Consumer Financial Protection Bureau: Observations from Small Business Review Panels
Published: 2016-08-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Regulatory Flexibility Act, which was amended by the Dodd-Frank Act, requires CFPB to convene Small Business Review Panels (also known as SBREFA panels) for rulemaking efforts that are expected to have a significant economic impact on a substantial number of small entities. These panels are intended to seek direct input early in the rulemaking process from small entities (which can include small businesses, small not-for-profit organizations, and small governmental jurisdictions) that would be impacted by CFPB's rulemakings. This report addresses the extent to which CFPB solicited, considered, and incorporated such inputs into its rulemakings, and the views of small entity representatives on CFPB's rulemaking process.
GAO analyzed and reviewed CFPB's rulemaking processes and documents and conducted semi-structured interviews with 57 of the 69 participants on four panels who agreed to be interviewed. The scope was limited to the four SBREFA panels that had associated final rules as of April 2016.
GAO does not make any recommendations in this report. CFPB generally agreed with our findings.
section_title: What GAO Found
paragraphs: The Consumer Financial Protection Bureau (CFPB) has taken steps to solicit, consider, and incorporate inputs from small entities into its rulemaking process, as required by the Regulatory Flexibility Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). GAO reviewed documents from the four Small Business Regulatory Enforcement Fairness Act (SBREFA) panels that resulted in final rulemaking as of April 2016 and found CFPB completed required steps for conducting them (see fig.). CFPB addressed required elements for regulatory analyses that are components of the proposed and final rules. Based on a review of selected rules, GAO observed that the discussion of rule proposals and alternatives focused on reactions to proposals and alternatives CFPB presented. Some alternatives that small entity representatives raised at panels were discussed in a significant alternatives section of the proposed rules, while others were not. CFPB officials noted that data needed to make a fuller assessment of some alternatives from small entities were not always available. CFPB officials, consistent with statutory requirements for CFPB rulemakings, also said alternatives that CFPB presents for a panel discussion and in a proposed rule are those they deemed significant and consistent with applicable statutes.
GAO interviewed 57 of the 69 small entity representatives who participated in the four SBREFA panels GAO reviewed and found they generally believed the process was useful but also that it could be improved. More than three-quarters stated the materials CFPB provided helped prepare them to provide constructive input, and two-thirds stated their industry was represented on the panels. However, two-thirds stated not enough time was allotted to discuss at least one of the topics on the panel agenda and a third suggested more time or additional meetings would improve the process. While 36 of 57 stated CFPB at least partially considered their comments in its rulemakings, most representatives expressed disagreement with CFPB's final rules for reasons such as increased cost of compliance. Specifically, 7 of 57 were satisfied with CFPB's final rules. CFPB officials noted that the rules for which GAO reviewed SBREFA panels were based on statutory requirements in the Dodd-Frank Act. In its rulemaking process, CFPB is to consider input from multiple sources and makes judgments deemed necessary to accomplish the stated objectives of applicable statutes.

section_title: Letter
paragraphs: In certain cases, the Consumer Financial Protection Bureau (CFPB) is  required to consider input from small businesses and other groups in its  rulemaking process. Specifically, the Dodd-Frank Wall Street Reform and  Consumer Protection Act (Dodd-Frank Act) amended the Regulatory  Flexibility Act (RFA) and required CFPB to convene Small Business  Review Panels when proposed rules are expected to have a significant  economic impact on a substantial number of small entities. CFPB  conducts the Small Business Review Panels, also known as Small  Business Regulatory Enforcement Fairness Act (SBREFA) panels, to  seek direct input from small entities whose business would be impacted  by CFPB rulemaking—which can include small businesses, small not-for- profit organizations, and small governmental jurisdictions—before the  release of a notice of proposed rulemaking. One of the purposes of  SBREFA is to give small businesses greater opportunity to participate  and provide input into the development of regulations. Questions have  been raised about the adequacy and thoroughness of CFPB’s analysis of  impacts on small entities during the rulemaking process, and its  adherence to RFA.
You asked that we examine CFPB’s activities related to rulemaking  efforts that involve small entities, including the activities related to  conducting SBREFA panels to gather input from small entity  representatives. This report addresses (1) the extent to which CFPB  solicited, considered, and incorporated small entity inputs into its  rulemakings; and (2) the views of the small entity representatives on  CFPB’s rulemaking process.
To assess the extent to which CFPB solicited, considered, and  incorporated small entity inputs into rulemakings, we reviewed applicable  laws, regulations, and guidance on CFPB’s rulemaking process. We  compared the requirements with CFPB’s analyses on the impacts of four  proposed rules on small entities. Specifically, we analyzed CFPB’s  rulemaking processes and documents on all final rulemakings in which  SBREFA panels were convened and final rules issued. As of April 2016,  four CFPB rulemakings involving SBREFA panels had resulted in final  rules. The rulemakings were focused on mortgage lending rules: Truth In  Lending Act and Real Estate Settlement Procedures Act (TILA-RESPA)  Integrated Disclosure, Mortgage Servicing (for TILA and RESPA),  Mortgage Loan Originator Compensation, and the Home Mortgage  Disclosure Act (HMDA).
To assess the views of small entity representatives in CFPB’s rulemaking  processes, we contacted all representatives (69) who participated on the  SBREFA panels associated with the four rulemakings. We conducted  semi-structured interviews to seek the views and insights of  representatives on CFPB’s outreach efforts and materials provided before  the SBREFA panels, the discussions at the panel meetings themselves,  CFPB’s consideration of representatives’ comments, and CFPB’s  consideration of representatives’ inputs for the proposed and final rules.  We received responses from 57 of the 69 representatives (83 percent).  For more information on our scope and methodology, see appendix I.
