the TILA-RESPA Rule that it was soliciting comment on 

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whether an alternative design or numbering format will lower the costs of the software 

upgrades. 

a. What was the reasoning behind the decision to remove the line numbers? 

b. Did the CFPB contact any software providers to learn about potential programming 

issues that might be caused by removing the line numbering that currently exists and 

the costs involved with the redesigning of the forms? 

c. If not, why didn't the CFPB try to learn about programming issues from software 

providers? 

19. The TILA-RESPA Rule imposes new data retention requirements for the Loan Estimate and 

the Closing Disclosure by requiring creditors to maintain evidence of compliance in 

machine readable, electronic fonnat. The CFPB is proposing that Loan Estimates be 

retained electronically for 3 years and Closing Disclosures be retained for 5 years. This is 

electronic data retention requirement is not required under TILA, the RESPA, or the DoddFrank Act. The CFPB acknowledges that "requiring standardized, electronic records may 

be a significant burden for small creditors that do not cUlTcntly have such electronic systems 

or use vendor software." Small businesses are concerned that this provision will be unduly 

burdensome. 

a. Why is CFPB proposing this requirement if it is not required under any of the 

related statutes? 

b. Why did CFPB fail to estimate compliance costs for this requirement? 

c. How does this requirement improve consumer's understanding ofthe mortgage 

disclosure forms? 

20. Many small businesses that are trying to navigate your website find it confusing. SBAR 

panel materials are difficult to locate because the materials on SBAR panels are on different 

pages on the CFPB website and Lmtil very recently, there was no search box on the CFPB 

website. 

a. Are you aware of how the website is structured and of these concerns? 

b. Will the CFPB improve its website so that small businesses can easily find the 

intolmation on rules subject to the SBAR panel process? 

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Committee on Small Business 

"Know Before You Regulate: The Impact ofCFPB Regulations on Small Business" 

August 1,2012 

Questions for the Record 

1. On July 9, 2012, the CFPB posted the "Integrated Mortgage Disclosures under the Real 

Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation 

Z)" proposed rule (the TlLA-RESPA Rule) on its website. However, the TlLA-RESPA 

Rule still has not been published in the Federal Register, as required under 5 U.S.C. § 

553(b). The TlLA-RESPA Rule became available to view on the Office of the Federal 

Register's Electronic Public Inspection Desk webpage on August 6, 2012 but is not 

scheduled to be published in the Federal Register until August 23, 20]2. 

a. On what date did CFPB transmit the TlLA-RESPA Rule to the Office of Federal 

Register for pUblication'? 

The Bureau transmitted the TILA-RESPA Proposed Rule to the Offiee of the Federal Register 

(OFR) on Monday, July 9'11, 2012. 

b. The version of the TILA-RESPA Rule posted on CFPB's website on .July 9, 2012 is 

1,099 pages. The version of the TlLA-RESPA Rule posted on the Office of the 

Federal Register's Electronic Public Inspection Desk web page on August 6, 2012 is 

1,096 pages. What changes have been made to the documents that account for the three 

page discrepancy? 

The three-page discrepancy is the result offormatting changes made following the OFR's review 

of the document. Several typographical errors wcre also corrected, but these edits did not atTect 

the length of the document. 

c. Did the CFPB ask for the publication of the TlLA-RESPA Rule to be delayed until 

August 23, 2012? If yes, why did the CFPB ask for pUblication to be delayed for an 

extended period oftime? 

No. In a letter dated July 12,2012, the Bureau requested immediate tiling for public inspection 

and publication as soon as possible. (See Attachment A.) As is customary for Federal Register 

submissions, the OFR statT' conducted a formatting review of the proposed rule and submitted 

their changes to the Bureau on August 2, 2012. 'D1e Bureau reviewed the changes, requested 

several typographical edits, and renewed the request that OFR immediately tile the document for 

public inspection and publish it as soon as possible. The OFR placed the document on public 

inspection on August 6 and scheduled the document for publication on August 23. 

On September 6, a Bureau notice extending the comment period for comments on the definition 

of the finance charge in the TILA-RESPA proposed rule to November 6, 2012 was published in 

the Federal Register. 
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2. In your written testimony you stated that CFPB's procedures for the Small Business 

Advocacy Review (SBAR) panels have "already evolved over the course of the first three 

panels ... based on lessons learned from each rulemaking." 

a. How have CFPB's procedures evolved? 

Prior to convening its tirst panel under the Small Business Regulatory Enforcement Fairness Act 

(SBREFA), the Bureau consulted with the agencies that have participated in prior panels: the 

Small Business Administration's Office of Advocacy (SEA), the Office of Management and 

Budget (OMB), the Environmental Protection Agency (EPA), and the Occupational Safety and 

Health Administration (OSHA). Through these consultations, we received valuable information 

about different approaches to conducting SBREF A panels. 

The Bureau's first SBREFA panel was convened to assist the Bureau in the preparation of the 

TlLA-RESPA Proposed Rule. For that panel, we decided that the meeting with the small entity 

representatives (SERs) should last lor a full day to allow sufficient time for discussion of all the 

relevant issues, that the meeting should be conducted in private to facilitate open discussion, and 

that each SER should be permitted to bring a guest to the meeting to assist them. The feedback 

from the SERs on the meeting itselfwas very positive, but some SERs recommended that in the 

future more time be provided in advance of the meeting to review the materials and more time be 

provided after the meeting to submit written feedback. Accordingly, for the subsequent 

SBREF A panels on mortgage servicing loan originator compensation, we provided as much time 

before and after the meeting as possible in light of the Bureau's deadline to issue final rules to 

implement these Dodd-Frank Act provisions, which would otherwise take effect on January 21, 

2013. 

b. What lessons have you learned from the first three SBAR panels? 

We believe that the open discussion, between the SERs themselves and with the representatives 

of the Bureau, SBA, and OMB, gave the SERs a better understanding of the proposed 

regulations, while providing the Bureau with a greater appreciatiou of the costs and benefits of 

the proposals under consideration. We also learned that including SERs who represented diverse 

subsets of consumers, businesses, and parts of the country enabled an open exchange of 

different, and sometimes conflicting, perspectives. Such robust discussion yielded 

comprehensive and insightfill feedback. 

3. What is the CFPB's process for determining whether a SBAR panel needs to be 

conducted for a proposed rule? 

The Regulatory Flexibility Act (RFA), as amended by section II OOG of the Dodd-Frank Act, 

specifies when a SBREFA panel ueeds to be couducted for a proposed mle. The Bureau is not 

required to convene a panel for proposed mles that are subject to the RFA but that the Director 

certifies will not have a significaut economic impact on a substantial number of small entities, 

such as the High-Cost Mortgage and Homeownership Counseling Amendments proposed rule 

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(HOEPA Proposed Rule ).1 When such certifications have been appropriate, the Bureau has 

explained the decision transparently by publishing detailed analyses of economic impact in the 

notice of proposed rule, and solicited public feedback on the Bureau's determination. For 

example, in the HOEPA Proposed Rule the Bureau conducted the economic impact analysis by 

developing an overview of the market for high-cost mortgages, determining the number and 

classes of affected entities, and then analyzing the impact of the various proposed provisions on 

the affected entities. 2 In addition, the RFA does not require a SBREFA panel in the case of 

rulemakings in which a notice of proposed rulemaking is not required by the Administrative 

Procedure Act. Finally, the Bureau is not required to convene a SBREFA panel when the rule 

was originally proposed by the Federal Reserve Board such as the Qualified Mortgage rule 3 

4. What is the CFPB's process for identifying and selecting small entity representatives 

(SERs) for a SBAR panel? 

By statute, the SBREF A panel focuses on the small entities that are directly subject to and must 

comply with the rule. The Bureau, in consultation with the SBA, selects the SERs who will meet 

with and provide advice and recommendations to the panel. Potential representatives for the 

TILA-RESPA, mortgage servicing, and loan originator compensation panels were identified 

through a variety of methods. We received suggestions from the SBA, trade associations and 

other industry groups, consumer organizations, and non-profit organizations. We also learned of 

interested SERs through our own outreach efforts. 

5. Why has the CFPB chosen not to make public the names of the SERs upon their 

selection? 

To protect the privacy of the SERs and to promote open discussion with the panel, the Bureau 

chose not to release the names of participating SERs to the general public before the panel 

completed its work. However, the Bureau included the name and company of each participating 

SER in the panel reports. Also, nothing prevented a SER from making her or his name public, as 

some chose to do. 

6. What is CFPB's process for preparing materials to provide to the SERs participating in 

the SBAR panel process? 

The Bureau's goal is to provide participating SERs with materials that will facilitate meaningful 

feedback and dialogue about the proposals under consideration. Once the Bureau has conducted 

sufficient outreach, research, and analysis of the issues to formulate preliminary proposals, 

Bureau staff have prepared an outline of the proposed rule under consideration, possible 

rulemaking alternatives, and the potential economic impacts on small businesses. These 

materials have been provided to the SERs in advance of the meeting, along with a list of issues 

Of discussion items on which the Bureau is interested in receiving more input from small 

businesses during the meeting. 

I 77 FR 49089 (Aug. 15.2012). 

, ld. at 49140-5. A similar analysis was conducted for the Appraisals Proposed Rule. 77 FR 50390. at 50400·2 

(Aug. 21. 2012). 

3 See 76 FR 27390 (May 11, 201l). 

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7. In response to Representative Allen West's question regarding whether CFPB had 

provided the SERs selected for the TILA-RESPA SBAR Panel enough notice in advance of 

the March 6,2012 meeting and enough time to adequately respond to the questions CFPB 

raised, you stated that "in retrospect, you know, we would have preferred to have had 

more time to prepare the panels. And we will in the future have more time to prepare the 

panels." The SERs and their trade association representatives have stated that two weeks' 

notice was insufficient. 

a. How much notice (e.g., a month, six weeks, two months) will CFPB give to SERs in 

advance of the panel outreach meeting so that SERs have adequate time to make work and 

travel arrangements and review the regulatory proposal? 

The Bureau values the informed and thoughtful feedback provided by the SERs, and recognizes 

the amount of preparation that is necessary to provide such feedback. In an effort to develop the 

best possible process, the Bureau will provide advance notice to SERs tailored to the complexity 

of and circumstances surrounding each particular rulemaking. It may be appropriate to adjust 

the time period in response to specific circumstances, such as a statutory deadline, a request from 

Congress, or an urgent need to address a market issue. [n all cases, the Bureau is committed to 

providing SERs with sufficient advance notice to make necessary work arrangements. 

b. SERs have also commented that they were unable to provide detailed information and 

feedback in the time frame that CFPB mandated, one week,after the March 6, 

2012 meeting. How much time will CFPB give SERs to provide written feedback? 

The RFA does not require written SERs feedback as part of the SBREFA panel process. 

However, the Bureau welcomes such feedback. Much like the Bureau's procedure for providing 

advance notice, the Bureau intends to tailor the amount of time provided for written feedback to 

the particular rulemaking. In some cases, SERs may need more time to prepare written feedback 

if unforeseen issues are raised during the meeting. In other cases, a lengthy time period may be 

unnecessary. Notably, the Bureau extended the written feedback deadline for the loan originator 

compensation SBREFA panel because some SERs requested additional time. 

c. Will the CFPB prepare more detailed guidance for its rulewriters on how to comply 

with the Regulatory Flexibility Act (RFA) and conduct robust SBAR panels, and will the 

CFPB make that guidancc document public as the EPA has done? 

