Equal Credit Opportunity, 59237-59239 [2011-24300]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 76, Number 186 (Monday, September 26, 2011)]
[Rules and Regulations]
[Pages 59237-59239]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24300]



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Rules and Regulations
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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, https://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 https://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