We conducted this performance audit from October 2015 through August  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: CFPB Rulemaking and the SBREFA Panel Process
paragraphs: The Dodd-Frank Act, which established CFPB, grants the agency  authority to develop rules aimed at protecting consumers in the financial  products and services marketplace. In particular, the Dodd-Frank Act  requires that CFPB consider the potential benefits and costs to consumers and covered persons,  impacts of proposed rules on small banks and credit unions, and  impact of proposed rules on consumers in rural areas.
The act also requires CFPB to seek input from small entities during the  rulemaking process for certain proposed rules. Specifically, when CFPB  conducts a rulemaking that it determines will have a significant economic  impact on a substantial number of small entities, CFPB must convene a  SBREFA panel to seek direct input from small entities before issuing  proposed rules for public comment, in addition to its normal rulemaking  outreach to the public. This requirement extends beyond the typical  rulemaking process, established under the Administrative Procedures  Act, which encompasses the publication of most rules in the Federal  Register and a period for public comment. The SBREFA panel  requirement applies to CFPB, the Environmental Protection Agency, and  the Occupational Safety and Health Administration.
Once convened, the SBREFA panel has 60 days to solicit input from  small entities on a draft proposal of a rule and report this input as well as  its findings in a panel report. The Regulatory Flexibility Act, as amended  by the Dodd-Frank Act, requires CFPB to consider the input of small  entity representatives, which is reflected in the panel report, when drafting  its proposed rule. See figure 1 for an overview of CFPB’s rulemaking  process and the SBREFA panel process.
The SBREFA panels are chaired by CFPB and include other government  agency representatives from the Small Business Administration’s (SBA)  Office of Advocacy and the Office of Management and Budget’s (OMB)  Office of Information and Regulatory Affairs. Once CFPB has made the  determination to convene a SBREFA panel, it must identify the  appropriate number and mix of small entity representatives for the  purpose of obtaining advice and recommendations from the individuals  about the potential impacts of the proposed rule. These representatives  are to be selected from small businesses, not-for-profit organizations, and  government jurisdictions. Specifically, the Regulatory Flexibility Act, as  amended by the Dodd-Frank Act, requires that CFPB identify these small  entity representatives in consultation with the Chief Counsel for Advocacy  of SBA. A small business must meet certain statutory definitions and  SBA size standards to be eligible to participate in the SBREFA panel  process.
Before meeting with small entity representatives, CFPB, in collaboration  with SBA’s Office of Advocacy and OMB’s Office of Information and  Regulatory Affairs, develops an information package to share with small  entity representatives. These materials typically contain information about  the background and requirements for the proposed rule, an overview of  the proposed rule (including a preliminary assessment of the potential  impacts), and any alternatives under consideration, as presented by  CFPB. CFPB also provides small entity representatives with an agenda  and a list of potential discussion topics for the panel meeting, a fact sheet  and other verbal and written information about their role in the process,  and questions posed to small entity representatives on the impacts of the  proposed rules for the meeting. CFPB officials also mentioned that they  sometimes observed operations relevant to the rulemaking at a financial  services organization.
section_title: Initial and Final Regulatory Flexibility Analyses
paragraphs: When CFPB convenes a SBREFA panel, the panel must assess certain  impacts of proposed rules before their release for public comment as a  Notice of Proposed Rulemaking. Accordingly, topics of discussion for the  panel meeting with small business representatives address subject areas  that CFPB is required to assess in its rulemakings. In particular, CFPB  must prepare an Initial Regulatory Flexibility Analysis with the following  required elements: a description and estimate, where feasible, of the number of small  entities to which the proposed rule will apply; a description of the projected reporting, recordkeeping, and other  compliance requirements of the proposed rule; an identification, to the extent practicable, of all relevant federal rules  which may duplicate, overlap, or conflict with the proposed rule; a description of any significant alternatives to the proposed rule which  accomplish the stated objectives of applicable statutes and which  minimize any significant economic impact of the proposed rule on  small entities; a description of any projected increase in the cost of credit for small  entities (and, if so, any significant alternatives to the proposed rule  that accomplish the stated objectives of applicable statutes and  minimize any increase in the cost of credit for small entities); and a description of the advice and recommendations of representatives  of small entities relating to the issues described above.
Subsequent to the panel meeting with small entity representatives, the  panel must prepare a report that summarizes the input of the small entity  representatives and recommendations of the panel members.  Accordingly, CFPB collaborates with SBA’s Office of Advocacy and  OMB’s Office of Information and Regulatory Affairs to prepare the report,  which is required to be completed within 60 days after the panel  convenes. It is publicly released in conjunction with the release of the  proposed rule as a Notice of Proposed Rulemaking in the Federal  Register. Once the proposed rules are publicly released, another  comment period is open to any interested parties, organizations, and the  public in general.
After the comment process is complete for a proposed rule and CFPB  has decided to finalize the rule and continues to find that the proposed  rule will have a significant economic impact on a substantial number of  small entities, CFPB then must prepare a Final Regulatory Flexibility  Analysis in conjunction with the final rule. This final analysis must include  the following elements: description and estimate of the number of small entities to which the  proposed rule will apply or an explanation of why no such estimate is  available; description of the projected reporting, recordkeeping, and other  compliance requirements of the proposed rule; description of the steps taken to minimize the significant economic  impact on small entities consistent with the stated objectives of  applicable statutes, including reasons for selecting the alternative  adopted and rejecting other significant alternatives; and description of the steps taken to minimize any additional cost of credit  for small entities.
section_title: Inspector General Affirmed CFPB’s Compliance with Section 1100G of the Dodd-Frank Act
paragraphs: The Office of Inspector General (OIG) for the Board of Governors of the  Federal Reserve System and the Consumer Financial Protection Bureau  has reviewed certain aspects of CFPB’s rulemaking process, including  the SBREFA panel process. In its September 2014 report, the OIG  concluded that CFPB complied with Section 1100G of the Dodd-Frank  Act in its operation of the SBREFA panels and rulemaking processes.
