Credit union trade organizations are pressing the Consumer Financial Protection Bureau to limit the scope of data they provide on business loan applications used by regulators to determine whether lenders are discriminating against women and minorities.
CUNA and NAFCU are responding to the bureau's request Wednesday for comments over the next 60 days before it drafts regulations to comply with the Dodd-Frank Act's Section 1071 provisions to create reporting frameworks to monitor small business lending to women and minorities.
“NAFCU acknowledges that taken on its own, Section 1071 is a well-intentioned provision,” Andrew Morris, NAFCU's regulatory affairs counsel, wrote in a three-page letter to the bureau. However, he said the law's implementation could raise lending costs and discourage credit unions from making the very loans the bureau was trying to foster.
“The creation of a new data collection regime potentially exceeding the complexity of HMDA would likely frustrate credit union efforts to originate MBLs at low cost to women-owned, minority owned and other small businesses within their communities,” Morris wrote.
Business lending is a relatively small, but fast-growing sector for credit unions. They worry that their numbers might look bad compared with banks because banks can lend to anyone, while many credit unions have charters that restrict membership by employment and geography.
Joe Valenti, director of consumer finance for the Center for American Progress, a progressive think tank in Washington, D.C., said that enforcement of fair-lending standards was hobbled for decades by the lack of publicly available information about lending patterns by race or gender.
Credit unions have long been known for offering better terms on loans, Valenti said. “Credit unions may look more attractive when their data is made public.”
Alex Monterrubio, NAFCU's director of regulatory affairs, said credit unions want to exclude small business loans under $50,000 – a statutory threshold for Member Business Loans under a separate law applying only to credit unions.
The rule-making process is likely to take at least 18 months, and could easily last two years, Monterrubio said.
Section 1071 requires financial institutions, including cooperatives, to collect data on small business loan applications showing:
- A loan application number (but not the name of the applicant)
- Date of the application
- Type and purpose of the loan
- Amount of the loan request
- Amount approved
- Census tract
- Gross annual revenue of the business applicant
- Race, sex and ethnicity of the principal owners of the business
Lenders are required to report the data once a year to bureau and keep the data for at least three years. The public can have access to the data from the credit union, by request, and the law says the data is to be “made available to the public generally by the bureau.”
The bureau can use the data to discern patterns, and publish compilations for the public. It can also delete or modify data to protect privacy.
The data is kept separately from the loan application, and shielded from underwriters. People applying for loans can decline to provide the information.
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