[Federal Register Volume 76, Number 186 (Monday, September 26, 2011)]
[Rules and Regulations]
[Pages 59237-59239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-24300]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
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Federal Register / Vol. 76, No. 186 / Monday, September 26, 2011 /
Rules and Regulations
[[Page 59237]]
FEDERAL RESERVE SYSTEM
12 CFR Part 202
[Regulation B; Docket No. R-1426]
RIN 7100 AD 78
Equal Credit Opportunity
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is publishing a final rule amending Regulation B
(Equal Credit Opportunity). Section 704B of the Equal Credit
Opportunity Act (ECOA), as added by Section 1071 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act or Act),
requires that financial institutions collect and report information
concerning credit applications made by women or minority-owned
businesses and by small businesses. ECOA Section 704B became effective
on the date that general rulemaking authority for ECOA was transferred
to the Consumer Financial Protection Bureau (CFPB or Bureau), which was
July 21, 2011. Although the CFPB has the authority to issue rules to
implement ECOA Section 704B for most entities, the Board retains
authority to issue rules for certain motor vehicle dealers. This final
rule excepts motor vehicle dealers subject to the Board's jurisdiction
from the requirements of ECOA Section 704B until the effective date of
final rules issued by the Board to implement that provision.
DATES: This final rule is effective September 26, 2011.
FOR FURTHER INFORMATION CONTACT: Lorna Neill or Nikita Pastor, Senior
Attorneys, Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System, Washington, DC 20551, at (202)
452-2412 or (202) 452-3667. For users of Telecommunications Device for
the Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
Section 704B of ECOA, as added by Section 1071 of the Dodd-Frank
Act, requires that financial institutions collect and report
information concerning credit applications made by women or minority-
owned businesses and by small businesses. 15 U.S.C. 1691c-2. The
statute directs financial institutions to compile and maintain the data
``in accordance with regulations of the Bureau.'' ECOA Section
704B(e)(1), 15 U.S.C. 1691c-2(e)(1). The purpose of Section 704B is
``to facilitate enforcement of fair lending laws and enable
communities, governmental entities, and creditors to identify business
and community development needs and opportunities of women-owned,
minority-owned, and small businesses.'' ECOA Section 704B became
effective on the date that rulemaking authority for ECOA transferred to
the CFPB, which was July 21, 2011.
On April 11, 2011, the CFPB issued a letter concluding that
financial institutions have no obligations under Section 704B until the
CFPB issues regulations to implement the requirements.\1\ The CFPB
letter notes that Congress intended Section 704B to produce reliable
and consistent data that can be analyzed by the CFPB, other government
agencies, and members of the public to facilitate enforcement of fair
lending laws and to identify business and community development needs.
Based on the statutory text, purpose, and legislative history, the CFPB
letter concludes that implementing regulations are necessary to ensure
that data are collected and reported in a consistent, standardized
fashion that allows for sound analysis by the CFPB and other users of
the data.
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\1\ See Letter from Leonard J. Kennedy, General Counsel, CFPB,
to Chief Executive Officers of Financial Institutions under Section
1071 of the Dodd-Frank Act, http://www.consumerfinance.gov/wp-content/uploads/2011/04/GC-letter-re-1071.pdf (Apr. 11, 2011).
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Although the CFPB has authority to issue rules to implement ECOA
(including data collection under Section 704B) for most entities, the
Board retains authority to issue rules under ECOA for motor vehicle
dealers covered by Section 1029(a) of the Dodd-Frank Act.\2\ Thus, the
Board is responsible for issuing regulations to implement the
amendments made by Section 704B for motor vehicle dealers covered by
Section 1029(a). Consequently, the Board has received inquiries as to
whether motor vehicle dealers must comply with the requirements of ECOA
Section 704B before implementing regulations are issued.
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\2\ Section 1029(a) of the Dodd-Frank Act states: ``Except as
permitted in subsection (b), the Bureau may not exercise any
rulemaking * * * authority * * * over a motor vehicle dealer that is
predominantly engaged in the sale and servicing of motor vehicles,
the leasing and servicing of motor vehicles, or both.'' 12 U.S.C.