The OIG also found that CFPB’s interim policies and procedures had  been in use for approximately 2 years without being updated or finalized.  The interim policies had afforded CFPB staff significant discretion in their  rulemaking approach to regulatory analysis, which contributed to a  variance in documentation and inconsistent knowledge transfer practices.  At the time of the OIG review, CFPB used interim guidance to detail the  agency’s rulemaking process, which included utilizing the SBREFA  process as required under the Dodd-Frank Act. CFPB used the interim  guidance in the development and issuance of the four rules we reviewed,  all of which were published in the Federal Register as proposed rules for  public comment prior to September 2014.
The OIG made recommendations for CFPB to finalize its interim guidance  documents and enhance data repository measures. CFPB finalized its  internal guidance documents in 2014. As of March 2016, the OIG noted  that CFPB had agreed with its recommendations. OIG staff also told us  that corrective actions were underway and that the recommendations  remained open as they awaited further documentation from CFPB to  close out the recommendations, as of June 2016.
section_title: CFPB Met Requirements to Solicit, Consider, and Incorporate Small Business Inputs into Rulemakings
subsections: section_title: CFPB Met Requirements for Conducting SBREFA Panels
subsections: section_title: CFPB Selected and Informed Panel Participants and Solicited Their Input
paragraphs: CFPB, in collaboration with SBA’s Office of Advocacy and OMB’s Office  of Information and Regulatory Affairs, accomplished required steps for  conducting the four panels that we reviewed—including soliciting the input  of small entity representatives at panel meetings. In addition, before the  panel discussions CFPB worked with SBA’s Office of Advocacy to identify  and select candidates to be small entity representatives. CFPB, SBA’s  Office of Advocacy, and OMB’s Office of Information and Regulatory  Affairs also worked collaboratively to develop and send materials to small  entity representatives before panel meetings. The materials included  information on the draft proposed rule (with a preliminary assessment of  the potential impacts), discussion questions, and the SBREFA process.
Based on our analysis of testimonial and documentary evidence, we  found evidence of collaboration between CFPB and SBA’s Office of  Advocacy concerning the selection of small entity representatives. In  doing so, we noted that different representatives appeared in each of the  four panels. We also found that CFPB worked with trade associations to  identify potential candidates for small entity representatives and further  vetted organizations to help ensure that a variety of entity types were  represented at the panel meeting, including those of varying sizes and  from different geographic areas.
section_title: Time Frames to Solicit Inputs from Small Entity Representatives Varied
paragraphs: The time frames afforded to small entity representatives to provide input  before panel meetings generally increased over time (see fig. 2). CFPB’s  actions occurred within the context of a Regulatory Flexibility Act  requirement, to complete panel reports 60 calendar days after the panels  were convened. CFPB defines “convened” as the date on which CFPB,  SBA’s Office of Advocacy, and OMB’s Office of Information and  Regulatory Affairs formally established the panel, not the date on which  the panel meeting with small entity representatives occurred. In earlier  panels, CFPB either convened the panels shortly before providing  representatives with materials or concurrently. Then, representatives had  from 10 to 11 business days to review materials before panel meetings.  For the most recently completed panel we reviewed (HMDA), CFPB first  sent out materials and allowed 18 business days for representatives to  provide input before the panel meeting. During this period, CFPB hosted  teleconferences with representatives to help prepare them for the panel  meeting. Then CFPB held the meeting 5 business days after convening  the panel.
CFPB officials said that their process has evolved to extend time spent on  outreach to small entity representatives; specifically, they conducted more  outreach with small entity representatives prior to convening the panel in  connection with those regulations for which the Dodd-Frank Act did not  mandate a specific issuance date (as with the HMDA panel). CFPB  officials explained that the agency had less flexibility on the earlier panels  because of the time frames required by the Dodd-Frank Act for the  completion of the associated rules.
Similarly, the time allowed for small entity representatives to provide  comments after the panel meetings (which were all-day meetings) varied.  For instance, on the first panel to discuss the rule on the TILA-RESPA  Integrated Disclosure, the panel provided an additional 5 business days  for representatives to submit comments after the panel meeting.  Therefore, representatives were given a total of 16 business days to  review materials and provide input. For the HMDA rule, CFPB provided  an additional 10 business days after the panel meeting for  representatives to provide comments, giving representatives a total of 29  business days to review materials, meet with the panel, and provide  inputs to the rulemaking.
section_title: CFPB Completed Required Reporting on Panels
paragraphs: CFPB, SBA’s Office of Advocacy, and OMB’s Office of Information and  Regulatory Affairs also collaborated to prepare panel reports as required.  The panel reports we reviewed summarized the topics addressed during  the panel discussions as well as the recommendations from the panels.  These topics were consistent with the elements of the Initial Regulatory  Flexibility Analysis that rulemakings under RFA, including those in the  SBREFA process, must address. The panel reports also included written  comments by small entity representatives within the appendices of the  reports.