The Bureau has produced detailed and robust SBREF A panel materials and RF A analyses. The 

Bureau has created a public "Fact Sheet" on the SBREFA panel process that is provided to SERs 

and has been posted on the Bureau's website. As part of its commitment to transparency, the 

Bureau has made copies of substantive materials distributed to the small business representatives 

available to the public, including other small businesses, on its website at about the same time 

they are sent to the small business representatives. 

8. The CFPB completed the SBAR Panel Final Report (Panel Report) for the TILARESPA Rule on April 23, 2012. However, CFPB did not make the Panel Report public 

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until it posted the proposed rule on its website on July 9, 2012. The eFPB has stated that 

one of its primary missions is to make the financial products and services that consumers 

use more transparent. 

a. Why did the eFPB decide not to release the Pauel Report for the TILA-RESPA Rule 

when it was completed? 

The statute requires the Panel report be made public as part of the rulemaking record, but does 

not specify when the report should be released to the public. The CFPB released the TILARESPA report with the proposed rule in July so that the public can consider them together. 

b. In tbe spirit of transparency, will the eFPB make panel reports public when they are 

completed? 

The Bureau highly values transparency. Publicly releasing the panel report with the Proposed 

Rule promotes transparency. However, as panel reports must be interpreted in the context of the 

corresponding proposed rule, the Bureau must also consider whether releasing the panel report 

before the proposed rule would cause unnecessary confusion. 

9. According to the TILA-RESPA Rule, the eFPB interviewed 92 consumers and 22 

industry participants between May 2011 and March 2012 to determine if they understood 

the form and liked the design. The SERs recommended that you test the forms on actual, 

rcal-world real estate mortgage closings before finalizing the rule. 

a. Will the eFPB test the forms on actual real estate mortgage closings? 

b. If not, why not? 

The Bureau is investigating the possibility of additional testing. On March 28, 2012, the Bureau 

published a notice for comment under the Paperwork Reduction Act in connection with potential 

quantitative testing of the proposed forms, specifically inviting comment on whether the 

information collected will have practical utility, the accuracy of the Bureau's burden hour 

estimates, and ways to enhance the quality of the information collected and to minimize the 

burden on respondents. 4 Although the Bureau received no comments in response to this notice, 

the Bureau continues to study whether additional testing procedures may help further improve 

the proposed TILA-RESPA forms. The Bureau solicited comment in the TlLA-RESPA 

Proposed Rule regarding the impact of the proposed disclosures on actual real estate closings. 

The Bureau will consider this feedback in determining whether additional testing is appropriate, 

including testing using actual loan files Of in actual closings. 

10. The initial regulatory flexibility analysis did not include economic analysis or cost 

estimates for several parts of the regulatory proposal. 

a. How many Ph.D. level regulatory economists does the eFPB have on staff? 

477 FR 18793 (Mar. 28. 2012). 

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b. How many regulatory economists does the CFPB have analyzing the costs and benefits 

of CFPB regulations? 

There are currently twelve Ph.D. level economists on staff, roughly half of whom are analyzing 

the costs and benefits of Bureau regulations. 

c. Please describe the process that CFPB uses to estimate the costs and impacts of 

proposed rules, in particular small business impacts. 

The Bureau begins the process of estimating the costs and impacts of proposed rules on small 

business by determining what types of small businesses, as defined by the Regulatory Flexibility 

Act, may be atTected by the rule. As you know, whether or not a business is a "small business" 

for purposes of the RF A is determined by application of SBA regulations and reference to the 

North American Industry Classification System (NAICS) classifications and size standards.s 

The Bureau then determines the number of entities subject to these categories, For example, for 

the TILA-RESPA Proposed Rule, the Bureau determined the number of entities subject to the 

NAICS categories by reference to several data sources, such as the December 2010 National 

Credit Union Administration Call RepOli data and the Nationwide Mortgage Licensing System 

Call Report data for Q2 and Q3 of20 11.6 The Bureau then develops cost estimates based on 

information collected from a variety of sources, including feedback provided to the Bureau, 

information learned during the SBREFA panels, and data collection effOlis. For example, lor the 

TILA-RESPA Proposed Rule, the Bureau relied on data publicly available from the Bureau of 

Labor Statistics to determine the average compensation for a loan officer, while relying on 

information submitted by settlement agents to determine how much time businesses could save 

by implementing the TILA-RESPA standard forms. 7 The Servicing Proposed Rule and Loan 

Originator Compensation Proposed Rule followed the same procedures. 8 

d. Is the CFPB conducting its own research and attempting to estimate costs before 

conducting SBAR panels? 

Yes, the Bureau researches and analyzes costs before preparing the SBREFA materials and 

conducting the panels. For example, for the TILA-RESPA Proposed Rule, the Bureau conducted 

extensive outreach before conducting the SBREFA panels, which was used to inform our 

decisions and collect information related to costs. We spoke with small businesses, and trade 

associations representing small businesses many times during the year prior to convening the 

panels. This research was used in estimating the costs and benefits of potential regulatory 

approaches. 

11. Under Section 1100G of the Dodd-Frank Wall Street Reform and Consumer Protection 

Act (Dodd-Frank Act), which amended the RFA, the CFPB is required to include in each 

55 U.S.C. 601(3). The current SBA size standards are found on SBA's Web site at 

Idat 51288-9. 

'See 20]2 Truth in Lending Act Mortgage Servicing Proposal at 125-6, and Truth in Lending Act; Loan Originator 

Compensation Proposal at 269-71. 

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initial regulatory flexibility analysis "any projected increase in the cost of credit for small 

entities," and advice and recommendations of representatives of small businesses relating 

to that issue. We are concerned that CFPB's analysis of cost of credit is lacking in the 

mortgage disclosure rule making. 

a. Can you describe how CFPB is analyzing the impacts to the costs of credit'! 

The CFPB's regulatory authority is focused on financial products meant for consumers. We 

therefore expect that most of the CFPB's rulemakings will have no effect on small business 

credit. There may be a few limited exceptions. 

For proposed rules subject to this RFA requirement, the Bureau has and will continue to consult 

with small businesses on the potential impact of the proposals under consideration on the cost of 

credit. This consultation may take place either as part ofthe SERs meeting or during separate 

consultation meetings convened by the Bureau that focus on small business credit issues. In 

addition, the Bureau collects, and will continue to collect, market-wide data related to the cost of 

credit. With respect to the TILA-RESPA Proposed Rule in particular, the Bureau determined 

that the proposal would have little to no effect on the cost of credit, and therefore would have 

little to no effect on the cost of credit for small businesses.9 The lender SERs reported making 

few mortgage loans that are used primarily for personal, family, or household purposes (and 

therefore are covered by TILA and RESPA) but that are used, secondarily, to finance a small 

business. In addition, the lew loans they described making would appear to fall within the TILA 

and RESPA exceptions for loans made primarily for business purposes, and therefore would not 

be subject to the Proposed Rule,lo The Bureau made a similar determination for the Mortgage 

Servicing Proposed Rule and for the Loan Originator Compensation Proposed Rule. 11 We will 

carefully review any comments we receive regarding potential impacts on the cost of credit for 

small businesses and will address these in the final rulemaking documents. 

b. Does CFPB have economists working on this type of analysis? 

Yes, the Bureau has hired and continues to hire Ph.D. economists, financial analysts, and 

industry experts to assist our consideration of potential impacts of Bureau regulations on the cost 

of credit for small entities. 

c. Is CFPB only relying on small entities to try to explain these impacts? 

In addition to the information received during the SBREF A panels, the Bureau is conducting its 

own research, and has sought input from industry experts and trade associations. The Bureau has 

also solicited public infonnation about costs and impact, including impact on small businesses, 

in its proposals. 

Old. at 51297. 

!(lId. See also TILA section 104(1); RESPA section 7(a)( 1), 

11 See 2012 Truth in Lending Act MOtigage Servicing Proposal at 244. and Truth in Lending Act; Loan Originator 

Compensation Proposal at 291. 

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d. Will CFPB analyze the impact on the cost of credit for small entities for every rule and 

make that analysis public? 

The Bureau will continue to fully comply with Dodd-Frank section 11 OOG's requirements that 

the Bureau consider the impact certain mles will have on the cost of credit for small businesses, 

and to evaluate specitic alternatives to minimize any increases in the cost of credit while 

accomplishing applicable statutory objectives. The Bureau will continue to include a description 

ofthese efforts in the Initial Regulatory Flexibility Analysis, as required by the statute. 12 

12. Currently, CFPB is working on several rulemakings that are inter-related, including 

the Qualified Mortgage (QM) Rule, Qualified Residential Mortgage Rule, and the 

TILA-RESPA Rule that will impaet the residential mortgage industry. 

a. Is the CFPB considering how these rules are going to work together? 

The Bureau is carefully considering how these mles will work together. As required by the 

Dodd-Frank Act, the Bureau is currently working on mlcmakings related to HOEPA, mortgage 

servicing, loan originator compensation, appraisals, qualified mortgages, and escrow accounts. 

In the proposals issued this summer, the Bureau stated that it regards these rulemakings as 

components of a larger undertaking. 13 Accordingly, the Bureau is coordinating carefully the 

development of these final rules. Each rulemaking will adopt new regulatory provisions to 

implement Dodd-Frank Act mandates. In addition, each mle may include other provisions the 

Bureau considers necessary or appropriate to ensure that the overall undertaking is accomplished 

efficiently and that it ultimately yields a regulatory scheme for mortgage credit that achieves the 

statutory purposes set forth by Congress, while avoiding unnecessary burdens on industry. 

b. What steps are you taking to analyze and mitigate the cumulative impact of these rules 

on the affected small businesses? 

We have solicited comment regarding the potential impact of these proposed rules on small 

businesses. We have also asked for commenters to provide us with data illustrating the impact 

on small businesses. We have taken the further step of attempting to obtain additional data on 

our own during the comment period. This multi-pronged approach should provide us with 

sufficient information to analyze the impact on small businesses and adopt regu latory approaches 

that will serve the needs of both consumers and small businesses. 

13. Will the CFPB conduct SBAR panels for rules that are transferred from other 

agencies, such as the QM Rule, if the proposed rule is expected to have a significant 

economic impact on a substantial number of small businesses? If not, how will the CFPB 

ensure that it meets its analytical requirements under the RFA? 

"5 U.S.C. 603(d)(1). 

13 77 FR 49089, 49093 (Aug. 15,2012): 77 FR 51115,51125 (Aug. 23, 2012). 

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The RFA requires that a panel be convened only for rules proposed by the Bureau, the EPA, and 

OSHA. In the case of the qualified mortgage rulemaking, a SBREFA panel is not required 

because the proposed rule was issued by the Federal Reserve Board. However, the Bureau 

consistently has sought the input of small financial services providers in rulemakings that affect 

them. For example, on June 5, 2012, the Bureau reopened the comment period to the qualified 

mortgage proposal to seek additional public comment on new data and information that the 

Bureau had received. 14 A number of small businesses and the SBA submitted comment letters 

during the reopened comment period. Furthermore, in connection with the qualified mortgage 

proposal, the Bureau has met with a variety of stakeholders, including small businesses and trade 

associations for small businesses, to hear their feedback and comments on the proposal, 

including any potential economic impacts on small businesses. 

14. On page 577 ofthe TlLA-RESPA Rule the CFPB states that it "believes that the 

ongoing costs of compliance with the proposed disclosure would likely be equal to or less 

than current ongoing compliance costs." 

a. What led you to this conclusion? 

