- Consumer Financial Protection Bureau announces proposed rule for financial institutions to disclose small business lending data
- Disclosures would include a broad range of information, including how much credit entrepreneurs seek and how much is extended
- Banks and business groups are pushing back against the proposal, saying it will create a burden for lenders
Summary by Dirk Langeveld
Financial institutions would be required to provide a range of information on their small business lending practices under a proposed rule from the Consumer Financial Protection Bureau. The proposal aims to improve transparency and strengthen capital access for entrepreneurs.
The rule would require lenders to report the amount and type of small business credit borrowers applied for and how much credit was extended. Lenders would also be obligated to provide data such as demographic information about small business applicants, key information about the price of the credit, and how borrowers submitted their applications.
Credit is broadly defined, encompassing lender products such as term loans, lines of credit, credit cards, and merchant cash advances.
In announcing the proposal, the CFPB cited statistics from the U.S. Small Business Administration saying that approximately 60 million Americans are employed by small businesses, and that these concerns had a net job creation rate nearly twice as high as large businesses between 2010 and 2019. The CFPB also said small businesses often struggled to access federal relief funds during the COVID-19 pandemic despite suffering more severe revenue losses.
The rule change is pursuant to Section 1071 of the Dodd-Frank Act, which requires the CFPB to collect data about small business lending. This information is used to “facilitate enforcement of fair lending laws and to help identify business and community development needs and opportunities.”
The proposal has raised some concerns, with banks and business groups warning that a complicated final rule could create a burden for lenders and end up restricting credit access to small businesses rather than improving it. The rule also reverses a Trump administration suggestion that community banks be exempted from data reporting.
While the CFPB is seeking to publish application-level data, it also suggests modifying or withholding data from public disclosure based on an assessment of how beneficial the publication will be and what privacy risks it might entail. The bureau is collecting public comments on the rule proposal over the next 90 days.
In addition to the rule proposal, the CFPB announced that it is opening a web portal for small business owners and entrepreneurs to share their experience in seeking credit. The portal says these anecdotal reports can “help inform our work to protect small business owners and create a fairer marketplace.”