The agencies generally completed the reports within the deadline of 60  days after the panel was convened. In preparing the panel reports,  CFPB and SBA’s Office of Advocacy noted the challenges presented by  the 60-day deadline. During this period, the panel sends materials to  small entity representatives with time for review, conducts a formal  meeting with the small entity representatives to gather their input, and  provides time for the representatives to provide written comments before  drafting the panel report. As previously discussed, CFPB considers a  panel to be convened on the date it was established, not the date it met.  Therefore, the later the panel meets with the small entity representatives,  the more challenging it becomes to prepare the panel report within the  deadline. After the panel report is prepared by the three agencies, CFPB  makes it publicly available as part of its Notice of Proposed Rulemaking in  the Federal Register. For the rulemakings we reviewed, the panel reports  were publicly released approximately 2–4 months after the reports were  completed and approximately 4–6 months after the panels were  convened.
section_title: CFPB Addressed Required Elements of Initial and Final Regulatory Flexibility Analyses
paragraphs: CFPB addressed required elements for Initial and Final Regulatory  Flexibility Analyses under the Regulatory Flexibility Act, as amended by  the Dodd-Frank Act, and also for more general rulemaking requirements.  Based on our review, CFPB’s Notices of Proposed Rulemaking that  accompany the four proposed rules incorporated the required elements of  an Initial Regulatory Flexibility Analysis. Similarly, the Notices of Final  Rulemaking associated with these four rules addressed the required  elements in the Final Regulatory Flexibility Analysis.
Each of the Notices of Proposed Rulemaking also included discussion of  the required elements that apply to CFPB rulemakings generally, beyond  the Regulatory Flexibility Act requirements.  The elements are:  the potential benefits and costs to consumers and covered persons;  impacts of proposed rules on depository institutions and credit unions  with $10 billion or less in total assets; and  impact of proposed rules on consumers in rural areas.
Although CFPB addressed the general requirements, CFPB  acknowledged that its assessments of impacts on consumers in rural  areas in the proposed and final rules were sometimes not fully known  because of limited information. In such cases, CFPB generally stated that  it had limited information on such impacts and would continue seeking  information and data on the impacts.
section_title: Information on Panels Focused on CFPB Proposals and Alternatives
paragraphs: Our review of the rulemaking documents indicates that the discussion of  the rule proposals and alternatives in panel reports, and the Notices of  Proposed Rulemaking, focused on reactions to the proposals and  alternatives that CFPB presented. In cases in which the documents  included alternatives put forth by small entity representatives, the  alternatives proposed by small entity representatives were typically  focused on who should be exempt from a proposed rule or how much  time should be allowed to implement it. The Regulatory Flexibility Act  requires that each CFPB Initial Regulatory Flexibility Analysis include,  among other things, a description of any significant alternatives to the  proposed rule which accomplish the stated objectives of applicable  statutes and which minimize any significant economic impact of the  proposed rules on small entities and any increase in the cost of credit for  small entities. CFPB makes judgments about which alternatives meet  this requirement. The following examples illustrate the CFPB focus in the  rulemaking documents that we reviewed:
Panel materials: As described earlier, panel materials include an  overview of the proposed rule and any alternatives under  consideration, as presented by CFPB. In the panel materials  disseminated for each of the four rulemakings, CFPB presented its  “Outline of Proposals under Consideration and Alternatives  Considered.” Consistent with its internal guidance, CFPB developed  the proposals and alternatives presented in these documents to  facilitate inputs from small entity representatives. For example, in the  panel materials for the TILA-RESPA Integrated Disclosure  rulemaking, CFPB presented alternative prototypes for the “Loan  Estimate” and “Settlement Disclosure” documents. According to  CFPB, testing on these alternative prototypes with consumers was  completed in January 2012, before the SBREFA panel met with  representatives in March 2012.
Panel reports: The panel reports generally comprehensively  discussed different aspects of proposals and alternatives presented  by CFPB. In reviewing the alternatives in the panel reports, we found  that the discussions also principally addressed the proposed rules and  alternatives presented by CFPB in the panel materials. Accordingly,  the majority of comments from representatives in the panel reports  were focused on their reactions to CFPB’s proposed rules and  alternatives. Furthermore, some of the comments reflected  discussions over which entities should be exempt from the proposed  rules and time frames to implement them. For instance, on the HMDA  rulemaking, representatives conveyed their positions on the  appropriate threshold for exemption from certain reporting  requirements. CFPB officials said that it was not often the case that  small entity representatives offered a large volume of alternatives.  The SBREFA panel republishes the small entity representatives’  written comments in an appendix of the panel report. In some cases,  panel reports include summaries of small entity representatives’ ideas  for alternatives to CFPB’s proposed rules—that is, the discussion  ranged beyond numeric exemption thresholds and implementation  time frames. For example, in the report on Mortgage Loan Originator  Compensation, small entity representatives asserted that the  economic costs of origination vary with the loan balance, and  therefore, a flat loan origination fee was unsuitable.
Proposed rules: The Notices of Proposed Rulemaking contained  discussion and assessment of CFPB’s proposed alternatives. We  found that some alternatives posed by representatives as part of the  SBREFA panel process were discussed and assessed in the  proposed rule and others were not. For example, for the proposed  rule on Mortgage Loan Originator Compensation, CFPB discussed an  alternative proposal from small entity representatives in the section of  the proposed rule discussing significant alternatives. We also  observed that CFPB often used the significant alternatives section of  the Notice of Proposed Rulemaking to further elaborate on its own  proposed rules. In an example of an alternative not presented in the  significant alternatives section of the proposed rule, small entity  representatives for the HMDA rulemaking sought an alternative for  “CFPB to limit the addition of data points to those mandated by the  Dodd-Frank Act and only as necessary to meet the HMDA purposes”  to address concerns about the burdens and costs associated with  new data points, particularly those not specifically enumerated in the  Dodd-Frank Act. In its notice of proposed rulemaking, CFPB  acknowledged concerns about the proposals to add new data points  to the HMDA reporting requirements, but did not explicitly present the  alternative offered by small entity representatives to limit the addition  of new data points. During the comment period for this proposed  rule, SBA’s Office of Advocacy commented on this alternative  emphasizing that these data points were not statutorily required and  urged CFPB to exempt small entities from collecting such data points  until CFPB had the opportunity to determine whether the additional  information furthered the goals of HMDA. As required by the RFA,  CFPB responded to the comments of the Office of Advocacy,  including its comment on discretionary data points, in its Final  Regulatory Flexibility Analysis, which was published in the final HMDA  rule. Other interested parties can identify or comment on  alternatives as part of the proposed rule comment period.
