Industry trade groups are criticizing a final rule released yesterday by the Consumer Financial Protection Bureau that will require financial institutions to collect data on their small business lending.
As part of the new rule, lenders will collect and report information about applications received for small business credit, including geographic and demographic data, the CFPB said in a statement yesterday. Data on lending decisions and the price of credit offered will also be collected.
The CFPB developed the rule as part of a mandate by Section 1071 of the 2010 Dodd-Frank Act. The rule will “work in concert with the Community Reinvestment Act,” the agency said, adding that small businesses, family farms, financial institutions and the broader economy would benefit from the increased capacity.
“Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program,” CFPB Director Rohit Chopra said in the statement. “This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly.”
Under the rule, lenders originating 2,500 or more small business loans annually begin collecting data on Oct. 1, 2024. Lenders originating 500 or more loans begin the process on April 1, 2025, and those with 100 or more loans would start on Jan. 1, 2026.
Lenders originating fewer than 100 loans per year would not be required to collect data but would need to adhere to fair lending laws, the CFPB said.
National Community Reinvestment Coalition President and CEO Jesse Van Tol said in a statement yesterday that having reliable information on how race and gender continue to affect access to credit was essential.
“The implementation of this final rule will finally bring sunlight into small business lending and afford policymakers the data and knowledge they need to help ensure that every American, regardless of race or gender, can pursue their dreams on a fair and level financial playing field,” Van Tol said.
Industry trade groups expressed disappointment in the final rule.
Rob Nichols, president and CEO of the American Bankers Association, said while the organization supports banks’ efforts to provide lending to underserved small businesses, the costs of implementing the new reporting requirements could force some community banks to limit their small business loan programs.
“While today’s final rule implementing Section 1071 includes a few of our recommendations for the proposed rule, we are disappointed that it remains unnecessarily far-reaching and will harm the relationship banking model Director Chopra often praises – the model that community banks have relied on to meet the unique needs of small businesses in their communities,” Nichols said.
Rebecca Romero Rainey, president and CEO of the Independent Community Bankers of America, said the CFPB has exceeded “the clear letter of the law” in requiring data collection beyond what Congress mandated.
“ICBA and the nation’s community banks are deeply frustrated that the CFPB has finalized a rule that will require community banks to burden millions of their small business customers with invasive questions about their business and livelihood,” Romero Rainey said.
She added that in addition to placing a significant compliance burden on small community banks, the final rule might make identifying loan applicants possible, “potentially driving small-business owners away from community banks and local communities while having a chilling effect on small-business lending.”
“The CFPB should use its authority to exempt more community banks and small businesses from its rule and limit mandatory data points to those required by statute,” Romero Rainey said. “Restricting access to credit in local communities during this critical economic period will ultimately harm the borrowers the CFPB is trying to help – women-owned, minority-owned, and small businesses.”
