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Capitol Connections – Unforeseen Cost of the Dodd-Frank Reform

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As an executive board member of the Equipment Leasing and Finance Foundation, Randy Haug of LeaseTeam, Inc. understands the importance of being an advocate for the industry. This understanding brought Randy, accompanied by Russ Hallberg and Jesse Johnson of LeaseTeam, to the Capitol Connections last month. While each year has its issues and challenges, the ultimate goal is to educate Congress members and select Administration officials on concerns of the ELFA and the industry it serves. Many officials are unaware of the significant role that the equipment finance industry plays in the American economy. Consequently, the ELFA members need to convene together in educating policymakers on the far-reaching impact their decisions can have on the industry. This year's Capitol Connections proved to be just as important as any other year, with Section 1071 of Title 10 – Dodd-Frank Wall Street Reform and Consumer Protection Act being a significant point of concern.

Section 1071 of title 10 – Dodd-Frank Wall Street Reform was intended to "promote the United States' financial stability by improving the financial system's accountability and transparency." This bill requires "financial institutions" and other businesses that extend credit to collect and maintain specific data connected with credit applications made by women- or minority-owned businesses and small businesses. The bill also requires the companies to maintain, store, and submit that information annually to the Consumer Financial Protection Bureau. Furthermore, the companies will be required to make this information public if requested to by the CFPB. Despite the good intentions of 1071 Dodd-Frank, there are unforeseen circumstances of the bill, which was needed to point out to protect the industry's future success.

According to the Equal Credit Opportunity Act, a creditor may not consider many different factors during the application process, including ethnicity, gender, and age (Federal Trade Commission, 2013). While this data should not play a role in an application process, the data's acquirement can prove to be misleading to the applicant. If the claimant does not receive approval for credit or their interest rates are higher, then the applicant might presume that their ethnicity, gender, or age could have played a role in the disproval.

Additionally, the usage of the word financial institution makes it applicable to most anyone that offers credit. According to the Equipment Leasing and Financing Association, the unintended consequences of increasing the borrowing cost of, and restricting the availability of credit to, the small businesses the amendment is designed to benefit, without providing commensurate benefits beyond the robust protections already afforded to the borrowers under ECOA." Furthermore, small companies that offer credit to their customers would have to do significant software upgrades to collect and house the data that needs to be obtained due to Section 1071 Dodd-Frank. This requirement could put a financial burden on the small business or institute that they do not have the resources to overcome. Inevitably, the small business itself could either decide that it no longer offers credits to its customers, or it might even cause the company to close.

Thankfully, "these concerns were acknowledged by members of Congress and a repeal of this provision was included in the Financial Choice Act passed by the House Financial Services Committee in 2016, and its inclusion in discussion drafts in 2017" (ELFA, 2017). However, continued support from the ELFA and members of the equipment finance industry is necessary while Congress considers it for financial regulatory reform. When ELFA members come together, it allows them to voice their concerns and protect the interest of the industry that they serve.