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The Consumer Financial Protection Bureau has proposed new small business lending rules that the agency said would help small businesses gain access to credit and increase transparency in the lending marketplace.

The proposed rule would require lenders to collect and report information about their small business lending practices. The CFPB said in a statement Wednesday that the information would allow community organizations, researchers, lenders and others to better support small business and community development needs.

“Small businesses are the primary job creators and wealth builders in communities across the country,” CFPB Acting Director Dave Uejio said in the statement. “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.”

Mandated by Section 1071 of the 2010 Dodd-Frank Act, the proposed rule would require lenders to report the amount and type of small business credit applied for and extended, demographic information about small business credit applicants, and certain elements of the price offered. The data would help the CFPB and other stakeholders identify difficulties small businesses experience in accessing credit, the agency said, while also identifying ways that current lending practices could be improved.

The proposed requirements would affect a range of credit products, including term loans, lines of credit, credit cards, and merchant cash advances.

The rule would apply to financial institutions that originated at least 25 credit transactions to small businesses in each of the two previous calendar years. Financial institutions subject to the rule would include banks, credit unions, online lenders, platform lenders, community development financial institutions, lenders involved in equipment and vehicle financing, commercial finance companies, governmental lending entities and nonprofit lenders.

The data collected by lenders would include:

• Information about the credit small businesses seek and obtain, including the purpose, type, and amount of credit being applied for; the amount approved or originated; certain elements of the cost of the credit, such as the interest rate and fees; and details about the business.
• Demographic information about small business owners, including whether the business is minority-owned or women-owned, and the ethnicity, race, and sex of the applicant’s principal owners. Applicants would not be required to provide the information, and lenders would have to tell applicants that they could not discriminate on the basis of this demographic information.
• How applications are received and their outcomes.

Once the proposal, which is more than 900 pages long, is published in the Federal Register, the CFPB will accept comments for 90 days. The agency has also opened a portal for small businesses to share their experiences when applying for credit.

The Washington-based National Community Reinvestment Coalition in a statement yesterday praised the proposal.

“The ongoing lack of small business data, particularly for businesses owned by people of color and women, is a significant barrier to understanding the true level of disparities they face,” Jesse Van Tol, NCRC president and CEO, said in the statement. “Section 1071 will change that. The new, detailed data on access to credit for businesses owned by people of color and women will help us narrow wide gender and racial disparities in access to credit.”

Van Tol added that the data should replace the small business information that banks currently report for Community Reinvestment Act exams.

“The current CRA exam for small business data does not provide the details we need to make sure banks are serving the smallest businesses in underserved communities,” Van Tol said.

Industry trade groups expressed concerns about the rules and have proposed exemptions for community banks and credit unions.

Rebeca Romero Rainey, president and CEO of the Independent Community Bankers of America, said in a statement that the “ICBA strongly supports a robust community bank exemption from Dodd-Frank Act Section 1071.”

“The [CFPB’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 National Association of Federally-Insured Credit Unions said that while it supports fair and affordable access to credit, the group had previously called for credit unions to be exempt from the data collection requirements.

“As the [CFPB] 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,” Dan Berger, NAFCU president and CEO, said in a statement.