The Bureau believes that ongoing compliance costs associated with the integrated disclosures 

will likely be equal to or less than the compliance costs associated with current disclosure 

requirements. For example, the Bureau believes that the integrated disclosures will reduce the 

number of disclosures that covered persons need to prepare and provide and the number of 

disclosure-provision systems and processes that covered persons need to maintain. In addition, 

most small entities that participated in the SBREF A panel process for the TILA-RESPA 

Proposed Rule stated that the integrated forms would be easier to explain to consumers than 

current forms, which would lead to time savings for creditors and settlement agents. Further, 

information submitted to the Bureau by several settlement agents indicates that requiring the use 

of standard forms and providing clearer regulatory guidance could save as much as 30 minutes 

per closing by standardizing practices across lenders and reducing confusion. These time 

savings could lead to decreased compliance costs.!S 

b. Wouldn't you need to test these forms in a real world setting to actually validate this 

statement? 

As discussed above, the Bureau is currently evaluating whether such testing would be feasible 

and produce valuable information. 

15. In the TILA-RESPA rule, the CFPB estimates that the total one-time costs of revising 

software and systems and training employees to implement the changes to the disclosure 

forms is $100,100,000. However, on page 575 of the regulation, the CFPB states that, "the 

Bureau does not believe that adoption of the integrated Loan Estimate and Closing 

Disclosure would impose any direct costs on consumers. 

14 77 FR 33120 (June 5, 2012). 

15 77 FR 51115, 51271 (Aug. 23, 2012). 

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a. Who do you believe will pay this $100,1O0,000? 

This figure is an estimate of the direct costs to creditors, mortgage brokers, and settlement 

agents. The Bureau estimates that the integrated disclosures would result in one-time costs to 

revise software and compliance systems of approximately $100,100,000, which amounts to less 

than three dollars per origination when amortized over five years and spread across the estimated 

8,000,000 mortgage originations per year. 16 

b. Isn't it logical to assume that businesses may find it necessary to pass some costs onto 

consumers? 

Ibe Bureau does not believe that adoption of the integrated disclosures would impose any direct 

costs on consumers. However, as noted in the TlLA-RESPA Proposed Rule, consumers may 

bear some of the costs of the new disclosures if covered persons pass through some or all of the 

costs that would be imposed on them. The Bureau estimates that any increased costs to 

consumers per origination would be small and that, after one-time costs are absorbed, the 

proposal would likely reduce the cost per origination. 17 

]6. One part of the T1LA-RESPA Rule may change which party, the lender or a settlement 

agent, is responsible for providing the Closing Disclosure form to a consumer. In analyzing 

the costs ofthe proposed rule on small business, the CFPB only analyzes the impact of the 

rule on lenders. No information is provided on the impact to settlement agents or mortgage 

brokers. Yet, settlement agents serving as SERs to the SBAR panel provided specific 

information to CFPB on the costs a settlement agent will incur upgrading software and 

training employees. 

a. Why did the CFPB fail to assess the impact to settlement agents, which consists mainly 

of small businesses, and mortgage brokers? 

The Bureau proposed two alternatives tor provision of the integrated Closing Disclosure. Under 

the first aItemative, the creditor would be solely responsible for providing the disclosure to the 

consumer. Under the second altemative, the creditor and the settlement agent would share this 

responsibility, although the creditor would retain ultimate responsibility. Mortgage brokers 

would not be responsible for provision orthe integrated Closing Disclosure under either 

proposed altemative. 

For purposes of the Bureau's Initial Regulatory Flexibility Analysis, the Bureau assumed that the 

creditor will bear the costs of revising software and compliance systems. However, the Bureau 

also stated its belief the costs would be similar ifbome by settlement agents. The TJLA-RESPA 

Proposed Rule requests comment on this approach to estimating costs, including whether 

settlement agents would incur costs that are substantially different from those incurred by 

creditors if they were responsible for providing the Closing Disclosure. 

16ld at 51272. 

17 ld. 

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b. Why didn't the CFPB use the data and cost estimates provided by the settlement agents 

to estimate the economic impact of the TILA-RESPA Rule on settlement agents? 

The Bureau considered all available data, including data provided by settlement agents through 

the Small Business Review Panel process, in estimating the economic impact of the Proposed 

Rule. As discussed above and in the TlLA-RESPA Proposed Rule, the Bureau believes that if 

settlement agents, rather than creditors, bore the one-time costs associated with complying with 

the Closing Disclosure requirements, the costs would likely be similar to the costs to creditors. 

FurthenTIore, the cost estimates provided by settlement agents infonTIed certain 

recommendations of the SBREFA panel, which the Bureau then relied on in developing the 

proposal. For example, with respect to the costs associated with modifying the line number 

format, the Panel recommended that the Bureau solicit comment on whether an altemative 

design or numbering format would impose a lower amount of software-related costs on 

settlement agents. 18 The Bureau did so in the Proposed Rule. 19 

17. Industry has stressed to the CFPB that they will need a significant amount of time to 

implement any final TILA-RESPA Rule. Small businesses have told CFPB that they will 

need 12 to 18 months to upgrade software and systems and tl'ain their employees. 

a. Will CFPB provide a compliance period of 12 to 18 months to allow small businesses to 

come into compliance with the new regulation? 

Because the TlLA-RESPA final rule will provide important benefits to consumers, the Bureau 

wishes to make the rule efn:ctive as soon as possible. However, the Bureau understands that the 

final rule will require small businesses to make extensive revisions to their software and to 

retrain their stan: We have solicited comment, both generally and in relation to specific 

proposed regulatory provisions, regarding the impact of such a rule on small businesses. We 

have also asked for commenters to provide us with data illustrating the small business impact. 

We have taken the further step of attempting to obtain additional data on our own during the 

comment period. This multi-pronged approach should allow us to collect a significant amount of 

data, analyze the impact on small businesses, and explore approaches finely tuned to address the 

needs of small businesses. 

The Bureau is aware of the sollware-related challenges experienced by small businesses in the 

past. We are committed to minimizing the disruption and delays related to training and system 

upgrades. The Bureau has not only solicited comment on the appropriate implementation period, 

but has solicited comment on whether small businesses need a different implementation period 

than the rest of industry. We also took the additional step of consulting directly with small 

business software providers. We frequently discussed disclosure issues with software providers 

during the development of the TILA-RESPA forms, communicated with them regarding 

potential regulatory issues, and will continue coordinating with them to facilitate the 

18: Final Report (~lthe S'ma/l Business Reviej.f Panel on C'FPB's Proposals Under Consideration/or Integration of 

TILA and RESPA .Mortgage Disclosure Requirements. at 28·29 (Apr. 23,2012), available at hltp:!! 

jiles,consumerjinance.gowj'201207 c/ph report tila-respa-sbre/il-feedbackpdj; 

19 77 FR 511lS. 51240 (Aug. 23. 2012). . . . 

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implementation process. We are contident that small businesses will have the time and support 

to come into compliance with the new regulations. 

18. The design of the new Closing Disclosure eliminates the current line numbering that 

exists on settlement statements. According to the SBAR Panel Final Report, several SERs 

wrote that "changes of location or numerical reference cause significant system 

programming issues and are one of the largest drivers of software development costs and 

implementation time." The CFPB stated in the TlLA-RESPA Rule that it was solieiting 

comment on whether an alternative dcsign or numbering format will lower the costs of the 

software upgrades. 

a. What was the reasoning behind the decision to remove the line numbers? 

Both consumer and industry participants at the Bureau's testing stated that line numbers would 

be useful to facilitate conversations between consumers, creditors, and other participants in the 

credit and underlying real estate transactions. However, consumer participants at the Bureau's 

testing appeared overwhelmed by the three and four-digit line numbers on the prototypes similar 

to the CUtTent RESP A settlement statement, and performed worse with prototypes containing that 

numbering system. The Bureau is particularly mindful of the potential risk of information 

overload for consumers, given the amount of numbers and complexity involved in the credit 

transaction and the underlying real estate transaction. The Bureau tested prototypes with a twodigit line numbering system, which pcriormcd better with both consumer and industry 

participants, with some industry participants preferring it over the system of the cunent RESPA 

settlement statement. Accordingly, the proposed disclosure format contains a two-digit line 

numbering system that is different than the current RESPA settlement statement. 

b. Did the CFPB contact any software providers to learn about potential programming 

issues that might be caused by removing the line numbering that currently exists and the 

costs involved with the redesigning ofthe forms? 

The Bureau contaeted software providers during the preparation of the proposed mle and is 

aware of the potential programming issues that might be caused by changing the current line 

numbering. However, given the results of the Bureau's testing, the Bureau thought it appropriate 

to acquire more specific information on this topic to enhance the Bureau's ability to make an 

infonned decision. Thus, the proposal requested comment 011 the impact of the line number 

changes given the rest of the changes in the integrated closing disclosure contemplated by this 

proposal. 

c. If not, why didn't the CFPB try to learn about programming issues from software 

providers'! 

Not applicable. Please see above. 

19. The TILA-RESPA Rule imposes new data retention requirements for the Loan 

Estimate and the Closing Disclosure by requiring creditors to maintain evidence of 

compliance in machine readable, electronic format. Thc CFPB is proposing that Loan 

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Estimates be retained electronically for 3 years and Closing Disclosnres be retained for 5 

years. This is electronic data retention requiremeut is not required under TILA, the 

RESPA, or the Dodd- Frank Act. The CFPB acknowledges that "requiring standardized, 

electronic records may be a significant burden for small creditors that do not currently 

have such electronic systems or use vendor software." Small busincsses are concerned that 

this provision will be unduly burdensome. 

a. Why is CFPB proposing this requirement ifit is not required under any of the related 

statutes? 

The Bureau believes that the proposed data retention requirement will ensure that records 

associated with the integrated disclosures are readily available for examination, which is 

necessary to both prevent circumvention of and facilitate compliance with TILA. This proposed 

regulation may also facilitate compliance with TILA by easing the burden of examinations and 

ensuring that all entities subject to TILA keep records in a standard format. 2o Furthermore, a 

prescribed electronic format may reduce costs across the entire mortgage loan origination 

industry due to the efficiency gains associated with a standardized data format. Based on 

industry feedback, a standardized electronic format that reduces industry burden may, in the long 

run, reduce costs to consumers as well?' 

b. Why did CFPB fail to cstimate compliance costs for this requirement? 

As noted above, the Bureau conducted extensive outreach regarding the degree to which small 

creditors use electronic systems. The Bureau was informed by small businesses, trade 

associations, and software providers alike that, given the complexity of modern underwriting, 

investor requirements, and State and Federal legal requirements, all creditors use electronic 

systems for some aspect of the mortgage loan process. Thus, the Bureau is unaware of any 

creditors that do not currently have such electronic systems or use vendor software. However, 

the Bureau solicited comment on this issue. If the Bureau receives feedback indicating that 

paper-based creditors do exist, such feedback would be reflected in the Final Regulatory 

Flexibility Analysis, should the Bureau decide to adopt the proposed requirement in the final 

rule. 

c. How does this requirement improve consumer's understanding ofthe mortgage 

disclosure forms? 

The proposed requirement would help the Bureau and other regulators monitor compliance to 

ensure that the disclosures provided are reliable. Ensuring reliability will improve consumers' 

ability to understand their transaction and compare mortgage loans, as well as preventing tactics, 

such as bait-and-switch, designed to confuse consumers. 

