skip to Main Content
MSJ NEWS see latest news

CFPB Weighing Expansion of Data Collection Requirements for Small Business Lending

  • Consumer Financial Protection Bureau weighing expansion of data collection requirements for financial institutions engaged in small business lending
  • Data would highlight factors such as the amount and type of small business credit sought by borrowers, the amount extended, and demographic information about applicants
  • The CFPB says the data could better identify small business lending trends and needs, though the proposal has also prompted calls for a more cautious approach

Summary by Dirk Langeveld

The Consumer Financial Protection Bureau will weigh a potential expansion of data collection requirements for financial institutions engaged in small business lending after a public comment period for the proposed rule closed on Thursday.

The CFPB first issued its Notice of Proposed Rulemaking in September, saying the change intends to increase transparency and fairness in small business lending. The rule change would amend a regulation to implement changes to the Equal Credit Opportunity Act made by section 1071 of the Dodd-Frank Act.

The CFPB expects that by requiring financial institutions to disclose information about their small business lending practices will allow community organizations, researchers, lenders, and others to better support the needs of small businesses and community development efforts. Lenders would be required to provide information such as the amount and type of small business credit sought by borrowers, the amount extended, demographic information about applicants, the types of businesses run by applicants, and any reasons for denials.

“Small businesses are the primary job creators and wealth builders in communities across the country,” said CFPB Acting Director Dave Uejio when the proposed rule change was announced. “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.”

The requirements would apply to financial institutions that originated at least 25 qualifying credit transactions to small businesses in the two preceding calendar years. These institutions would include banks, savings institutions, credit unions, online lenders, and community development financial institutions. The CFPB is also seeking to allow any non-covered institutions to voluntarily report data.

In lieu of definitions under the Small Business Act or regulations from the U.S. Small Business Administration, the CFPB is looking to define a small business as an entity with $5 million or less in gross annual revenue. In reporting applications, financial institutions would need to report any oral or written requests for credit in accordance with the institution’s procedures, though this would not extend to simple inquiries, pre-qualification requests, or requests related to existing credit account unless it seeks to increase the borrower’s credit.

Data collection would occur on a calendar year basis and be reported on June 1 of the following year.

Bill Hulse, vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, says the CFPB should be cautious in its approach, ensure adequate privacy safeguards, and give lenders enough time to comply with any rule changes. He also expressed concern about a provision allowing a lender to guess an applicant’s race based on visual observation if they don’t voluntarily provide this information.

The Consumer Bankers Association also urged caution, saying the nature of small business lending and how such applications are processed could make an expansion of data reporting rules unwieldy. The organization recommended that the CFPB can help expand credit access to small businesses by ensuring enough lead time to collect data, streamlining standardized definitions of covered borrowers, and allowing lenders to satisfy new requirements through their own reporting systems.

“Business lending presents unique challenges and, therefore, presents an increased risk of collecting misleading data that could influence future regulation and policymaking and could ultimately negatively impact small businesses,” the CBA declares. “Further, overly burdensome data collection requirements could stifle small business lending by greatly increasing compliance costs for lenders and threatening access to credit for underserved communities.”

Independent Community Bankers of America asked the CFPB to exempt more community banks and small businesses from the proposal, excluding financial institutions with $1.3 billion or less in annual assets and defining small businesses as those with with $1 million or less in gross annual revenues. The organization said this would still capture 90 percent of small business loans while limiting any negative impact on smaller institutions.

“Community bank small-business lending is complex—it should not be commoditized and subjected to simplified, rigid analysis that would have a chilling effect on small business lending,” ICBA President and CEO Rebeca Romero Rainey said.

Spread the Word

More To Explore

Expert Summaries

Know Your Competitors

By Denis Jakuc 

There are tons of benefits to knowing who your competitors are—what they’re offering, their strengths and weaknesses. That knowledge can help you make your products and services stand out,

Latest News

Join with Free InnovatorsLINK Account

Start accessing all the free member benefits and valuable content on the InnovatorsLINK platform. Create a BizLINK listing to boost brand exposure, receive the weekly Main Street Journal newsletter, engage in forums, get full access to free content, and more.