Banks would be required to report more data on small businesses applying for loans under a notice of proposed regulations the Consumer Financial Protection Bureau (CFPB) published last week.
Under the proposal – who would cover data related to term loans, lines of credit, credit cards, leases and cash advances to merchants – lenders with 25 or more small business loans must report data on credit applicants, including women-owned and non-white businesses.
Along with the proposed rule, the CFPB published a list of data points to be collected – 23, in all – including race, ethnicity and gender of borrowers, amount sought, amount approved, reasons for denial and gross annual income.
The CFPB also announced the launch of a web portal intended for entrepreneurs to share their experiences on applying for credit, which the bureau said would bring transparency to the challenges facing business owners.
“Small businesses are the main job creators and creators of wealth in communities across the country,” CFPB Acting Director Dave Uejio said in a press release. “Too often, small business development is starved for lack of access to responsible credit at a fair price.”
The CFPB formulates the proposed rule as part of a Congressional mandate that originated in Section 1071 of the Dodd-Frank Act, which seeks to enforce fair loan laws. As such, the data collected has the potential to open banks to scrutiny of the role of race and gender in lending and may form the basis of disparate impact claims.
Public comments on the proposed rule are open for 90 days. However, some banking trade groups suggest the agency is limiting the scope of the data.
“The complexity of collecting and reporting credit application data on women, minorities and small businesses under Section 1071 cannot be overstated,” said Richard Hunt, chairman of the Consumer Bankers Association (CBA). in a report, adding that the rule, if passed, would force banks and vendors to revise their processes to meet data collection and reporting requirements. “Ultimately, a well-balanced final rule – with a phased approach to implementation and a carefully tailored set of data points requiring collection – will limit the risk for the Office of creating unintentional barriers to access.” small business credit and empower banks. “
While this group has challenged the amount of data the CFPB proposes to collect, the Independent Community Bankers Association (ICBA) has addressed its complaint to the number of banks that should adhere to the proposed rule. (The Trump administration, The American Banker reported, said last year that he had considered exempting lenders with less than $ 100 million in assets.)
“The office’s proposal… would trap even the smallest community banks in rural and other underserved areas, where barriers to credit should be reduced,” said ICBA CEO Rebeca Romero Rainey. in a report. “Imposing new data collection and reporting requirements on community banks would hurt small business lending just as local businesses struggle to recover from the COVID-19 pandemic. “
She said the CFPB should reconsider the impact the proposal would have on lending to small businesses.
For its part, the office, in the text of the proposed rule, said that it “does not believe that the request made by several stakeholders of trade associations to take a more limited approach to scope – including various limitations on the coverage of certain types of financial institutions and products – would be in line with the statutory objectives of [S]ection 1071. “
The office has, however, set some parameters it hopes to define during the comment period – specifically, how to define a small business, what activity threshold to set to require data collection and reporting, and how to balance disclosure. public with concerns about the privacy of borrowers.