20. Many small businesses that are trying to navigate your website find it confusing. 

SBAR panel materials are difficult to locate because the materials on SBAR panels are on 

2°Id. at 51186. 

" Id. at 51276. 

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different pages on the CFPB website and until very recently, there was no search box on 

the CFPB website. 

a. Are you aware of how the website is structured and of these concerns? 

Yes, the Bureau is aware of these concerns. 

b. Will the CFPB improve its website so that small businesses can easily find the 

information on rules subject to the SBAR panel process? 

Since the Bureau launched consumerfinance.gov more than year and a half ago, we have heard 

from all of the site's audiences consumers, small businesses, and many more about features 

that are working well and ones that could be improved. In that time, the Bureau has refreshed 

the design of its homepage and navigation structure twice to respond to those concerns and make 

it easier for all members of the public to access the information and resources they need. For 

example, we have recently added a search box with natural language search functionality. We 

believe the website will always be a work in progress constantly evolving to the needs of the 

people the Bureau serves and will continue making improvements in the months and years 

ahead. 

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Attachment A 
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Charlie Barth 

Director, Office of the Federal Register 

800 North Capitol Street, NW, Suite 70U 

Washington, DC 20001 

Dear Mr. Barth, 

July 12,2012 

We respectfully request that your office immediately file for puhlic inspection 

and puhlish at your earliest convenience the enclosed proposed rule with 

request for public comment from the Bureau of Consumer Financial Protection 

(Bureau) entitled, "Integrated Mortgage Disclosures under the Real Estate 

Settlement Procedures Act (Regulation X) and the Truth in Lending Act 

(Regulation Z).'· 

Under section 1032(f) of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act), the Bureau must issue this proposal hy July 

21, 2012. Portiolls of this proposal also affect a numher of other mortgagerelated rulemaking actions that the Bureau will be proposing this summer. At 

least four of those ruiemaking actions must be finalized by January 21. 2013. 

or certain amendments in the Dodd-Frank Act will become effective without 

clarifying regulations. In all effort to manage the respective comment periods 

efficiently and give interested stakeholders as much time as possible to submit 

substantive comments. the Bureau requests that your office immediately file 

the proposed rule and publish it at your earliest convenience. We understand 

that this is a busy time of year and appreciate YOUT attention to this special 

request. 

Also enclosed plellse find a CD that includes a true copy of the original signed 

document in MS Word formal. Please call me at (20Z) 435-7152 to confirm 

the publication date of this document or if you have any questions. Thank you 

for your attention to this request. 

Lea Mosella 

Anorney, Office of the Genera! Counsel 

Consumer Financial Pmteetioll Bureau 
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August 1,2012 

The Honorable Sam Graves 

Chairman 

Committee on Small Business 

U.S. House of Representatives 

211 North Union Street, Suite 100 

Alexandria, VA 22314 

(703) 519-1240 

www.a~e~a.org 

2361 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Nydia Velazquez 

Ranking Member 

Committee on Small Business 

U.S. House of Representatives 

2361 Rayburn House Office Building 

Washington, DC 20515 

Dear Chairman Graves and Ranking Member Velazquez: 

l~il~ 

American Escrow Association 

Dedicated to Moving the Escrow 

Settlement Industry Forward 

Thank you for holding today's hearing, "Know Before You Regulate: The Impact of 

CFPB Regulations on Small Business." Thank you for this opportunity to submit 

comments on behalf of the American Escrow Association (AEA), the nation's trade 

association for real estatc settlement professionals, on the CFPB's recent proposed 

nJlemaking on integrating TILA and RESP A disclosures for home loans under the Dodd 

Frank legislation. 

On the question of the CFPB's SBAR panel process, we were quite pleased with the 

process and the inclusion of an AEA member on the panel. In addition the advance 

materials the CFPB published laid out the key issues and alternatives (focusing on small 

business) and thus were very helpful in formulating a targeted response. We have 

reviewed the Final SBAR Report dated 4/23/12 and the Regulatory Flexibility Act 

discussion in Section VIII of the preamble of the proposed Rule under "Supplementary 

Information" and find they contain a fair and complete discussion and analysis of the 

concerns raised by our member. 

On the proposed Rule, we had hoped the CFPB would find suflicient flexibility in 

exercising its nJlemaking discretion under the statutes to adopt our primary 

recommendation. Instead it appears to us that tour statutory provisions/considerations, as 

applied by the CFPB, were found to have severely constrained any CFPB nJlemaking 

flexibility on the RESPA provisions applicable to us. 
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211 North Union Street, Suite 100 

Alexandria, VA 22314 

(703) 519-1240 

www.J-e<l.org 

American Escrow Association 

Dedicated to Moving the Escrow 

Settlement Industry Forward 

1. TIL-driven decision that the timing of the final disclosure (including 4. below) 

must be three business days before loan consummation. This changes timing 

under current RESP A requirements tor the delivery of the final settlement 

statement. 

2. The addition of section 128(a)(17) to TILA by section 1419 of the Dodd Frank 

Act which requires aggregate settlement charges to be disclosed including 

specifying those paid at closing. 

3. The related purpose of eliminating any surprise to the consumer as to the amount 

of cash required to close. 

4. The Dodd Frank specification, without limitation of application, of combining 

sections 4 and 5 of RESP A within the framework ofthe integrated disclosure. 

This ostensibly would include all settlement charges on buyers and sellers if the 

entirety of section 4 is drawn in to this rulemaking. (Meaning loan-related as well 

as non-loan transactional closing cost information.) 

For us, the key set of issues relates specifically to the proposed final disclosure ("Closing 

Disclosure") and includes: which business party or parties (lender and/or settlement 

agent) will be responsible tor determining the loans terms; federal/state-required 

information and dollar amounts needed for completing the integrated (combined TIL and 

RESPA) disclosure; who will prescnt it to the borrower; and when will it be required to 

be done. 

More specifically stated our recommendation was that the integration should logically 

include the terms of the loan, relevant loan information required under federal law (and 

state-related law if applicable), and the costs of originating the loan, including loan 

closing costs (as in the "Loan Costs" section, the top part of page 2 of the "Closing 

Disclosure") and those should be easy to compare to the early disclosure. Under this 

approach only the lender would be involved in the preparation and presentation in 

applying the applicable TIL and RESPA components. The settlement agent would come 

into the process after the above wa~ both disclosed and signed as a penultimate disclosure 

(but final as to loan terms and costs) then the tinal all-inclusive information would be 

prepared by the settlement agent. 

To complete the final closing disclosure, the settlement agent would fold into the 

previously prepared integrated loan disclosure (which would be re-disclosed as 

originally stated) all remaining costs, called "Other Costs" on page 2 of the proposed 

"Closing Disclosure," and present it at or before closing. We felt this would meet the 

purposes of Congress and allow for a non-surprise sequence of events and information 

2 
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211 North Union Street, Suite 100 

Alexandria, VA 22314 

(703) 519-1240 

www.a-e-alorg 

American Escrow Association Dedicated to Moving the Escrow 

Settlement Industry Forward 

for the bon-ower. We also felt that while on the surface the objective of a consumer 

knowing the "cash needed to close" would be subject to somc question, that purpose 

would be sufficiently met under this two-step approach, both of which would use the 

same format of combined disclosurc. 

Finally small entity settlement agents would not find their regular work flow practice and 

procedure disrupted at additional cost particularly tor purchase/sale transactions where 

there are both seller and seller cost considerations, as well as buyer items that are more 

related to the consumer as a buyer than a borrower. Obviously software and systems 

costs and training, as covered below, would still be required as with any change in 

disclosures. 

The CFPB did not include our recommendation in its proposal. Rather, there are two 

different altcrnatives in the proposal for settlements agents. In the first a settlement agent 

would have no stated role under the proposal. [n actuality the settlement agent would 

have to playa role, since in many loan transactions there is information (such as transfer 

tax, recording fees, homeowner's association dues and costs) that only the settlement 

agent would have access to under normal circumstances. If the lender were to prepare an 

all-inclusive final disclosure on a purchase/sale transaction for presentation to the 

bon-ower at least 3 business days prior to the signing of the promissory note and any 

other instruments, there undoubtedly would be items for which only the settlement agent 

would be able to provide the fact the items are applicable and the dollar amounts. The 

settlement agent would have to provide that in advance of the 3-day period. This 

effectively could be a 4 or 5 day- in-advance requirement imposed on the settlement 

agent. 

In the second alternative as stated by the CFPB in its preamble, "the lender may rely on 

the settlement agent to provide the form." In this case the settlement agent would need to 

import or otherwise obtain the loan-related infonnation from the lender to complete the 

fonn. The CFPB has proposed that each would be equally responsible. This approach has 

additional liability considerations and would require enhanced training for items such as 

TTL information and other federal law that the settlement agent would not currently be 

familiar with, beyond general familiarity. 

Tn each ofthe above alternatives there will be changes of work flow and timing, training 

and systems costs and upgrades. We can't comment on which vendors, if any, would 

require significant up-fl'ont fees to provide the updates and training. We would only 

comment that as a policy matter the timing of any etl'ective date and flexibility for small 

businesses must factor in these considerations. Ideally we would hope the CFPB would, 

as an alternative, give our proposal an additional look. If not it would appear a legislative 

fix would provide the only open door for a change. 

3 
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211 North Union Street, Suite 100 

Alexandria, VA 22314 

(703) 519-1240 

www,a-e-a,org 

~~;!J~!!? 

American Escrow Association 

Dedicated to Moving the Escrow 

Setllemenllndustry Forward 

On electronic records, we concur with the mention ofXML in Part VIII (Regulatory 

Flexibility Act) of the Supplemental Information section of the preamble, We would go 

further and suggest the CFPB study and consider the Mortgage Industry Standards 

Maintenance Organization (MISMO) standards which include free and open release to 

vendors to develop applications, Especially with small businesses, consisting of 

settlement agents, the ability to export and import electronic information through 

standard platform, XML based, enhancements provided by vendors would be valuable to 

retain business with non-local lenders, This would provide the communications interface 

needed to do business with lenders with different systems, Part VIII mentions XML but 

not MISMO, We believe this requires further study by the CFPB on the merits and on 

the appropriate effective date of the integrated disclosure, We also have the question of 

whether the settlement agent who imports information from the lender has the primary or 

sole responsibility to store all the data in machine readable form as once received they are 

the only party with all the information, 

In summary we applaud the CFPB for its comprehensive efforts to address small business 

issues in this rulemaking, However where the CFPB has not found flexibility in the 

interplay of the relevant statutes, we believe the impact on small business could be 

profound especially for small businesses trying to retain the business of non-local 

lenders, We believe our alternative would satisfy congressional purpose and avoid any 

undue impact on settlement agents, particularly small entities, 

Respectfully submitted, 

lsi Arthur E Davis m 

American Escrow Association 

Arthur E Davis III 

General Counsel 

703-625-9288 

art,davis@a-e-a,org 

4 
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The Honorable Sam Graves 

Chairman 

Committee on Small Business 

U.S. House of Representatives 

2361 Rayburn House Office Building 

Washington, DC 20515 

August 1, 2012 

AMERICAN 

I.AND TI'I'I,E 

ASSOCIATION 

The Honorable Nydia M. Velazquez 

Ranking Member 

Committee on Small Business 

U.S. House of Representatives 

2361 Rayburn House Office Building 

Washington, DC 20515 

Re: Know Before You Regulate: The Impact of CFPB Regulations on Small Business 

Dear Chairman Graves and Ranking Member Velazquez: 

The American Land Title Association 1 (ALTA) thanks you for holding this important hearing on the 

impact the Consumer Financial Protection Bureau's proposed regulation to integrate the mortgage 

disclosures that are provided to consumers in a real estate transaction and the regulation's effect on 

small business. Today, settlement agents, who are predominantly small businesses, serve as facilitators 

of residential real estate and mortgage transactions. Settlement agents handle and disburse monies to 

the appropriate parties; pull together and record all the documents, including the deed, mortgage or deed 

of trust, note, homeowners association restrictions and other documents that are needed to legally 

complete the transaction; ensure any previous mortgages, liens or other encumbrances on title are paid 

off and released of record; and provide the required Uniform Settlement Statement (HUD-1) to the 

borrower, lender and seller (as applicable). 

