The Consumer Financial Protection Bureau (CFPB) has issued a notice of proposed rulemaking (NPR) on the data collection rule mandated by Section 1071 of the Dodd-Frank Act.
The bureau entered into a stipulation regarding this rule earlier this year relating to a case in the U.S. District Court for the Northern District of California.
The rule would require lenders to disclose information about their lending to small businesses, such as the amount and type of small-business credit applied for and extended, demographic information about small-business credit applicants, and key elements of the price of the credit offered.
“Small businesses are the primary job creators and wealth builders in communities across the country,” CFPB acting Director Dave Uejio said in a release. “After homeownership, small-business ownership is the primary means by which families and communities build wealth. Yet too often, small-business development is starved for want of access to responsible, fairly priced credit.
“Today, we are proposing a rule that would help us all learn how small enterprises fare when trying to access financing, and what barriers are holding them back from further prosperity,” he added. “Over the next three months, we look forward to hearing from small-business entrepreneurs, community organizations, researchers, lenders, and others about how we can improve on this proposal to make sure the final rule serves the purposes Congress had in mind when it mandated this rulemaking in 2010.”
Uejio said the agency also is encouraging small-business entrepreneurs to share their own stories about applying for credit. This can be done through a new web portal offered through the bureau and specifically designed for small businesses.
The data collection is meant to inform the CFPB on whether the needs of small businesses nationwide are being met. The rule would help the bureau and the public better understand what credit small businesses seek and obtain; the demographics of small-business owners, and how applications for credit are received and their outcomes.
Comments are due within 90 days of the NPR’s publication in the Federal Register. The CFPB welcomes input for way to improve the rule, and specifically seeks comment on issues including:
- How to define a small business for purposes of this data collection.
- Where to set the activity threshold for when a lender is required to report information.
- How best to collect pricing information for transparency into the cost of small business credit.
- Whether and how to collect certain information about the sex of an applicant’s principal owners.
- How to balance the benefits of public disclosure and the risk to privacy interests.
- The appropriate implementation period.
Richard Hunt, CEO and president of the Consumer Bankers Association (CBA), said the organization looks forward to submitting its written comment regarding this NPR, as its members have been integral in providing funds for small businesses across the nation and especially during the COVID-19 pandemic.
“The complexities of collecting and reporting credit application data on women-owned, minority-owned, and small businesses under Section 1071 cannot be overstated due to the nature of small-business lending and the ways these applications are processed,” Hunt said. “Financial institutions and their vendors will also have to make significant changes to their systems and processes to meet new 1071 data collection and reporting requirements.
“As a result, it is imperative the CFPB carefully consider forthcoming written comments from CBA and other industry stakeholders to ensure the rule delivers on Section 1071’s intent without harming small business access to credit. Ultimately, a well-balanced final rule – with a phased approach to implementation and a thoughtfully tailored set of data points requiring collection – will limit the bureau’s risk of creating unintentional impediments to small-business credit access and empower banks to satisfy Section 1071’s goals. CBA stands ready and willing to assist in this effort.”
The Independent Community Bankers of America (ICBA) President and CEO Rebeca Romero Rainey said the group supports a robust community bank exemption from this rulemaking, and the current proposal is too narrow and would apply to “far too many community banks.”
““The bureau’s proposal – covering community banks that originate 25 loans or more – would ensnare even the smallest community banks in rural and other underserved areas, where barriers to credit should be reduced,” Romero Rainey said. “Imposing any new data collection and reporting requirements on community banks would harm small-business lending at the very time local businesses are working to recover from the COVID-19 pandemic.
“The CFPB should reconsider the impact of this proposed rule on small-business lending and access to credit before proceeding with a final rule.”
The ICBA will continue to review the NPR and will gather feedback from its community bankers before submitting comment to the CFPB.
“Credit unions support fair and affordable access to credit in the small-business lending market,” National Association of Federally-Insured Credit Unions (NAFCU) President and CEO Dan Berger said. “The proposed rulemaking, however, raises concerns about how significant new data collection requirements will impact borrowers and smaller financial institutions like credit unions. As the bureau continues to move this proposed rulemaking through the process, NAFCU will work to ensure that the complexities of Section 1071 data collection are minimized in order to ensure credit availability and lender participation in the small business lending marketplace.”