5519(a). Section 1029(b) of the Dodd-Frank Act states: ``Subsection
(a) shall not apply to any person, to the extent such person (1)
provides consumers with any services related to residential or
commercial mortgages or self-financing transaction involving real
property; (2) operates a line of business (A) that involves the
extension of retail credit or retail leases involving motor
vehicles; and (B) in which (i) the extension of retail credit or
retail leases are [sic] provided directly to consumers and (ii) the
contract governing such extension of retail credit or retail leases
is not routinely assigned to an unaffiliated third party finance or
leasing source; or (3) offers or provides a consumer financial
product or service not involving or related to the sale, financing,
leasing, rental, repair, refurbishment, maintenance, or other
servicing of motor vehicles, motor vehicle parts, or any related or
ancillary product or service.'' 12 U.S.C. 5519(b).
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The Board believes that detailed rules to implement ECOA Section
704B are necessary to ensure that data collected and reported under
that provision are useful. As noted, the purposes of the statute are to
facilitate fair lending enforcement and to identify business and
community development needs and opportunities of women-owned, minority-
owned, and small businesses. To support sound analysis by users of the
data, the data should be collected and reported by motor vehicle
dealers in a consistent and standardized way. To achieve this,
implementing rules can provide motor vehicle dealers with uniform
definitions and standards that they can follow in collecting and
reporting data.
For these reasons, on June 23, 2011, the Board published for public
comment a proposed rule to except motor vehicle dealers covered by
Section 1029(a) of the Dodd-Frank Act from any obligation to comply
with ECOA Section 704B until the Board issues final regulations to
implement that provision and those regulations become effective. The
proposed rule was consistent with the views expressed by the CFPB, and
was
[[Page 59238]]
supported by the text and purpose of Section 1071 of the Dodd-Frank
Act. The applicability of the proposed rule was limited to Section 1071
and would not affect the implementation date of any other provision of
the Dodd-Frank Act.
The Board received five comment letters in response to the June
2011 proposal. All of the commenters generally supported the proposed
rule. For the reasons discussed below, the Board is adopting the June
2011 proposal as a final rule without changes.
II. Legal Authority
ECOA Section 703, as amended by Section 1085 of the Dodd-Frank Act,
directs the Board to prescribe regulations to carry out ECOA's purposes
for motor vehicle dealers covered by Section 1029(a) of the Dodd-Frank
Act. See 15 U.S.C. 1691b(f). In addition, the Board's general
rulemaking under ECOA includes authority to issue regulations that
contain such classifications, differentiation, or other provisions, or
that provide for such adjustments and exceptions for any class of
transactions, as in the judgment of the Board are necessary or proper
to effectuate the purposes of ECOA, to prevent circumvention or evasion
of ECOA, or to facilitate or substantiate compliance with ECOA. Id.
Finally, ECOA Section 704B(g)(2) contains authority for exceptions or
exemptions for any class of financial institutions as deemed necessary
or appropriate to carry out the purposes of Section 704B. 15 U.S.C.
1691c-2(g)(2).
Pursuant to this authority, the final rule excepts motor vehicle
dealers covered by Section 1029(a) of the Dodd-Frank Act from the
requirement to comply with ECOA Section 704B until the effective date
of final rules issued by the Board to implement Section 704B. The Board
believes that this exception is necessary to effectuate the purposes of
ECOA and facilitate compliance. First, as noted, ECOA Section 704B
states that its purpose is ``to facilitate enforcement of fair lending
laws and enable communities, governmental entities, and creditors to
identify business and community development needs and opportunities of
women-owned, minority-owned, and small businesses.'' 15 U.S.C. 1691c-
2(a). The Board believes that this purpose is better served if detailed
rules prescribe the method for collecting and reporting data under
Section 704B. The collection of data in a uniform manner under a final
regulation will enhance data analysis and enforcement capabilities.
Second, in directing that financial institutions compile and maintain
the data ``in accordance with regulations of the Bureau,'' the text of
ECOA Section 704B clearly contemplates that regulations are necessary
to implement this provision.\3\ Finally, delaying data collection until
there are implementing regulations will facilitate compliance by
providing guidance on how motor vehicle dealers can comply with the
statutory requirements in a manner that effectuates the legislative
purposes.
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\3\ See ECOA Section 704B(e)(1), 15 U.S.C. 1691c-2(e)(1) (``Each
financial institution shall compile and maintain, in accordance with
regulations of the Bureau, a record of the information provided by
any loan applicant * * *.'').