The Bureau's proposed combined mortgage disclosure forms and accompanying rules will 

require a large shift from today's business practices. These changes will impact consumers, lenders and 

settlement agents and could prove harmful to small business by either (1) making it costly for small 

business settlement agents to implement the rule's provisions or worse, (2) making it impossible for small 

business to compete in the future marketplace. This letter highlights some of the rule's provisions that will 

impact small business settlement agents. It also outlines our thoughts on the Small Business Regulatory 

Enforcement Fairness Act of 1996 (SBREFA) process that the Bureau conducted in relation to this rule 

and discusses ways in which we believe that process could be improved. 

While the industry as a whole is still analyzing the rule, the topics below are ones we believe 

could cause the greatest impact on small business settlement agents' role in the real estate and 

mortgage closing process. 

1 Founded in 1907, ALTA is the national trade association and voice of the real estate setttement services, abstract and title 

insurance industry. With more than 8, 000 office locations throughout the country, ALTA members operate in every county in the 

United States to search, review and insure land titles and conduct Closings to protect the rights of home buyers and mortgage 

lenders who invest in real estate. ALTA members include titte insurance companies, title agents, Independent abstracters, title 

searchers and attorneys, ranging from small, one*county operations, to large national title insurers, 

1828 L Street, N.W. • Suite 705 • Washington, DC 20036 • (202)2%-3671. 202-2%-3671 • SOO·787-AnA 

E-mail: scrvice@alta.org • Wd" ,vww,alta.org • Fax: 8S8-fAX-ALl:''' • Local Fax: (202)22:,-5843 
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Who Fills Out the New Closing Disclosure? 

The most significant impact of this new rule on small settlement agents is that it may take away 

one of their prime responsibilities: conducting the settlement. Currently, the person conducting the 

settlement (the settlement agent) is required to provide the HUD-1 to consumers, while lenders are 

required to provide the revised Truth in Lending disclosure. By combining these two disclosures into the 

new Closing Disclosure, the Bureau must determine which of these two industries will provide the new 

disclosure to the consumer. 

In the proposal, the CFPB provided two alternatives for public comment, (1) the lender would be 

responsible for delivering the Closing Disclosure form to the consumer, and (2) the lender may rely on the 

settlement agent to provide the form, but the lender would still remain responsible for the accuracy of the 

form as well as the timing. Since the research needed to complete the Closing Disclosure is so 

intertwined with the work settlement agents conduct to bring a transaction to settlement, taking away the 

settlement agents responsibility for providing the disclosure to the consumer will likely cause a significant 

change in the settlement agents' role in the transaction. 

Technological Issues for Implementing the New Disclosures 

As the Bureau recognized, small settlement agents will rely on software vendors to implement the 

new rule. When the industry implemented the most recent round of RESPA changes in 2010, industry 

vendors reported that the comparatively smaller changes by HUD's rule cost each software company 

approximately $800,000 to $1 million to implement. Based on a conservative estimate, and assuming 

settlement agents maintain a role in the transaction, industry software vendors estimate that it will cost 

between $2 million and $2.5 million per software provider to develop compliant software systems for 

settlement agents. 

Some of these costs could be avoided by making simple formatting changes to the disclosure 

form. Something as seemingly insignificant as changing the line numbers or cost grouping from the 

current HUD-1 will be an enormous software coding effort for vendors. Maintaining the current line 

numbers also has the added benefit of making it easier for consumers to be directed a particular charge 

than the CFPB's proposed method. While the Bureau has solicited comment on these costs, it is not clear 

whether once received they will weigh them against any possible benefits for consumers or industry. 

Standardization Benefits Both Consumers and Industry 

We are thankful that the Bureau chose to make the disclosures a single, promulgated disclosure 

form (as required by RESPA) rather than a model disclosure form (as required by TILA). A promulgated 

form is significantly less costly to implement and ensures that software vendors do not have to duplicate 

efforts by making custom forms for each of the hundreds or thousands of lenders across the country. 

Further uniformity, such as uniform cost descriptions and placement of those costs on the form would also 

reduce costs and implementation problems. 

To achieve its goal of facilitating industry compliance with RESPA and TILA and to reduce costs 

and uncertainty for industry, the Bureau must provide industry clear and definitive guidance. While the 

official staff commentary provided in the proposal is a step in the right direction, further guidance will be 

necessary to ensure that industry understands how to comply with the new rule. 

Costly Delays to Closings for Consumers and Industry 

Federal regulation should improve the closing process for consumers and industry. However, the 

Bureau's proposal that consumers must receive the Closing Disclosure form at least three business days 

before the loan closes may actually make it more disruptive for both consumers and industry. Under the 

Page 2 of 4 
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proposal, if changes occur between the time the Closing Disclosure form is provided and the closing, the 

consumer must be provided with a new form and must wait an additional three business days before 

closing. Thankfully, the Bureau has included a number of commonsense exceptions from the three-day 

requirement, but more exceptions will be needed to ensure the proposal does not make the closing 

process more costly and difficult for consumers and industry in other circumstances. 

Increased Liability on Lenders 

Increasing liability on lenders for the costs and actions of third parties will likely have the 

unintended consequence of incentivizing lenders to limit the number of settlement agents with whom they 

conduct business. To a degree, this contraction has already occurred due to the introduction of the 

tolerance regime and provider lists in the 2010 HUD RESPA Rule. Not only will small businesses that 

provide these services during the closing process, including settlement agents, be cut out of the market 

and unable to compete, but consumers will be harmed as well by less consumer choice and competition, 

which will ultimately lead to higher costs. 

Settlement agents need to continue to have a part in real estate settlements as an independent, 

third party to the transaction. We urge the Bureau to work with us to ensure that settlement agents still 

provide the settlement statement and conduct the closing. An independent third party conducting the 

settlement is absolutely necessary to protect consumers. 

Improvements to SBREFA 

ALTA strongly supports the small business provisions in the Dodd-Frank Act, including the 

requirement that the Bureau conduct a Small Business Advocacy Review Panel (SBAR) when a rule is 

expected to have a significant impact on a substantial number of small entities. This process is vital to 

ensuring that the Bureau's regulatory goals are met in a way that is not overly burdensome on small 

business. While we are grateful that the Bureau recognized that this rule will have a significant impact on 

small business settlement agents, and thus held a panel on March 6, ALTA believes that a number of 

improvements should be made to ensure these panels meet their goal of understanding the impact a rule 

will have on small business and discovering potential less impactful alternatives. 

The Bureau should consider a number of process-oriented changes to the panel procedures. 

First, the Bureau should give small entity representatives participating in the SBAR ample notice of the 

meeting so that they can make appropriate and cost effective travel arrangements. On February 21, 

2012, the Bureau sent official invitations to small entity representatives for its March 6 SBAR panel on this 

rule. By providing only two weeks' notice, the Bureau made it unnecessarily costly for small entity 

representatives that do not live in the Washington, D.C., area to attend the panel meeting in person. For 

example, one ALTA member who attended the panel spent over $1,400 to attend the meeting. This is a 

substantial sum for a small business owner. The Bureau should aim to give participants at least one 

months' notice so they can make the appropriate travel arrangements. 

Second, the Bureau should work with industry trade associations to better prepare the small 

entity representatives for the SBAR meeting. One of the main goals of the SBAR panel is to uncover how 

costly a regulation will be to implement for small business and to identify less-costly alternatives. There 

are many factors that go into an effective cost estimate (including differences in regional practice) or 

information about alternatives that can reduce costs for small businesses that are not known to a small 

business owner unless they have the assistance from their trade association. Conducting outreach to 

trade associations before holding the panel (including inviting trade associations to observe the panel 

meeting in person) ensures that the SBAR gets the most accurate cost data available. 

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Third, the Bureau should make the SBAR panel report public once it is complete. By publicizing 

the report earlier in the regulatory process, the Bureau can provide crucial information to industry 

stakeholders. This will allow industry to either coalesce around the recommendation or begin the process 

of developing more useful data for the Bureau to consider about the impact of their proposals on small 

business. Either way, the result will be a smoother regulatory process. 

Lastly, in addition to the above process-oriented changes, the Bureau also should consider 

broadening the way it looks at the impact of a regulation on small business. The SBAR panel focused 

heavily on the direct costs of this rule on small business, such as software costs, but glanced over the 

parts of this rule that could have indirect but very serious costs on small business. These indirect costs 

can be extraordinary, including potentially preventing small business from being able to compete in the 

future marketplace. 

An example is the panel's review of the proposals related to "changes in costs/redisclosure" (also 

known as tolerances). The Bureau is proposing to increase the level of liability on lenders for costs that 

increase more than a certain amount between loan application and closing. While the panel focused on 

the costs of redisclosure as the direct consequence of this policy choice, the indirect costs (namely that 

lenders would be incentivized to limit the number of small entities with whom they work) will be much 

more devastating to small business. The Bureau should take greater care to determine whether a 

proposal will cause business-model shifts that could be harmful to small-business competitiveness. 

ALTA looks forward to continuing to work with the Committee and the Bureau on this project, and 

we thank you for your consideration of these important recommendations. If you have any questions, 

please do not hesitate to contact ALTA Vice President of Government Affairs Justin Ailes at 

202.261.2937. 

Chief Executive Officer 

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[B 

REAHon' 

NATIONAL 

ASSOCIATION of 

REALTORS· 

July .)1, 2012 

GOVERNMENT AFFAIRS DIViSION Dear Chairman Craves and Hanking .\kmbcr Velazquez: 

www.RL \Ln~R.p(g 

On behalf of the I million members of the National .\ssociation ofRl "\J"TORS1<~ 

many small 

Mortgage Disclo:mrcs 

J...j and the Truth in 

a significant impact on the 

mortgage and real estate industries. 

OnJ111y 9, 20J 2, the Consumer Financial Protection Bureau (CFPB) issued a 

proposal to harmonin; the Real Estate Settlement Procedures ,\ct (RESI\\) 

Truth and disclosures, forms, and procedures. The published 

effort to simplify two disclosures; rather, as 

alter the loan and home settlement process. 

the imprmTtTICnt of initial disclosure:,> under RESP, \ and 

CFPB effort I1o'\vevcr,:\I. \R has concerns 

transformation of the two laws and the to create a 

statement incorporating the 1 J L:D-l and the form called tht: "dosing 

new fonn, the CFPB has decided to also implement 

a new docll1nent. .\s a result, the disclosure's 

the consumer's hand three days prior to closing. This may 

but in could pro'\'e problematic for a number 

of reasons. \,\:hilc the did recommendation and created a few 

from the mandatory t.hree-day period, at present it is unclear to N.\R whether 

these exceptions will be sufficient to cover the majority of scenarios thar could 

lead to a required reis:mance of the closing- disclosure and a delay in the mortgage, and 

any associated purchase transaction, dosing. 