CFPB officials emphasized that they solicited alternatives from small  entity representatives, but were not required to list in the Notice of  Proposed Rulemaking all alternatives offered by the small entity  representatives. They only had to include those that they deemed  significant and consistent with applicable statutes of the proposed rule.  The officials also noted that data needed to make a fuller assessment of  some alternatives from small entities were not always available. In  developing the panel materials, CFPB officials stated that the agency  sought to balance the need to develop enough information for  consideration before the panel convened against providing such complete  information that it would appear the agency had reached a conclusion on  the content of the rule. As mentioned earlier, CFPB and SBA’s Office of  Advocacy officials emphasized the challenge of completing the panel  report within 60 days of convening the SBREFA panel. At the same time,  CFPB officials stated that the public, including trade associations and  small entities themselves, had opportunities to comment and provide  additional information on the proposed rule after the SBREFA process  was completed during the public comment period.
section_title: Small Entity Representatives Generally Viewed Panel Process as Useful, but Expressed Their Views on Areas for Improvement
paragraphs: Small entity representatives’ views on the panel process were generally  positive, but they also suggested areas for improvement. When asked  their overall views on the SBREFA process (question 29 of structured  interview, see app. II), 25 of 57 representatives we interviewed said the  SBREFA process was good, 20 stated that they were glad to have served  as small entity representatives, and 18 said the process was a good  opportunity to be heard. For instance, 1 representative said her voice  was heard and she would participate on another SBREFA panel if asked  in the future. Another said the SBREFA panel was a learning process for  CFPB and he would “jump at the opportunity” to be a part of it again.
Conversely, 13 of the 57 representatives stated that they felt CFPB  treated the process as a formality. For example, 1 said CFPB was good  at following processes but felt that it did not listen to input. He added that  he felt CFPB’s mind was made up before the panel took place. Another  felt the panel was more symbolic than meaningful—there was no  reflection of input from small entity representatives in the rule and that  representatives were not given a valid role in the rulemaking.  Furthermore, 7 representatives felt the process was hindered by CFPB’s  lack of knowledge of their industry. For example, one said CFPB staff did  not have enough practical experience and during the panel meeting there  was limited time to talk about the actual rule because small entity  representatives had to explain certain banking processes to CFPB.
Finally, 15 representatives felt the SBREFA process could be improved.  For instance, one said she would have liked more detailed discussion  with live beta or mock-up testing with her operational people so they  could test some of the things CFPB proposed. She believes this would  have produced a better rule. Another said there should have been a  second panel meeting after publishing the proposed rule to discuss the  topics again and so that representatives could better evaluate it. This  representative further noted that with two panels, during the first panel  CFPB could focus on closing its knowledge gaps in relation to how  industries operate their businesses.
subsections: section_title: Small Entity Representatives Generally Stated CFPB’s Outreach Efforts and Materials Helped Prepare Them for Panels
paragraphs: As discussed previously, CFPB conducted outreach efforts to prepare  small entity representatives to provide constructive input during the panel  meeting and the efforts varied by panel (see table 1). For all panels,  CFPB provided the representatives with materials that included the draft  proposal for rulemaking, discussion questions, and a fact sheet  describing the SBREFA process. For the panels on the TILA-RESPA  Integrated Disclosure and Mortgage Servicing rules, CFPB also provided  representatives with a draft agenda for the panel meeting and the  opportunity to comment. For the HMDA panel only, CFPB conducted two  sets of teleconferences before the panel meeting to discuss elements of  the draft proposal for rulemaking.
Of the 57 small entity representatives we interviewed, 31 believed  CFPB’s outreach efforts prepared them to provide constructive input  during the SBREFA panel meeting (question 6) and 15 said CFPB efforts  partially prepared them (see table 2). The HMDA panel had the greatest  share of representatives who said CFPB’s outreach efforts prepared them  to provide constructive input and the Mortgage Loan Originator  Compensation panel had the smallest share. Seven representatives from  the HMDA panel specifically mentioned the teleconferences were helpful  when asked about CFPB’s outreach efforts.
Furthermore, when asked how were CFPB’s outreach efforts constructive  or not constructive (question 7), 12 small entity representatives stated  they needed more time to prepare for the panel. For example, responses  from representatives included not enough time to prepare responses to  the information CFPB requested; not enough time to reach out to other  businesses and suppliers to gauge the proposal’s impacts; and not  enough time to perform their day-to-day duties at their companies when  preparing for the panel. CFPB officials stated that the role of small entity  representatives does not include reaching out to other businesses or  entities. As discussed previously, the time CFPB had available for  outreach in the first three panels was constrained by the deadlines  imposed by the Dodd-Frank Act to promulgate implementing regulations.
When asked how CFPB’s outreach could be improved (question 8), 10 of  57 small entity representatives suggested CFPB obtain more knowledge  of industry practices before convening the panels. For example, one  representative believed CFPB was surprised by answers representatives  provided to their questions because the agency lacked real world  experience; the representative suggested CFPB do site visits with typical  small entities to become better informed. Another representative said  CFPB did not know what entities regulated its business or its reporting  requirements, and that CFPB did not understand day-to-day operations in  their line of business. CFPB officials stated they were diligent in their  desire to understand business practices so they focused their attention on  these areas during outreach. In addition, 7 of 57 said CFPB could provide  better guidance about the role of small entity representatives in the  process or what to expect at the panel meeting. For example, one  representative believed some comments from small entity representatives  at the panel meeting were not helpful because expectations were not set,  including the type of input CFPB was seeking. As discussed previously,  CFPB provides written and verbal guidance to representatives on what to  expect in the panel and their role in the SBREFA process.
