‘Speed Bump’ could slow down new rules from the CFPB

A provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, referred to as the ‘speed bump’ provision may create significant delays in the rule-writing process at the new Consumer Financial Protection Bureau (CFPB). The rule-review provision will certainly create an opportunity for small financial firms to challenge new CFPB rules.

Under Dodd-Frank, the CFPB has been empowered to write new financial regulations that will affect over 71,000 smaller-sized, non-depository firms. These firms include mortgage lenders and brokers, real estate settlement services, auto lenders, check cashers, payday lenders, credit repair agencies, collection agencies, pawn brokers and prepaid funeral providers.

The special rule-review process or “speed bump” provision was first enacted under the 1996 Small Business Regulatory Enforcement Act (SBREFA) procedures. Prior to Dodd-Frank, only two agencies - the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) – were required to take the extra step prior to finalizing new rules of convening small business review panels tasked with scrutinizing the potential costs of proposed rules and recommending alternatives. The CFPB will now be only the third agency subject to this “speed bump” provision and will have to assess the potential impact of any new rules on the “cost of credit” for small businesses. The small business review panels will have the opportunity to provide specific alternatives to new CFPB rules to minimize any increases to the cost of credit.

When a new CFPB rule is proposed that is expected to have a significant impact on a substantial number of small entities, the CFPB must notify the SBA’s Office of Advocacy and the SBA will then recommend a panel of small business representative to review the new rule and consider its effects. The CFPB need not take the recommendations of the small business panel, but it must offer some explanation of its basis for adopting or rejecting the suggested alternatives. Based on how the “speed bump” consensus recommendations have been treated by the EPA and OSHA, small business panel recommendations should have a strong chance of adoption by the CFPB.

The entire small business review process averages 6-10 months for EPA and OSHA rulemakings, but can last longer according to some experts. One challenge that many small business panels are likely to encounter will be lengthy deliberations and substantive disagreements among businesses and trade associations on the impacts of a proposed rule. Panels also are likely to struggle with access to adequate information on the CFPG’s goals and intentions behind proposed rules. Given the scope of the CFPB’s mandate and the diversity of businesses the CFPG will regulate, the “speed bump” provision of Dodd-Frank would appear to a significant barrier to the speed at which new rules can be implemented.