If the rule is adopted as proposed, the fundamental chal1h1C tu the closing proC(~ss wm 

likely be very costly to implement, especially for small settlemen1 firms, and It'ad to 

comumcr and pwyider confusion. . \t present, it is unclear whether this final document 

is to be prepared by the settlement agent, the lender, or both in some manner. :\'fercly 

chanhring who must the documents will rC(luire significant and costly 

educational expense. the Vo1U111(' of chanhFCs that will be 

the increased paperwork, and additional 

conversion has the to be immense. This 

Tn addition, this is not the only rulemaking facing the industry. There arc at least 

fiye other rulemakings that will also be implemented around the same time and will affect 

the. outcomc of this fulcmaking. The aggregate costs of doing all this could be sizeable 

and the impact suhstantial. 
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reasonable, effective, and not disruptive ratht'f than that it be issued 

irnportant for the CFPB to consider how ,\ rule that reduces 

In contemplating the impact of the rule; it is 

by driving small business from the market \vill 

ultimately harm consumers. 

NAR appreciates the Small Business Committee's interest in this and other critical 

to assist you and the CFPB in efforts to ensure this proposal docs not significantly 

consumers they serve. 

Sincerek, 

(~ 

?\faurice ":\10c" Vcissi 

2012 Prcsidcnt, National .\ssociation of REA1:rORS¥ 

proposals that. \'\/e stand ready 

impact small business and the 
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August t, 2012 

~~ND£NT COMMUNITY 

BANKERS of AMERICA® RESPA-TILA Rules Must Be 

Informed by the SBREF A Process 

On behalf of its nearly 5,000 community bank members, ICBA is pleased to submit this 

statement for the record for the Housc Small Business Committee hearing titled: "Know Before 

You Regulate: The Impact ofCFPB Regulations on Small Business." We appreciate the 

opportunity to share our perspective on the Consumer Financial Protection Bureau's (CFPB's) 

proposed rulemaking to combine the Real Estate Settlement Procedures Act (RESPA) and Truth 

in Lending Act (TILA) regulations and the Small Business Regulatory Enforcement and Fairness 

Act (SBREFA) panel they convened on this topic. 

SBREFA Process 

ICBA is supportive of Congress's and the CFPB's etIorts to clarifY and streamline RESPA and 

TILA regulations to make them clearer and easier to comply with while providing consumers 

with easy-to-read, clear and meaningnll disclosures that help them better understand the costs of 

a mOitgage loan transaction. We believe it's critically important to get the fonns and procedures 

right so they will yield the greatest potential benefits to consumers and lenders alike. The newlycreatcd SBREFA process has the potential to result in rules that are more practical for both 

community banks and their customers. ICBA and community banks have taken advantage of the 

opportunity to participate in SBREFA panels on RESPA-TILA and other mortgage lending 

rulcmakings. However, we are deeply concerned that the CFPB did not adopt changes suggested 

by community banks in the recently-published RESPA-TILA proposed rule. The published 

proposal is essentially the same as the draft presented to the SBREFA panel, though the 

preamble does pose questions and seek comments based on feedback from the panel. The 

community banking industry may not be open to incurring thc expense of participating in the 

SBREFA process if members believe it is merely a pro forma or "check the box" exercise. The 

CFPB should carefully consider and incorporate the comments and suggestions where possible 

of community banks and othcr SBREFA panel participants in upcoming rulemakings. 

Top Issues for Community Bankers on the RESPAITILA Rulcmaking 

Below we highlight the principal concerns wc raised with the CFPB during the SBREFA 

process: 

CFPB should maintain the current 10 percent tolerance for changes in required third party 

settlement costs. The proposal would eliminate the current 10 percent tolerance for certain 

rcquired settlement services that the borrower cannot shop for or where the bank selects the 

service provider. These include appraisals, surveys, credit reports, and property inspections. 

Charges for these services arc passed through to the borrower and are not "fee generators" for 

community banks. 

_____ '11111111111111: 111I __ "~l~i;i~~\~\;~~~ '.' 1615 L Street NW, Suite 900, Washington, DC 20036 • 202-659-8111 • Fax 202-659-9216 • www.icba.org 
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The elimination of the 10 percent tolerance will cause the initial pricing for these services to 

increase in order to compensate tor untoreseen developments that may occur during the 

processing of the loan. For example, an appraiser may charge a base fee for an appraisal. That 

fee assumes a typical type of property for that area in terms of lot size, type of dwelling, etc. 

However, if once on site, the appraiser discovers there are out-buildings, unique site issues, 

atypical construction or design, the fee for the appraisal will increase, as it will require more time 

from the appraiser to complete the appraisal. The same can apply to title work, especially in 

outlying areas that are not platted, as well as for property inspections as a result of deferred 

maintenance. These items are not known at the time the bank would issue the loan estimate, and 

only reveal themselves during the processing of the loan. 

We believe that the only providers of these services that could offer a rate or fee on a consistent 

basis would be the large national settlement service providers, many of which are owned by large 

national mortgage lenders. Elimination of the 10 percent tolerance would accelerate 

consolidation among service providers leading to fewer local providers who generally provide 

better service. 

The current 10 percent tolerance works well, and unless the CFPB has documented evidence of 

abuse, ICBA believes changing the tolerance is unnecessary and would result in higher 

settlement costs overall. 

Timing of Settlement Disclosures. Requiring the customer to wait three business days to close 

after receiving their Settlement Disclosure will lead to more consumer complaints. Consumers 

want to close sooner, Hot later. With the safeguards provided by the changes in Regulation Z on 

mortgage loan of1icer compensation and the requirements regarding what can and camlot change 

on the settlement disclosure, consumers should not experience the "bait and switch" tactics that 

were used by some unscrupulous lenders in the past. For refinance loans, the additional three 

business days when combined with the three-day right of rescission period will now stretch the 

closing process to at least a week or morc. Purchase money loans have other parties to the 

transaction such as the property seller or builder and moving companies tor both the borrower 

and property seller, which will be delayed as well. Additionally, real estate purchase and sales 

contracts all contain penalties if the borrower fails to act in good faith to complete the 

transaction. It is likely that if a borrower wcre to decide to cancel the transaction during the 

three business days prior to settlement, they would face loss of their deposit and possible 

additional financial penalties from the property seller. There is no right of rescission, so the 

borrower has no right to cancel at that point. However, allowing the three business days could 

infer that right, thereby adding to confusion on the borrower's part. Providing the customer 24 

hours to review the settlement statement and obtain the funds needed for closing is more than 

adequate. 

Cost to Implement RESPA-TILA Changes. Finally, ICBA is concerned that the scope of the 

changes being considered by the CFPB have the potential to cause significant costly IT upgrades 

and changes to bank loan origination, document preparation, and core operating systems. These 

costs could drive many small banks to exit the mortgage lending business, even for loans held in 

2 
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portfolio, which will severely restrict credit in many rural areas. Those community banks that do 

remain in the business wi11likely have to increase their prices to cover these costs. These costs 

for items that add no value or protection to the consumer will end up increasing the cost of credit 

and reducing the availably of credit. 

ICBA believes the CFPB has underestimated the costs that will accrue as a result of the changes 

in the RESPA-TILA rule. Specifically, the CFPB states that there are only two major software 

vendors that SUppOlt small mortgage lenders for loan processing systems which include the 

production ofthe various disclosures, including the new Loan Estimate and Settlement 

Disclosures. The CFPB also stated in the Rule as well as in the SBFREA panel that they believe 

the costs to implement these new disclosures would be absorbed and included in the "annual 

update" which vendors usually provide to their clients, resulting in little, if any additional costs 

to the lender. This is contrary to the feedback from the SBFREA panel, and the way the vendor 

industry provides their clients major updates to software programs. While vendors may provide 

some "credit" towards a new release such as this one, the scope of these changes are vast and no 

software company could absorb those costs to redevelop, test, and guaranty the performance of 

their product. Those costs will be substantial and will be passed down to all lenders. 

Again, all of the above concerns and others were raised during the SBREFA process by ICBA 

and by community banks during the SBREFA panel on the RESPA-TILA rulemaking. We were 

disappointed that they were not addressed in the proposed rule. We hope that this will not be 

true for the upcoming mortgage servicing and mortgage origination rulemakings. These rules, 

like the RESPA-TlLA rule, have the potential to make mOltgage lending and servicing 

impractical for community banks and lead to further consolidation of the mOltgage industry. It is 

imperative that the CFPB take account of the input provided in the SBREFA panels on these 

rulemakings. 

Thank you tor convening this hearing and for the opportunity to submit this statement for the 

record. 

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August 1, 2012 

Statement for the Record 

On behalf of the 

American Bankers Association 

before the 

Committee on Small Business 

a/the 

United States House of Representatives 

aDl 
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August 1, 2012 

Statement for the Record 

On behalfofthe 

American Bankers Association 

hefore the 

Committee on Small Business 

United States House of Representatives 

August 1, 2012 

Chairman Graves, Ranking Member Velazquez and members of the Committee, the 

American Bankers Association (ABA) appreciates the opportunity to submit a statement for the 

record for this hearing to conduct oversight on the Small Business Regulatory Enforcement Act 

(SBREFA) process as implemented by the Consumer Financial Protection Bureau (Bureau) for 

the proposed RESPA-TILA rule.' ABA represents banks of all sizes and charters and is the voice 

for the nation's $14 trillion banking industry and its two million employees. The majority of 

ABA's members are banks with less than $165 million in assets-small entities as defined by the 

Small Business Administration that are the locus of this process. 

ABA commends the Committee lor holding this oversight hearing. ABA strongly 

supports the SBREFA review process that Congress chose to require for rules proposed by the 

Bureau and we offer some suggestions fbr how to make this process more effective. 

ABA believes that convening a Small Business Advocacy Review Panel (Panel) is vital 

to ensuring that the Bureau considers the potential impact of regulatory proposals on small 

entities and on the cost and availability of credit. The SBR EFA review process offers the 

possibility for important early information gathering, collaboration, and consensus building 

around less burdensome alternatives that may signiticantly improve the rules promulgated by the 

Bureau. Indeed, we believe that gathering this input is critical to the Bureau's commitment to 

being data driven, and will ensure a competitive market for all linancial service pl'Ovidersregardless of their size. More importantly, the input will result in rules that genuinely benefit 

consumers. 

Section JlOOG of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act Of 

DF A) compels the Bureau to apply the SBREF A process to Bureau rulemaking. OF A further compels the Bureau to 

propose an integration of Real Estate Settlement Procedures Act and Truth In Lending Act (RESPA-TILA) 

disclosures. See DFA sec'ions 1032(1) (12 U.S.C. 5532).1098 and IIOOA. 

~ ! American Bankers Association 
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August 1, 2012 

ABA is grateful for the outreach the Bureau and its tellow Panelists have pursued to 

involve our association members in this important regulatory process. ABA member small 

entities who participated in the separate Panel meetings that have been convened to date 

appreciate the personal courtesy and professional attentiveness that Bureau staff and other Panel 

representatives showed in al'l'anging and conducting the meetings. We also wish to acknowledge 

the earnest engagement of fellow small entitics and their respective associations in working 

together to make the Panel meetings productive. ABA and its members look forward to 

continued constructive involvement with future Panels as the Bureau proceeds with its impOltant 

work. 