As part of CFPB’s outreach efforts, they provided materials to the small  entity representatives, including a draft proposal of the rule (with a  preliminary assessment of the potential impacts), discussion questions for  the panel meeting, and a fact sheet on the SBREFA process. Of the 57  small entity representatives we interviewed, 44 stated the CFPB materials  prepared them to provide constructive input at the panel meeting  (question 11). Also, 33 stated CFPB provided these materials with time  for sufficient review before the panel (question 10). Although most  representatives responded favorably regarding the materials and the  usefulness of the materials, 17 commented that the materials omitted  some information or guidance that could have better prepared them to  participate in the panel meeting (question 12). For example, one small  entity representative suggested CFPB include examples of the types of  impacts for which they were looking and another suggested CFPB include  how it calculated cost increases.
section_title: Representation of Industry on Panels Mostly Viewed Positively, with One Exception
paragraphs: Although 38 of 57 small entity representatives stated CFPB had selected  participants who represented their respective industries (question 14),  most small entity representatives on the Mortgage Loan Originator  Compensation panel did not believe their industry was well represented  (see table 3 below). This sentiment was consistent across the industry  representatives we interviewed. For this panel, the mortgage broker  industry had the most representatives (7 of 17) of the five industries  represented (the other four groups were commercial banks, credit unions,  mortgage companies, and nonprofit housing organizations). However,  several mortgage brokers believed their industry was not well- represented. For example, one mortgage broker said his industry should  have had more representation because of the effects the rule has had on  mortgage brokers. In contrast, representatives from another industry said  their industry was not well represented because so many mortgage  brokers were on the panel. As discussed previously, CFPB works with  SBA’s Office of Advocacy to determine the appropriate number of  panelists to represent each industry.
section_title: Some Small Entity Representatives Stated More Time Was Needed for Discussion during Panels
paragraphs: In our interviews, we asked the 57 small entity representatives if enough  time had been provided during the meetings of the SBREFA panels to  collect their advice and recommendations on the following topics  (question 15):  a.  Applicability. A description and estimate of the number of small  entities to which the proposed rule will apply.  b.  Compliance. A description of the projected reporting,  recordkeeping and other compliance requirements of the  proposed rule, including an estimate of the classes of small  entities which will be subject to the requirement and the type of  professional skills necessary for preparation of the report or  record.  c.  Conflicting rules. An identification of all relevant federal rules  which may duplicate, overlap or conflict with the proposed rule.  d.  Alternatives. Significant alternatives to the proposed rule that  minimize any significant economic impact on small entities and  that minimize increases in the cost of credit for small entities.  e.  Cost of credit. Any projected increase in the cost of credit for  small entities.  f.  Other topics. Any additional topics related to the rulemaking.
Representatives had varying recall about the specific topics of the panel  discussions and their views about them (the panel meetings were held 2– 4 years before our interviews). Therefore, their responses should be  viewed with caution. More representatives were able to recall discussions  about compliance (question 15b) and alternatives (question 15d). Of the  57 small entity representatives, 38 mentioned that there was not sufficient  time for discussion for at least one of the six topics at panel meetings  compared to 2 who said there was time to discuss all topics. Figure 3  illustrates the small entity representatives’ responses.
Furthermore, 19 stated that at least one topic important to their business  or industry was not discussed during the panel meeting (question 16). For  example, one representative noted that they did not discuss how the rule  would impact costs for consumers. CFPB officials stated that at the end of  each panel meeting representatives were given a final opportunity to  bring up any issues they believed were not focused on or given enough  attention. When asked how CFPB’s conduct of the panel meetings could  be improved (question 17), 19 representatives suggested more time or  additional meetings would improve the process.
section_title: A Majority of Representatives Said Their Views Were Characterized at Least Partially Accurately in the Panel Report and Were at Least Partially Considered in Rulemaking
paragraphs: A majority of small entity representatives that we interviewed said that  CFPB at least partially reported their views accurately (question 19) and  appeared to at least partially take them into consideration during  rulemaking (question 21).
Of the 57 small entity representatives we interviewed, 25 stated their  views were accurately characterized in the panel report. For instance,  one said that she thought CFPB represented her views verbatim.  Another stated she was glad to see her written comments included in  the report. Twelve representatives stated the characterization of their  views in the panel report was partially accurate. For instance, some  representatives (5 of 12) said CFPB did not characterize some of their  views with proper detail or tone.
Six representatives stated their views were not accurately  characterized in the panel report. For instance, one of the six said she  felt CFPB wrote the report before the panel took place.
Fourteen representatives did not remember seeing the panel report or  did not recall how their views were characterized in it. As discussed  previously, the representatives’ written comments were published in  the appendixes of the panel reports.
Most of the 57 representatives felt CFPB at least partially considered their  views, concerns, and suggestions in its rulemaking (question 21).
Seventeen of 57 representatives believed CFPB considered their  views, concerns, and suggestions. One of the 17 said he believed that  CFPB considered his views but did not implement them in the  rulemaking. Another said CFPB took all of the representatives’  concerns seriously, listened, and considered input where it had the  latitude to do so, but he recognized CFPB had to include specific  requirements in the Dodd-Frank Act.