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Effective Date
This final rule is effective upon publication in the Federal
Register. The Administrative Procedures Act (APA), 5 U.S.C. 551 et
seq., generally requires that rules be published not less than 30 days
before their effective date. See 5 U.S.C. 553(d). However, the APA
provides exceptions to this timing requirement for certain rules. For
the reasons discussed below, the Board believes that the final rule
meets the requirements for an exception to the APA's general 30-day
notice requirement.
Specifically, the APA's 30-day notice requirement does not apply to
``a substantive rule which grants or recognizes an exemption or
relieves a restriction.'' 5 U.S.C. 553(d)(1). As explained above, the
final rule temporarily relieves motor vehicle dealers covered under
Section 1029(a) of the Dodd-Frank Act from the statutory obligation
under ECOA Section 704B to collect and report data on credit
applications made by women- and minority-owned businesses and small
businesses. The rule therefore grants a temporary exemption from a
statutory obligation that might otherwise apply.
In addition, the APA's 30-day notice rule does not apply when
``otherwise provided by the agency for good cause found and published
with the rule.'' 5 U.S.C. 553(d)(3). The Board finds that there is good
cause to make this final rule effective immediately because Section
704B has already become effective and the text of the statute clearly
contemplates that regulations are necessary to implement the law's
requirements. For the reasons discussed above, the Board believes that
regulations are necessary to effectuate the purposes of Section 704B
and that motor vehicle dealers should be excepted from the statutory
requirements until such rules are in effect.
III. Summary of Comments Received
The Board received five comment letters in response to the proposed
rule. Two letters were received from trade associations that represent
motor vehicle dealers, vehicle manufacturers and other automotive-
related companies. One letter was received from a trade association
that represents finance companies and other financial institutions that
provide consumer and commercial credit. Comment letters were also
received from a public policy advocacy organization and a research and
consulting firm that focuses on women- and minority-owned financial
institutions and investments in minority businesses.
All of the comment letters generally supported the Board's proposal
to except motor vehicle dealers from the requirements of Section 704B
until the effective date of final rules issued by the Board to
implement that provision. Three commenters expressly urged the Board to
consult and coordinate with the CFPB in developing substantive rules
under Section 704B so that the rules issued by both agencies will be
uniform and consistent. The consumer advocacy organization that
commented also urged the Board to issue rules implementing the data
collection requirements as quickly as possible so that motor vehicle
dealers can comply as soon as the CFPB's rules for other creditors
become effective.
IV. Section-by-Section Analysis
Section 202.17 Data Collection for Credit Applications by Women-Owned,
Minority-Owned, or Small Businesses
17(a) Effective Date for Motor Vehicle Dealers
Section 704B of ECOA requires that financial institutions collect
and report information concerning credit applications made by women or
minority-owned businesses and by small businesses. 15 U.S.C. 1691c-2.
This section of ECOA became effective on the designated transfer date,
which was July 21, 2011. The term ``financial institution'' includes
any entity that engages in any financial activity. 15 U.S.C. 1691c-
2(h)(1). The term ``financial activity'' is not defined in ECOA or the
Dodd-Frank Act, but motor vehicle dealers covered by Section 1029(a) of
the Dodd-Frank Act might be engaged in ``financial activity'' and
therefore might be financial institutions subject to the requirements
of ECOA Section 704B.
For the reasons discussed above, the Board is adopting Section
202.17(a) as proposed to provide that no motor
[[Page 59239]]
vehicle dealer covered by Section 1029(a) of the Dodd-Frank Act is
required to comply with the requirements of Section 704B of ECOA until
the effective date of final rules issued by the Board to implement
Section 704B. In addition, the final rule specifies that Section
202.17(a) shall not be construed to affect the effective date of ECOA
Section 704B for any person other than a motor vehicle dealer covered
by Section 1029(a) of the Dodd-Frank Act.
V. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995, 44
U.S.C. 3506, 5 CFR part 1320 Appendix A.1, the Board reviewed the
proposed rule under the authority delegated to the Board by the Office
of Management and Budget. The rule contains no collections of
information under the PRA. See 44 U.S.C. 3502(3). Accordingly, no
paperwork burden is associated with the rule.
VI. Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, requires an
agency to perform an initial and final regulatory flexibility analysis
on the impact a rule is expected to have on small entities. The Small
Business Administration (SBA) establishes size standards that define
which entities are small businesses for purposes of the RFA.\4\ For
example, to be considered a small business under the SBA size standard,
a new car dealer must have 200 or fewer employees and a used car dealer
must have $23 million or less in annual revenues.