However, we believe that the process can be improved. The RESPA-TILA rulemaking 

was the first occasion that the Bureau, the Chief Counsel for Advocacy orthc Small Business 

Administration and the Ollice of Information and Regulatory Affairs (OIRA) convened a Panel 

to comply with the statutory mandate of the Dodd-Frank Act to apply the requirements of 

SBREF A to Bureau rulemaking. As such, all parties had lessons to learn about how to conduct 

the process most effectively. With this in mind, we offer the following recommendations to 

ensure that the process going forward affords small entities the opportunity that Congress 

envisioned for beneficial impact: 

" More Time Is Needed for Small Entity Review. The Panel must ensure that there is 

ample time tor the selection, preparation and participation of Small Entity 

Representatives in the SBREF A review process. 

> The Panel's Focus Should Be Advocating for Small Entities. 11,e Panel Report 

should reflect its statutory duty to minimize the impact of a proposed rule on small 

entities and the cost of credit. 

> Vendor Implementation Cost Data Should Be Gathered. The Panel should insist 

that the Bureau gather information tram third-party service providers about potential 

implementation costs. 

We will discuss these items in detail below. 

~ I American Bankers Association 
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August 1. 2012 

I. More Time is Needed for Small Entity Review 

For the SBREFA process to improve rulemaking and to reduce regulatory burden on 

small entities, ABA firmly believes that the Small Entity Representatives (SERs) must be 

afforded adequate time to consider the proposals, to provide detailcd and specific feedback, and 

to reach consensus on altemative approaches to achieve the desired regulatory goal. Given 

adequate time, SERs could spend more time consulting with staff about required policy and 

process changes and with third-party vendors about anticipated software and system changes. 

Similarly, additional time would permit SERs to have conversations with other mortgage market 

participants. Such consultation would certainly allow additional issues to surt(,ee. Moreover, 

such consultation allows for the development of less burdensome alternatives that could then be 

suggested to the Bureau for consideration. 

ABA believes that thc timetable established for SER participation in the RESPA-TILA 

rulcmaking unnecessarily limited their ability to provide input. In that mlemaking, the SERs 

were invited to participate and were provided with information about the SBREFA process and 

thc regulatory proposals being considered just two weeks before tlte eOllvellillg meetillg. As the 

Committee is aware, small business men and women work long hours and have many demands 

on their time. A two-wcek preparation period is simply inadequate to permit a thorough review 

of the proposed alternatives, to consider the ramifications ofcach, and to try to gauge their 

potential impact on compliance eosts and operations. Allowing only a week after the convening 

meeting for SERs to provide written comments to the Panel further limited the ability ofSERs to 

provide detailed information and feedback. If SERs are to successfully fnlfill their representative 

role, they need to be engaged earlier so that they can leverage the resources of professional 

networks and trade association memberships to collect relevant expericnce from pecrs. 

The aspirations of the SBREFA process-inlormation gathering, collaboration, and 

consensus-building around less burdensome alternatives to achieve a regulatory goal-take time, 

and ABA is concerned that the process and timetable established by the Bureau for SBREf A 

review is inadequate. ABA believes the Bureau should allow scveral months after SERs are 

identified and before the Panel is otIicially convened. During this pre-panel outreach period, the 

Bureau eould facilitate SER interaction and discussion in person or by conference call. 

Presumably, each meeting would permit the discussion to delve further into the proposed 

alternatives and to identify issues for which additional discussion and data arc needed. Also, 

&:> i American Bankers Association 4 
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Augusl1. 2012 

extending SER contact over a longer period would facilitate greater interaction among SERs, 

enable more outreach to SER colleagues to access other sources of representative information, 

and increase opportunities to reach consensus on a regulatory framework that will work 

optimally for consumers and small entities. 

ABA appreciates the fact that the Dodd-Frank Act has challenged Bureau staff to 

complete important new mortgage regulations in a tight time fi·ame. We believe more outreach is 

possible, however. For example, the RESPA-TILA integration project was initiated in the early 

fall of2010 with a series of Bureau sponsored roundtables that led to the "Know Befi.)re You 

Owe" initiative in 2011. Despite repeated calls by ABA and other mortgage industry 

representatives for the Bureau to evaluate possible mle modifications simultaneous with its form 

redesign, the Bureau chose a difTerent path and delayed engaging stakeholders in the rule 

proposal development phase. This choice, not the Dodd-Frank Act deadline, resulted in 

postponement ofthe SBREFA Panel until the end of Febmary 2012. We believe the Bureau 

could have and should have recmitcd SERs and engaged them in interaction lar earlier in the 

Know Before You Owe process so that they could have been better prepared to provide input. 

ABA believes that the Panel Report on the RESPA-T1LA rule reflects the rushed timetable and the limited opportunity SERs had to provide anything other than an initial reaction to 

the Bureau's proposals. As the Report notes, there was significant discussion and disagreement 

about the proposed re-detinition of what constitutes an application (triggering early disclosures 

and statutory liability for inaccuracies in those disclosures) and specitically "a lack of consensus 

among the SERs who opposed elimination of the seventh item about what constitutes what 

additional information is needed to provide a reasonably accurate Loan Estimatc.,,2 We believe 

that it was the responsibility orthe Panel to provide thc opportunity for further discussion to 

facilitate the identification of a satisfactory alternative for this foundational detinition, and it was 

insufticient for the Panel to recommend simply that "lhe CFPB solicit public comment on what, 

if any, additional specitic information beyond the six items included under the proposed 

detinition of application is needed to provide a reasonably accurate Loan Estimate.'" 

Similarly, the Panel Report notes that the SERs strongly opposed requiring lenders to 

provide the Settlement Disclosure three days before closing, challenging its value to consumers 

"2 Panel Report at 29. lid. 

~ I American Bankers Association 
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August 1, 2012 

and describing the operational inefficiencies and added costs fbr small lenders and settlement 

agents. Although the Report describes four alternatives suggested during the convening meeting 

and in written comments filed by the SERs, due to the limited time allotted fbr consultation with 

SERs, there was no opportunity for thrther consideration and discussion of these or any new 

alternatives that might have surfaced. Instead, the Report simply directs the Bureau to "continue 

to explore whether the potential impact of the three-business-day requirement on small entities 

can be mitigated while maintaining the benefits to consumers ... ,,4 

II. The Panel's Focus Should Be Advocating for Small Entities 

Inherent in the SBREFA review process is an obligation tbr the Panel to be an advocate 

for small entities. Specifically, SBREFA, as amended by Dodd-Frank Act § II 000, directs the 

Panel to repOlt on the comments orthe small entity representatives and to recommend specific 

steps the Bureau may take to minimize any "significant economic impact on small entities 

consistent with the stated objectives of applicable statutes," including any increase in the cost of 

creditfor small entities. In addition, the Panel should evaluate specific alternatives to minimize 

these impacts.' 

ABA believes that the Panel report tbr the RESPA/TILA rulemaking fails to meet these 

statutory objectives. The report does provide a summary of the regulatory proposals and the SER 

comments. However, we believe that the "Panel Findings and Recommendations" shows a 

reluctance to be an advocate fbI' small entities. for example, with regard to the proposal to 

require lenders to provide the Settlement Disclosure three days before closing, the report states, 

"The Panel recognizes that statutory requirements limit the discretion of the CFPB to shorten the 

three-business-day waiting period" (emphasis added)'" A closer look at the Bureau's discussion 

of its integration ofRESPA and TILA, however, demonstrates that the Bureau has exercised 

considerable discretion in interpreting Congressional intent to integrate the two statutes. In fact, 

forcing precise and final fee disclosures in advance of settlement is not a requirement found in 

the underlying statutes being integrated. The proposed three-day period exhibits inflexibility in 

the Bureau's deliberations and an apparent unwillingness to analyze all of the options available. 

Considering the strong opposition by the SERs trom all participating industry segments to the 

4 Panel Report at 29. 

Small Business Regulatory Enforcement Fairness Act of 1996 . .s U.S.C.§609(d). 

Report at 29. 

'&> I American Bankers /\ssociation 6 
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August 1, 2012 

proposed three-day rule, ABA believes that the Panel Report should have challenged-not 

accepted-the Bureau's assertion of"limits" on its discretion. 

In addition, as noted above, the Panel further abdicated responsibility for providing 

specific direction to the Bureau. Instead, the Panel simply directed the Bureau to "eontinue to 

explore whether the potential impact of the three-business-day requirement on small entities can 

be mitigated." Indeed, each of the Panel recommendations and findings concludes in a similar 

way. Rather than recommending that the Bureau take a specific action or accept a suggested 

alternative, the Panel Report rccommends that the Bureau "solicit public comment," "consider," 

or '''evaluate'' an existing proposaL 

The identification and recommendation of less burdensome alternatives-such as phasedin deadlines, reduced obligations, thresholds or exemptions for small entities-is an important 

objective of a SBREFA Panel. Thcre is no question this difficult work requires a considerable 

commitment oftime, but doing so will ensure that the small business review makes meaningful 

recommendations and results in consumer protection rules that work for both consumers and 

small businesses. 

III. Vendor Implementation Cost Data Should Be Gathered 

ABA believes that in preparation for a SBREFA review, the Burcau should be required to 

gather and share with SERs information from third-party service providers about anticipated 

system and software changes (and potential costs) required by regulatory proposals under 

consideration. At the beginning of the Panel's summary ofSER comments on the RESPA-TILA 

rule, the Panel states that SER estimates of implementation costs often varied, noting, "Because 

the SERs were drawn from different industries and their experiences differed, the SERs 

understandably may have famed, referred to, or described similar costs differently.'" ABA 

agrees with this assessment, but we do not believe that it can excuse the Panel's failure to elicit 

and consider information on the anticipated economic impact of a regulatory proposal under 

consideration. 

We undcrstand that during the RESPA-TILA convening meeting, there were assumptions 

abont required changes and costs, but no real information or data. ABA believes that the 

Bureau-whose access is far superior to that of small entities-should have an affirmative duty 

7 Panel Report at 17. 

~ I American Bankers Association 7 
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August 1, 2012 

to obtain this information and to provide it so that SERs can react to it and suggest how the 

changes might affect their business practices and lees and gauge the likely impact on the cost of 

credit. In addition, having this intormation available should minimize the variation between SER 

cost and burden estimates, providing the Panel greater confidence in the information it collects. 

Also, extending the time period before the convening meeting will enable the Panel to 

delve further into cost estimates, For example, in the RESPA-TILA process, during the 

convening meeting the SERs strongly opposed the proposal to require lenders and settlement 

agents to maintain disclosures in "machine-readable" tormat, anticipating the costs to develop 

and implement the technology would be "substantial." However, without specific information 

about the technology that would be required, they could 1I0t even estimate tlte cost. Not 

surprisingly, the Panel Report simply recommended that the "CFPB solicit public comment on 

those costs and explore whether an exemption from any requirement to maintain the required 

records in machine readable format should be provided to small entities ... ,,8 

We believe that the Panel should have insisted that the Bureau provide specific 

information on its expectations for machine-readable disclosures including cost estimates from 

service providers who have developed, or are developing, this technology. Then the SERs could 

have reacted to this information, describing how it would impact their practices and ultimately 

the cost of credit, or suggesting alternatives for mitigating this impact. 

Conclusion 

ABA understands that the Bureau is in the process of implementing a step in its 

rulemaking process that has not previously been a component of consumer tinaneial protection 

regulation, The implementation of the SBREF A review process is essential to the suceess of the 

Bureau's mission, particularly since the Bureau's rules will apply to all size institutions, but they 

only have supervisory experienee with the largest providers, We encourage this Committee to 

exercise appropriate and continuing oversight of the Bureau's SBREFA review process to ensure 

it is meaningful and results in consumer protection rules that work for both consumers and small 

businesses. 

