The so-called "Speed Bump" amendment to the Dodd-Frank Consumer Financial Protection Act will change in fundamental ways how the new Bureau of Consumer Financial Protection (the Bureau) will issue all of its regulations, including the 18 Enumerated Consumer Financial Laws it will take over on July 21, 2011. This provision makes the new Bureau one of only three federal agencies that must comply with special - and potentially time-consuming - requirements designed to protect small business.


The Regulatory Flexibility Act (RFA) requires most federal agencies to determine whether each regulation they promulgate has a substantial impact on a significant number of small entities (SISNOSE), and to assess and mitigate the disproportionate cost of federal regulation on small business.

In 1996, President Clinton signed into law the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) in response to increasing concerns about poor compliance among federal agencies with the RFA. Court decisions acknowledged the problem of noncompliance but noted the RFA's toothlessness in the absence of a judicial review mechanism.

In addition to adding a judicial review component, SBREFA requires special procedures to be used for regulations issued by the EPA and OSHA. It also permits the SBA's Office of Advocacy (Advocacy) to file amicus briefs in regulatory appeals brought by small business entities.

SBREFA Now Applies to the Bureau

The Small Business Fairness and Regulatory Transparency Amendment, authored by Senators David Pryor (D-Ark.) and Olympia Snowe (R-Me.), was adopted in Conference Committee in June 2010, and now appears as section 1100G of the Dodd-Frank Act. This provision imposes two sets of requirements on the Bureau:

This provision imposes two sets of requirements on the Bureau, compelling it:

  • to convene a small business review panel (a SBREFA Panel) before promulgating regulations that are expected to have a significant impact on a substantial number of small business entities (the same requirements that apply to EPA and OSHA), and
  • to consider the impact its rules will have on the cost of credit for small businesses, and to evaluate specific alternatives to minimize any increases in the cost of credit.

What Is a Small Business?

The SBA publishes a table matching small business size standards with North American Industry Classification System Codes, found at The threshold for commercial banking, savings institutions, credit unions, other depository credit intermediation, credit card issuers, and international trade financing is $175 million in assets; for other financial institutions, the cutoff is $7 million in receipts. The term "receipts" in this context appears to refer to the gross profit of the enterprise.


Although unfamiliar in banking circles, the SBREFA process begins with a determination of whether a proposed regulation is expected to have a SISNOSE. If the head of the agency certifies that the regulation is not expected to have such an effect, no panel need be convened. When no certification is made (including when the impact is uncertain), the agency must notify Advocacy, which recommends small-entity representatives (SERs) to provide input to a SBREFA panel. The SBREFA panelists include officials from the agency, Advocacy, and the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB).

Before the panel formally begins its work, several months of preparatory efforts take place. EPA estimates that the pre-panel process typically takes two to eight months.

Once convened, the panel reviews the proposed rule and agency analyses, considers SERs advice and input, and submits a report to the agency within 60 days. Panel reports often include comments on the agency's analysis of expected impacts on small business and recommendations for alternative measures, such as phased-in deadlines, reduced obligations, or exemptions for small business, where these changes will not materially interfere with the agency's objectives for the proposed rule. The agency need not take the recommendations of the panel, but must offer some explanation of its basis for adopting or rejecting the suggested alternatives. Consensus recommendations of the panel have a very strong chance of adoption by the agency.


Recurring questions under SBREFA include the lack of definitions for the terms "significant" and "substantial," which are key to the agency's determination of whether a panel must be convened. Advocacy, which advises agencies on implementation of SBREFA, views these terms not as absolutes, but as relative to the size of the business, its profitability, regional economics, and other factors, and suggests that the percentage of revenues or profits affected is a good indicator. Other measures Advocacy has put forward include whether the "cost of the proposed regulation (a) eliminates more than 10 percent of the businesses' profits, (b) exceeds 1 percent of the gross revenues of the entities in a particular sector, or (c) exceeds 5 percent of the labor costs of the entities in the sector." ("Ten Frequently Asked Questions About the Regulatory Flexibility Act," in the Small Business Advocate, Oct-Nov. 2010,

Case law has established that the effects test must be based on direct impacts alone, and does not include even reasonably foreseeable indirect "ripple effects" on small businesses. Similarly limiting, judicial review under SBREFA applies only to whether the agency correctly certifies the unlikelihood of a SISNOSE. Of course, the agency's rule as a whole remains subject to the Administrative Procedures Act's "arbritrary and capricious" review standard.

Pepper Points - SBREFA supporters argue that it makes agency rules better and that the 60 days required for a panel's work are well worth the reduction in negative effects on small business, which many maintain is among the most productive engines for national economic growth. Nonetheless, the federal officials establishing the Bureau will be challenged by their unfamiliarity with SBREFA. Some observers also worry that opponents of the Bureau's new powers will use the SBREFA requirements to delay or block new regulations. Advocacy is working with Bureau officials to provide training and advice, and its experience over the last 14 years with EPA and OSHA rules will prove instructive to the Bureau. Like so many other aspects of the Dodd-Frank Act, only time will tell if the "speed bump" will significantly change how the regulations governing the consumer credit industry in the United States are adopted. Clearly, it should give certain groups such as mortgage bankers and payday lenders, among others, a "seat at the table" prior to regulations being promulgated that will have a significant impact on them. Given recent statements that the Bureau may begin promulgating regulations even prior to the appointment of a Director and the designated transfer date of July 21, 2011 and recent meetings between Advocacy and Bureau officials, the SBREFA process may begin sooner than many have thought.