The Dodd-Frank Consumer Financial Protection Act gave the new Consumer Financial Protection Bureau (CFPB) the honor of being one of only three agencies subject to a statute that is aimed at providing extra protection for small businesses. This little-known law, the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), requires covered agencies – the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and now the CFPB as well – to convene a special panel whenever one of their proposed rules may have a significant impact on a substantial number of small entities.

The purpose of these SBREFA panels is to force the agency to take a focused look at the proposed rule’s effects on small businesses and require it to consider whether it is possible to achieve its regulatory objectives using approaches that are less burdensome to small entities. Since the CFPB’s director took office in January 2012 and the CFPB began promulgating its own regulations, three rules have been found to meet the requirement to convene panels (TILA/RESPA, mortgage servicing, and loan origination standards). The panel process has been far from ideal, but as it has gotten underway, one key question has particularly stood out: what is meant by the term “small” when it comes to designating “Small Entity Representatives” (SERs) who meet with the official government-agency panel members and are expected to represent particular small-business sectors affected by the proposed rule?

The definition the CFPB has relied upon is found in the SBA’s Size Standards Table (, which was developed for other purposes and categorizes business sectors using the North American Industry Classification System (NAICS), an approach that works best for manufacturing operations. The classifications for financial institutions were last revised in the late 1970s or early 1980s. They divide financial institutions into two basic types: depository and nondepository. For depository institutions, “small” means those with less than $175 million in assets; for nondepository institutions, the ceiling is far lower, $7 million in “receipts,” a term that includes the tax concept of cost of goods sold, but which has little meaning in the financial services world.

The SBA has recognized that these dollar limits are seriously outdated; on September 11, 2012 it proposed a rule that recommends raising them substantially: from $175 million to $500 million in assets for depository institutions, and from $7 million to $35.5 million in receipts for their nondepository counterparts such as consumer lenders. While this change is long overdue, it in no way goes far enough to address the realities of the modern financial services marketplace. Congress and CFPB officials have repeatedly stressed that one of the CFPB’s top priorities is to “ensur[e] a level playing field between banks and their non-bank competitors,” and perpetuating a two-tier system for defining what constitutes a “small” entity as between these two types of competitors undercuts this key principle.

The issue is not hypothetical. In the TILA/RESPA rule, the CFPB convened a SBREFA panel in which six representatives were drawn from Size Standards Table sectors with a $175 million threshold for small entities, and ten from sectors subject to a $7 million “receipts” criterion. The disparity in size standards affects other important issues as well, such as the definition of “larger participants” for CFPB rules. For instance, in the credit bureau larger participant rule, the CFPB exempted those entities with less than $7 million in receipts, and therefore no SBREFA panel was required. The proposed higher thresholds would certainly change the number of credit bureaus covered by the rule, assuming the CFPB were to use the revised standards.

Comments are due by November 13 on the SBA’s proposed rule, which can be found at

Pepper Points:Nondepository financial services providers that are regulated by the CFPB have complained that the CFPB’s cutoff for defining small entities is too low and reduces participation by genuinely small players in SBREFA panels; it also inaccurately classifies what entities are “larger participants” for various rules. The SBA’s proposed changes update the dollar amounts that determine these critical categories, but they stop far short of the modifications that are needed to truly reflect the realities of the modern financial services marketplace. One of the CFPB’s main rallying cries is to level the playing field between bank and non-bank competitors, and the Size Standards Table should be brought in line with that goal. CFPB-regulated entities should consider commenting on the SBA’s proposed rule to express the need to reflect the current competitive landscape in this industry.