, Panel Report at 30. 

~ i American Bankers Association 8 
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~l. CUNA 

(ft4IItlttlnnNadI)M!~Iitfuf1 601 P1:!nnsylvania Ave., NW ! South Building, Suite 600 ! washington, DC 20004·2601 1 PHGN£: 202"508·6745 j FAX: 202·638-3389 

tuna.org 

81UCHtH1!'t 

Presfdent&C£O 

July 24, 2012 

The Honorablc Sam Graves 

Chairman 

Small Business Committce 

United States House of Representatives 

Washington, D,C. 20515 

Dear Chairman Graves: 

On behalf of the Credit Union National Association (CUNA), I am writing about the 

Small Business Committee's upcoming hcaring on federal agency compliancc with thc 

Regulatory Flexibility Act, 5 USc. *§ 601-612 and the Consumer Financial Protection 

Bureau's (CFPB) recently published proposed rule on the Know Before You Owe Real 

Estate Settlement Procedures Act (RESPA)frruth [n Lending Act (TlLA) Combination 

rulemaking, requircd by the Dodd-Frank Wall Street Ref(llTIl and Consumer Protection 

Act of201 0 (Dodd-Frank Act), CUNA is the largest credit union advocacy organization 

in the United States, representing nearly 90% of America's 7,200 state and federally 

chartered credit unions and their 95 million members, We appreciate the opportunity to 

provide comments on both topics in advancc ofthis hearing, 

Section lIOOG o£the Dodd Frank Act 

As the Committee is aware, Section 1100G of the Dodd-Frank Act added the Consumer 

Financial Protcction Bureau (CFPB) to the short list of agencies required to conduct Small 

Business Advocacy Review (SBAR) Panels under 5 USc. §§ 609, Other agencies 

required to conduct these panels are the Environmcntal Protection Agency and the Small 

Business Administration, I will focus my comments on the CFPB SBAR Panel process 

and experience to date. 

CUNA appreciates the fact that CFPB is charged with, and is complying with, assembling 

these panels, It is important for regulators to consider the real-world and real-dollar impact 

that rcgulations have on rcgulatory burden and compliance costs for small businesses, 

However, we do have some concerns with the operation of these panels as experienced 

thus far. 

First, CUNA would appreciate ifthe CPFB would convene panels tor rules that were 

transfcrred to them from other agencies, for instance, the Federal Rescrve's Ability-toRepay/Qualified Mortgage Rule, To date, the CFPB has not done this for all transferred 

rules. 
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The Honorable Sam Graves 

July 2, 2012 

Page Two 

Secondly, CUNA believes that those invited to participate in a panel should be afforded 

adequate time to prepare in advance of: or to submit their written remarks following thc 

completion of a panel discussion. Providing some type of consistent timeframes for 

inviting Small Entity Representatives (SERs) to participate and to submit comments 

following a panel would be welcome. Often, SERs need more than a week to either 

prepare and make arrangements to attend, or to provide written comments following the 

panel discllssions. As an example of what the SERs must prepare for, please see the 

CFPB's "Small Business Review Panel and Cost of Credit Consultation for RESPA/TILA 

Integration Rulemaking: Discussioll Issues for Small-Entity Representatives" available on 

their website at 

Third, CDNA feels there could be more transparency regarding SERs and the resulting 

reports required of the panels. It has been difficult to ascertain who has been invited to 

participate in these panels. Information regarding the selected SERs is not posted on the 

agency's Web site prior to the panel discussions and hasn't been made available upon 

request. Moreover, in order for a trade association with a vested interest in the topic being 

discussed to attend, trade association staff must be an invited guest of an SER, and the 

SER is required to notify the CFPB of this individual's attendance in advance of the panel 

discussions. CUNA would recommend allowing trade representatives with a vested 

interest to be able to attend these panel discussions as an observer with the option to 

submit written comments following the conclusion of the panel discussions. 

We are also concerned that, while the pancl report is required to be "issued" once a panel 

has been concluded (within 60 days ofa panel convening); the CFPB's practice thus far 

has been to only publish such reports alongside a proposed rule. In the case ofthe 

TILA/RESPA proposed rule, the SBAR panel was convened in February, and the SBAR 

report was issued on April 23, yet the report was not published and made available to the 

public until the proposed rule was issued on July 9, almost three months after such report 

was made available to the CFPS. 

To be clear, CUNA appreciates the input the CFPB is willing to receive from credit unions 

around the country. However, we belicve these suggestions would improve the process 

for both the CFPB and our industry. 

RESPA/TILA 

CDNA supports providing consumer disclosures that are meaningful and clear for 

borrowers to understand the important terms of a financial transaction. When the DoddFrank Act was being considered by Congress, CDNA strongly supported combining 

certain RESPA/TILA forms to improve efficiencies in disclosures and minimize 
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The Honorable Sam Graves 

July 24, 2012 

Page Three 

disclosure burdens on credit unions as well as on consumers, who are overloaded with 

financial infonnation that is not practical or useful. During the development of the 

proposed integrated forms, the CFPB reached out to CUNA on numerous occasions to 

solicit information on credit unions' views and concerns. 

However, we are very concerned about key aspects of the 1,099 page RESPAITILA 

proposed regulation that was released on July 9, 2012, and this is a perfect example of the 

enonnous burden that credit unions and other smaller financial institutions face. The 

proposal is massive and reviewing of the document will prove to be problematic for some 

stakeholders who do not have the lUxury of large staffs and teams of lawyers they can 

devote to working through the proposal, while also trying to comply with other CFPB 

issues that are pending. Due to the various mandates Congress required the CFPB to 

implement, we are concerned that just being able to respond to all the important issues 

raised in the proposal will be burdensome, particularly in light of other proposals that are 

pending or developing from the CFPB to meet statutory requirements. 

Finance Charge 

One aspect of the new RESPAITILA proposal would be to expand the definition ofthe 

finance charge as defined under Regulation Z. As the Bureau has acknowledged, absent 

further action by the bureau, a more-inclusive finance charge as proposed would have the 

following effects: 

• Cause more closed-end loans to trigger HOEP A protections for high-cost 

loans; 

• Cause more loans to trigger requirements to maintain escrow accounts for 

first-lien higher-priced mortgage loans; 

• Cause more loans to trigger requirements to obtain one or more interior 

appraisals for "higher-risk" mortgage loans; 

• Reduce the number ofloans that would otherwise be "qualified mortgages" 

under the ability-to-repay requirements, given that qualified mortgages 

cannot have points and fees in excess of3% of the loan amount. 

Comments are due to the CFPB on the financc charge definition by September 7, 2012, 

and CUNA will be focusing on the substance and impact of the proposed expansion of the 

finance charge definition. While the current system for determining what is a finance 

charge and what is not is certainly confusing, we hope to work with the CFPB to address 

this issue without triggering so many other unintended consequenees. 

Effective Dates 

The Bureau is proposing to delay the compliance deadline of certain requirements relating 

to new disclosures required under the Dodd-Frank Act and is seeking eomments on this 
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The Honorable Sam Graves 

July 24, 2012 

Page Four 

approach. Whilc Congress is responsible for creating these rcquirements, it has given the 

CFPB authority to mitigate compliance burdens and we appreciate the CFPB's willingness 

to consider how best to use that authority as it relates to these disclosures. 

Congress did not specify a specific compliance deadline for this regulation and the Bureau 

is presently considering a compliance deadline for the RESPA/TILA proposal. We hope 

Congress will encourage the CFPB to give credit unions as much time as possible to 

comply with a final rule. 

Model Forms VS. Standard Forms 

TILA authorizes the CFPB to publish model forms for the TILA disclosures. In contrast, 

RESP A authorizes the CFPB to require the use of standard forms. Model forms benefit 

lenders by providing them with safe harbors for complying with disclosure obligations, 

while preserving flexibility for lenders to vary from the model so long as they adhere to 

the regulation. Standard forms allow less flexibility for lenders, but provide consistency 

for both consumcrs and lenders. We have urged the CFPB to issue a rule that would 

require the use of standard forms under RESP A for the Loan Estimate and Settlement 

Disclosure for mortgage loan transactions that are subject to RESP A, but would allow 

lenders to use model forms for the TILA disclosures. We believe that such an approach 

would yield less opportunity for unscrupulous lenders to present "bait and switch" 

scenarios to consumers, and that this approach would contribute overall to better consumer 

protection. Again, recognizing that the RESPA/TILA form combination is required by the 

Dodd-Frank Act, we continue to urge the CFPB to provide consumers with efficient and 

complete disclosures. Not only is the prospect oftoo many disclosures daunting to and 

unweIcomed by most consumcrs, the cost to generate, deliver and explain the disclosures 

to consumers has become extremely burdensome to lenders. 

Potential Costs a/Compliance 

Assigning a dollar figure to the cost of compliance for these regulatory changes is 

extremely difficult. When a regulation is changed, there are certain upfront costs that must 

be incurred: staff time and credit union resources must be applied in detennining what is 

necessary in order to comply with the change; fOl1ns and disclosures must be changed; 

data processing systems must bc rcprogrammed; and staff must be retrained. It also takes 

time to discuss these changes with credit union members, and at times, members get 

frustrated because ofthe change. The ongoing costs of doing business in a manner that 

complies with the new regulation, compared to how it was conducted previously, is more 

challenging to measure. 
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The Honorable Sam Graves 

July 24, 2012 

Page five 

Consider Repeal a/Specific Disclosure Requirements 

With respect to disclosures specifically mandated by the Dodd-Frank Act, we recognize 

that Section 1419 amends TILA to require, in the case of residential mortgage loans, "the 

disclosure of the total amount of interest that the consumer will pay over the life of the 

loan as a percentage of the principal ofthe loan," ("Total Interest Percentage"). The extent 

to which this disclosure would actually help consumers has not been documented and we 

encourage Congress to repeal this requirement or make it more meaningful to consumers 

by clearly distinguishing it from the annual pereentage rate. We are concerned that there is 

tremendous potential tor consumer confusion with this disclosure, particularly if it is not 

distinguished from the APR. 

In this same light, Section 1419 also amends TILA to require the disclosure of the 

"approximate amount of the wholesale rate of funds in connection with the loan," in the 

case of residential mortgage loans. For those credit unions that intend to sell mortgage 

originations to the secondary market, this disclosure provides absolutely no benefit or 

value to the consumer. Secondly, for those credit unions that intend to portfolio their 

mortgage originations, CUNA believes that a more appropriate measure of the cost of 

funds in this context would be the credit union's cost of funds as estimated over the life of 

the loan, rather than solely at the point of origination. 

Settlement Disclosure Delivery Timing 

CUNA is also concerned with a proposal being considered by the CFPB which would 

require delivery of an integrated Settlement Disclosure three business days before closing 

in all circumstances. We have urged the CFPB to not proceed with such a requirement. It 

is difficult, at best, tor credit union lenders to coordinate with title companies and others 

24 hours in advance of a real estate closing. To increase the period to three days prior to 

closing would be very problematic for credit unions, and likely very frustrating for 

consumers who usually want to close on their home loan as soon as possible. CUNA 

encourages the subcommittee to help ensure additional regulatory burden regarding this 

requirement is not placed on credit unions in any future rulemaking. 

Best regards,