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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 68 J O U R N A L May 2023 43 cases, and examiners have issued numer- ous citations, alleging abusive conduct. The claims have ranged from predatory student lending practices to charging consumers costly surprise overdraft fees. The CFPB's latest action summarizes for the market, in clear and simple terms, the meaning of the statutory prohibition on abusive conduct. "I hope that this policy statement will not only serve as a practical educational tool by summarizing the existing case law, but also more importantly, will provide a straight-for- ward and analytical framework that helps promote a visceral understanding of the pro- hibition," explained Chopra while addressing the University of California Irvine Law School. In 1980 and 1983, respectively, the Fed- eral Trade Commission (FTC) issued policy statements on both the unfair and deceptive practices prohibitions. Similarly, this guid- ance summarizes precedent and establishes a framework to help federal and state enforcers identify when companies engage in abusive conduct. In the CFPB's policy statement, the Bureau sets forth how abusive conduct gener- ally includes (1) obscuring important features of a product or service or (2) leveraging certain circumstances—including gaps in understanding, unequal bargaining power, or consumer reliance—to take unreason- able advantage. In particular, the statement describes how the use of dark patterns, set-up-to-fail business models like those ob- served before the mortgage crisis, profiteer- ing off captive customers and kickbacks and self-dealing can be abusive. "There's been a great deal of ink spilled about the failure of federal financial regu- lators and enforcers to halt the widespread abuses that contributed to a devastating financial crisis nearly 15 years ago," Chopra added. "Not only did these regulatory failures harm individuals, families, and neigh- borhoods, it also hurt every business that engaged in fair and transparent dealing with prospective customers. Congress made an important judgment about the types of con- duct that should not be allowed to fester, and it is incumbent upon the CFPB, federal agen- cies, and the states to ensure that our markets reward fair dealing, rather than abuse." The policy statement will be published in the Federal Register, and the public will have until July 3, 2023, to submit their comments. NEW CFPB RULE IMPACTS HMDA REPORTING U nder a new order from the CFPB, loans reportable under the Home Mortgage Disclosure Act (HMDA) will not need to be reported under the new small business lending rule. The Consumer Financial Protection Bureau (CFPB) has finalized a rule required by Congress to increase transparency in small business lending, promote economic development, and combat unlawful discrimi- nation. Through the rule, lenders will collect and report information about the small business credit applications they receive, including geographic and demographic data, lending decisions, and the price of credit. The rule will work in concert with the Community Reinvestment Act (CRA), which requires certain financial institutions to meet the needs of the communities they serve. The increased transparency will benefit small businesses, family farms, financial institu- tions, and the broader economy. The CFPB's rule will: » Provide a comprehensive view of small business lending: The rule covers lenders making over 100 covered small business loans per year, which accounts for more than 95% of small business loans by banks and credit unions. Like with mort- gages, lenders will submit data points required by Congress, as well as addition- al data points that are typically already included in lender files. » Cover diverse forms of credit by all types of lenders: The rule covers closed-end loans, lines of credit, business cred- it cards, online credit products, and merchant cash advances by banks, credit unions, and other lenders. Non-deposito- ry financial institutions will be required to collect and report data, as will banks, savings associations, and credit unions. » Use straightforward definitions and stream- lined forms: To make it easy for lenders to know on which applications to collect data, the rule defines a small business as one with gross revenue under $5 million in its last fiscal year. The rule also includes a streamlined sample form for lenders to use, if they so choose, to collect demographic data from small business credit applicants. In 2010, Congress enacted requirements that would result in lenders making data available to the public about their small business lending activity in Section 1071 of the Consumer Financial Protection Act. However, the CFPB did not issue rules to implement this requirement. The California Reinvestment Coalition sued the CFPB in 2019, leading to a court order requiring the CFPB to finalize the rule by March 31, 2023. "Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Pay- check Protection Program," CFPB Director Rohit Chopra said. "This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly." The CFPB will simplify implementation and prepare for the submission of data from thousands of lenders. While many of these lenders already report mortgage data, the CFPB recognizes that small business lending has a number of key differences. After considering a wide range of feedback and thousands of public comments, the CFPB is finalizing the rule and planning for imple- mentation in ways that will: » Reduce duplicative reporting require- ments: Loans reportable under the Home Mortgage Disclosure Act will not need to be reported under the small business lending rule. The rule is also designed to work in concert with rules under the Community Reinvestment Act's report- ing requirements. Under the regulators' Community Reinvestment Act proposal, data submitted under the CFPB's rule would satisfy the relevant Community Reinvestment Act requirements. » Phase in implementation for the largest lenders first: The CFPB found that there were key differences in how large financial institutions would implement the rule, compared to relationship-based local lenders. The final rule requires the largest lenders, which account for most of the small business lending market, to collect and report data earlier than smaller lenders. Specifically, lenders that originate at least 2,500 small business loans annually must collect data starting