Nineteen representatives stated CFPB partially considered their views  in its rulemaking. One of the 19 said CFPB appeared to have heard  the representatives and took some things into consideration, but he  felt CFPB “was on a mission and knew how they wanted the rule to  be.” Another believed CFPB tried to understand her concerns but the  final rule did not reconcile with the depths of her concerns; she noted  some of this was due to requirements in the Dodd-Frank Act.
Fifteen said CFPB did not appear to consider their views in its  rulemaking. One representative said she felt defeated when she saw  what came out after the panel; she thought CFPB was really listening  but did not address any of the major areas of concern raised during  the panel. Another thought CFPB officials already had their mind  made up as to what should be in the rule. As discussed previously,  CFPB uses the panel report to inform its proposed rule.
When asked if CFPB amended its proposed rule based on comments the  representative made during the panel or in writing (question 23), 32  believed the agency did. Although most small entity representatives felt  their views were at least partially considered in the rulemakings and most  felt the agency amended its final rule based on their comments, most  representatives expressed disagreement with CFPB’s final rules for  reasons such as increased cost of compliance. Specifically, 7 of the 57  stated they were satisfied with the final rules (question 27). CFPB officials  noted that the rules for which GAO reviewed SBREFA panels were based  on statutory requirements in the Dodd-Frank Act, all involving issues  related to mortgage lending.
In its rulemaking process, CFPB is to consider input from multiple sources  and make judgments deemed necessary to accomplish the stated  objectives of applicable statutes.
section_title: Agency Comments
paragraphs: We provided a draft of this report to CFPB, SBA’s Office of Advocacy,  and OMB for their review and comment. In its written comments  (reproduced in app. III), CFPB generally agreed with our findings. CFPB,  SBA’s Office of Advocacy, and OMB’s Office of Information and  Regulatory Affairs also provided technical comments, which we  incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees, CFPB, SBA’s Office of Advocacy, OMB, and other interested  parties. In addition, the report will be available at no charge on the GAO  website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-8678 or ShearW@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff members who made key  contributions to this report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report addresses (1) the extent to which the Consumer Financial  Protection Bureau (CFPB) solicited, considered, and incorporated small  entity inputs into its rulemakings; and (2) the views of the small entity  representatives on CFPB’s rulemaking process.
To assess the extent to which CFPB solicited, considered, and  incorporated small business inputs into rulemakings, we interviewed and  gathered information from CFPB, the Office of Advocacy at the Small  Business Administration, and the Office of Information and Regulatory  Affairs of the Office of Management and Budget about the process for  Small Business Regulatory Enforcement Fairness Act (SBREFA) panels.  We also contacted trade associations and industry participants to gain  their perspectives on the SBREFA panel process. This work did not  encompass any computer-generated data from agencies requiring a data  reliability assessment. We also reviewed applicable laws, regulations, and  guidance governing requirements for CFPB’s rulemaking process  involving small business interests. We compared these requirements with  CFPB’s analyses related to impacts of proposed rules on small  businesses for four rulemakings. Specifically, we analyzed CFPB’s  rulemaking processes and documents related to all rulemakings for which  SBREFA panels were convened and final rules were issued.
As of April 2016, four CFPB rulemaking efforts involving SBREFA panels  had resulted in final rules. These rulemakings were focused on mortgage  lending and included rules associated with
Truth-in-Lending Act and Real Estate Settlement Procedures Act  (TILA-RESPA) Integrated Disclosure,
Mortgage Servicing (for TILA and RESPA),
Mortgage Loan Originator Compensation, and the
Home Mortgage Disclosure Act.
To obtain the views of small entity representatives, we conducted semi- structured interviews with small entity representatives who participated in  the four panels to gain a general understanding of their insights on the  SBREFA process. We developed a structured interview guide to inquire  about seven stages of the process: (1) notification of rulemaking, (2)  outreach to small entity representatives, (3) materials to review, (4) the  panel meeting, (5) CFPB consideration of small entity representatives’  comments, (6) proposed rulemaking, and (7) final rule. We asked direct  questions for each stage as well as open-ended questions about activities  in the stages or for any additional comments.
We contacted all 69 small entity representatives who participated in the  four panels and completed interviews with 57 (an 83 percent response  rate). Of those for whom we did not conduct interviews, 6 declined our  interview request and 6 were unavailable for an interview during our audit  time frame. Table 4 below shows how many small entity representatives  we interviewed by panel. A copy of the structured interview questions and  results of the close-ended questions are included in appendix II. This  work did not encompass any computer-generated data requiring a data  reliability assessment.
We conducted the interviews by telephone from February 10, 2016, to  March 28, 2016. Each interview was conducted by a team of at least two  analysts. To verify the information collected during the interviews, we  reviewed the narrative and close-ended responses for consistency and  reached consensus among analysts who conducted the interviews on the  content of the interview data. The structured interviews contained a  mixture of close-ended and open-ended questions. For most questions,  including close-ended questions, the small entity representatives  responded with a narrative answer. Based on insights from conducting  the interviews and the relative importance of each question, we assigned  each question into one of three categories of content analysis: (1) none,  (2) Tier 1, or (3) Tier 2.
None. Questions we assigned no content analysis were lower-priority  questions, from which we deemed little information of value would be  gleaned from conducting content analysis.
Tier 1. For this analysis, two analysts independently reviewed all the  small entity representatives’ responses to the question, developed  their own categories of responses, and coded the responses to those  categories. Then the analysts reconciled differences in their  categories and coding to reach consensus. Questions we assigned  Tier 1 analysis were the highest-priority questions (we deemed that  information of high value would be gleaned from conducting content  analysis).
