In response to a review under the Paperwork Reduction Act, the American Bankers Association (ABA) shared its thoughts on aspects of the surveys used to collect data on small business lending as required by Section 1071 of the Dodd-Frank Act.
The Consumer Financial Protection Bureau (CFPB) is working to gather information in preparation for promulgating rulemaking under Section 1071.
Kathleen Ryan, vice president and senior counsel, wrote the ABA letter, stating that accurately estimating these “substantial one-time costs” is critical to understanding the implications of the small business lending data collection.
“As an initial matter, we believe the bureau's estimate of 30 minutes to fill out the survey is too low,” Ryan wrote. “Several members have noted that the nature of small business financing will make it more difficult for them to answer survey questions. For example, many institutions do not track applications for small business credit and may have difficulty arriving at the number of applications received over a given time period. Similarly, because small business financing tends to be fragmented across different lines of business and system within a bank, one of our members said it would take 30 minutes to answer just the question about the number and dollar amount of originations for small business credit for each product type, e.g., loans and lines of credit, commercial real estate, etc.”
Ryan also said it was unclear which kinds of products the CFPB might be looking to include in Section 1071 rulemaking, which could have an effect on how much of a burden would be put on lenders.
“We understand that the bureau has not yet determined the products and financial institutions that will be subject to the data collection; however, the bureau will get better information if the questionnaire is clear about the products respondents should consider when answering questions,” she wrote.
Specifically, ABA had recommendations for questions in the survey. One involved how an institution defined a small business.
“First, we strongly recommend the bureau include as a definition of small business, ‘businesses with revenues under $ 1 million in the preceding year,’ ” ABA’s letter stated. “This annual revenue threshold is easy to apply, and financial institutions are familiar with it. Regulation B uses this revenue threshold to differentiate between business applicants for purposes of adverse action notice requirements.
“Second, for respondents that do not have a formal definition of a ‘small business’ for the purposes of determining eligibility for small business financing, we are pleased that the bureau has offered the CRA definition for these institutions to use and has included the CRA definition in an appendix. However, we are concerned that permitting institutions to answer using ‘any other single definition that would allow you to respond’ will make survey results less useful.”
Another question asked how many total applications for small business credit a lender received last year. ABA expressed concerned about a phrase in that question.
“We believe the survey will be most useful to the bureau and the public if it captures data that are generally comparable from one respondent to the next. However, the definition of an ‘application for credit’ is not uniform across the industry,” the letter stated. “We urge the bureau to define ‘application for credit’ using Regulation B’s definition (12 CFR § 1002.2(f)). Using Regulation B’s definition – which is familiar to respondents – will help promote more reliable data.”
One other question regarded the third-part vendor costs associated with system upgrades or changes to comply with the rulemaking.
“We support the inclusion of anticipated purchases of new software, and third-party vendor costs. The category ‘updating computer systems’ would not otherwise capture these payments to third parties,” ABA’s letter stated.