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\4\ U.S. Small Business Administration, Table of Small Business
Size Standards Matched to North American Industry Classification
System Codes, available at http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf.
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Under Section 605(b) of the RFA, 5 U.S.C. 605(b), the initial
regulatory flexibility analysis otherwise required under Section 603 of
the RFA is not required if an agency certifies, along with a statement
providing the factual basis for such certification, that the rule will
not have a significant economic impact on a substantial number of small
entities. Based on its initial and final analysis and for the reasons
stated below, the Board believes that this final rule will not have a
significant economic impact on a substantial number of small entities.
A. Statement of Reasons, Objectives, and Legal Basis for the Final Rule
Section 704B of ECOA, as added by Section 1071 of the Dodd-Frank
Act, requires that financial institutions collect and report
information concerning credit applications made by women or minority-
owned businesses and by small businesses. ECOA Section 704B became
effective on the date that rulemaking authority for ECOA was
transferred to the CFPB, which was July 21, 2011. Although the CFPB has
the authority to issue rules to implement ECOA Section 704B for most
entities, the Board retains authority to issue rules for certain motor
vehicle dealers. This final rule excepts motor vehicle dealers that are
subject to the Board's jurisdiction from the requirements of ECOA
Section 704B temporarily, until the effective date of final rules that
will be issued by the Board to implement that provision. The
SUPPLEMENTARY INFORMATION above contains information on the reasons,
objectives and legal basis for the proposed rule.
B. Summary of the Significant Issues Raised by Public Comment on the
Board's Initial Analysis of Issues, and a Statement of Any Changes Made
as a Result
No public comments on the proposed rule addressed matters relating
to the Board's initial regulatory flexibility analysis.
C. Small Entities Affected by the Final Rule
The final rule applies to motor vehicle dealers covered by Section
1029(a) of the Dodd-Frank Act. The total number of small entities
covered by the final rules is unknown, because the Board does not have
data on the number of small entities that are motor vehicle dealers
covered by Section 1029(a). Furthermore, it is unclear how many motor
vehicle dealers covered by Section 1029(a) receive credit applications
from women-or minority-owned businesses or small businesses.
Nevertheless, no small entities are likely to be affected by the final
rule because the rule merely preserves the status quo by granting a
temporary exemption from the requirement to comply with the statute,
which took effect on July 21, 2011.
D. Recordkeeping, Reporting, and Compliance Requirements
The final rule will not impose any new recordkeeping, reporting, or
compliance requirements. Instead, the final rule temporarily will delay
these requirements until the Board issues final implementing
regulations and the regulations become effective.
E. Identification of Duplicative, Overlapping, or Conflicting Federal
Regulations
The Board has not identified any federal statutes or regulations
that would duplicate, overlap, or conflict with the final rule.
F. Significant Alternatives to the Regulatory Revisions
The Board is not aware of any significant alternatives that would
minimize any significant economic impact of the final rule on small
entities. Commenters did not suggest any alternatives.
List of Subjects in 12 CFR Part 202
Aged, Banks, banking, Civil rights, Credit, Discrimination, Federal
Reserve System, Marital status discrimination, Penalties, Religious
discrimination, Reporting and recordkeeping requirements, Sex
discrimination.
Authority and Issuance
For the reasons set forth in the preamble, the Board amends
Regulation B, 12 CFR part 202, as follows:
PART 202--EQUAL CREDIT OPPORTUNITY (REGULATION B)
0
1. The authority citation for part 202 is revised to read as follows:
Authority: 15 U.S.C. 1691-1691f; Pub. L. 111-203, 124 Stat.
1376.
0
2. Add Sec. 202.17 to read as follows:
Sec. 202.17 Data collection for credit applications by women-owned,
minority-owned, or small businesses.
No motor vehicle dealer covered by section 1029(a) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C.
5519(a), shall be required to comply with the requirements of section
704B of the Equal Credit Opportunity Act, 15 U.S.C. 1691c-2, until the
effective date of final rules issued by the Board to implement section
704B of the Act, 15 U.S.C. 1691c-2. This paragraph shall not be
construed to affect the effective date of section 704B of the Act for
any person other than a motor vehicle dealer covered by section 1029(a)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
By order of the Board of Governors of the Federal Reserve
System, September 16, 2011.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2011-24300 Filed 9-23-11; 8:45 am]
BILLING CODE 6210-01-P