Tier 2. For this analysis, one analyst reviewed all the small entity  representatives’ responses to the question, developed categories of  responses, and coded the responses to those categories. Then  another analyst reviewed the categories and coding for logic and  errors. Questions we assigned to the Tier 2 analysis were priority  questions (we deemed that information of value would be gleaned  from conducting content analysis).
We conducted this performance audit from October 2015 through August  2016 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Small Entity Representative Structured Interview Questions and Results for Closed-Ended Questions
paragraphs: We provided the following interview questions and preambles to the small  entity representatives prior to our interviews. At the start of each  interview, we reminded the representatives that the interview was  intended to collect their opinions on the SBREFA process. We also  recognized that the panels had taken place several years earlier and  encouraged the representatives to answer to the best of their ability.
For rulemakings that require the Consumer Financial Protection Bureau  (CFPB) to convene a Small Business Regulatory Enforcement Fairness  Act (SBREFA) panel, CFPB must assure that small entities have an  opportunity to participate in the rulemaking through reasonable  techniques.  1.  When did you first hear CFPB was considering rulemaking on ?  2.  CFPB uses several techniques to notify small entities of its  rulemaking. Which of the following techniques notified you of this  particular rulemaking?
Direct notification (such as a phone call or email)
CFPB Outreach to Small Entity Representatives  The SBREFA panel is responsible for collecting advice and  recommendations from each small entity representative on issues related  to CFPB’s proposed rule. However, the quality of advice and  recommendations depends on how prepared small entity representatives  are to participate in the panel process. CFPB’s timing and method of  outreach to you and the other small entity representatives prior to your  meeting with the SBREFA panel is intended to foster a more thoughtful  rulemaking process.  3.  When were you first asked to participate on the CFPB SBREFA  panel?  4.  How were you asked to participate?  5.  What outreach did CFPB make to you prior to its SBREFA panel?  6.  Did CFPB’s outreach efforts prepare you to provide constructive input  during the SBREFA panel meeting?  7.  How were CFPB’s outreach efforts constructive, or not constructive?  8.  Do you have suggestions on how CFPB’s outreach could be  improved?
Prior to your meeting with the SBREFA panel, CFPB provided you with  (1) the draft proposal, (2) discussion questions, and (3) a fact sheet on  the SBREFA process.  9.  Did CFPB provide any additional materials prior to your meeting with  the SBREFA panel other than the three listed above?  10. From your perspective, did CFPB provide the materials with time for  sufficient review prior to the SBREFA panel meeting?
11. Did the materials provided by CFPB prepare you to provide  constructive input during the panel?
12. Was anything not included in the materials that could have better  prepared you to participate in the panel?
13. Do you have any other comments about the meeting materials?
The SBREFA panel convened a meeting in the Washington, D.C. area  with you and the other small entity representatives to collect your advice  and recommendations on CFPB’s proposed rule. The following questions  relate to your participation on and observation of that meeting.  14. Was your industry represented among the small entity representatives  who participated in the panel?
15. Did the SBREFA panel provide time to collect your advice and  recommendations on each of the following:  a.   A description and estimate of the number of small entities to  which the proposed rule will apply. b.   A description of the projected reporting, recordkeeping and other  compliance requirements of the proposed rule, including an  estimate of the classes of small entities which will be subject to  the requirement and the type of professional skills necessary for  preparation of the report or record. c.
An identification of all relevant federal rules which may duplicate,  overlap or conflict with the proposed rule. d.   Significant alternatives to the proposed rule which minimize any  significant economic impact on small entities. e.   Any projected increase in the cost of credit for small entities. f.
Any additional topics related to the rulemaking.
16. Was there a topic or topics that are important to your business or  industry that was not discussed during the panel?
17. Do you have suggestions on how CFPB’s conduct of this panel could  have been improved?  18. Do you have any other comments about the panel meeting?
CFPB’s Consideration of Your Comments  The SBREFA panel is required to summarize the comments voiced by  small entity representatives in its panel report. Additionally, small entity  representatives may submit written comments to the SBREFA panel to be  included in the report. CFPB must consider the SBREFA panel report as  it develops its proposed rulemaking.  19. Were your views, concerns, and suggestions accurately characterized  by CFPB in the SBREFA panel report?
20. Did you submit written comments to the SBREFA panel?
21. Did CFPB consider your voiced and written views, concerns, and  suggestions in its rulemaking?
22. Do you have any other comments about how the panel considered  your comments?
CFPB’s Proposed Rulemaking  When CFPB published its proposed rulemaking in the Federal Register,  which included the SBREFA panel report, it initiated a public notice and  comment period where small entities could submit comments based on  the proposed rule.  23. Did CFPB amend its proposed rule based on comments you made  during the panel or in writing?
24. Were you satisfied with the proposed rule CFPB published in the  Federal Register?
25. Did you submit written comments on the proposed rule during the  notice and comment period?
CFPB’s Final Rule  After CFPB considers the comments submitted during the notice and  comment period, it can publish a final rule to the Federal Register.  26. Did CFPB amend its final rule based on comments you made during  the proposed rule’s notice and comment period?
27. Were you satisfied with the final rule?
29. In view of the questions we have asked and your responses is there  anything else you would like us to know about the SBREFA process  for this CFPB panel or any comment you have about serving as a  small entity representative?
section_title: Appendix III: Comments from the Consumer Financial Protection Bureau
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Debra Johnson (Assistant  Director), Andrew Pauline (Assistant Director), Barry Kirby (Analyst in  Charge), Timothy Bober, Alyssia Borsella, Emily Chalmers, William  Chatlos, Tiffani Humble, Davis Judson, Anne Kruse, John McGrail, Marc  Molino, Alexandra Martin-Arseneau, Barbara Roesmann, and Elizabeth  Wood made key contributions to this report.