The Consumer Financial Protection Bureau wants to require lenders to collect data on applications and originations of small business loans.
The 918-page proposed rule released Wednesday would apply to business with $5 million or less in gross yearly revenue and would require lenders to report:
- The amount and type of small business credit applied for and extended.
- Key elements of the price of the credit offered.
- Demographic information about small business credit applicants, including information to show if they are owned by women or minorities.
The CFPB says the rule is mandated by section 1071 of the 2010 Dodd-Frank Act, which requires the CFPB to collect data about small business lending to facilitate enforcement of fair lending laws and to help identify business and community development needs and opportunities.
Credit unions have increased their lending to small businesses in recent years. The reporting could potentially provide credit unions more proof of their claim that they are more willing to serve small businesses than big banks.
NAFCU President and CEO Dan Berger said credit unions “support fair and affordable access to credit in the small business lending market.”
However, he said the proposed rule “raises concerns about how significant new data collection requirements will impact borrowers and smaller financial institutions like credit unions.”
“As the Bureau 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,” Berger said.
Dave Uejio, CFPB’s acting director, said small businesses are the nation’s primary job creators and wealth builders.
“Yet too often, small business development is starved for want of access to responsible, fairly priced credit,” Uejio said. “We are proposing a rule that would help us all learn how small enterprises fare when trying to access financing, and what barriers are holding them back from further prosperity.”
The CFPB said it has spent years studying how to craft the rule. It held a hearing on the topic in 2017, held a symposium in 2019, published an outline of proposals in 2020. It later convened a Small Business Review Panel to gather input on the proposals and released a report summarizing the input and recommendations of the participants.
Uejio said the CFPB has opened a three-month comment period on the proposed rule.
“We look forward to hearing from small business entrepreneurs, community organizations, researchers, lenders, and others about how we can improve on this proposal,” he said.
The CFPB on Wednesday also launched a web portal for small business owners to share their stories about applying for credit, designed to help the CFPB understand their challenges and successes in accessing credit.
The text of CFPB’s rule says the data would “foster a culture of compliance.” It also says research indicates that small businesses owned by minorities or women face particular obstacles, but the agency lacks the comprehensive, quantitative data it needs to understand the extent of the obstacles and craft policies to help owners overcome them.
“In this way, the proposed rule is intended to help small businesses drive inclusive and equitable growth,” the CFPB wrote.
“The current COVID-19 pandemic has shown that transparency is essential, particularly at a time of crisis, when small businesses, especially those owned by women and minorities, may be in urgent need of credit in order to recover from economic shocks,” it wrote.
CFPB would publish the data on an annual basis on its website, “subject to modifications or deletions made by the Bureau, at its discretion, to protect privacy interests.”
Over the years, the CFPB says the granular data will help identify potential fair lending violations and facilitate the enforcement of anti-discrimination laws.
“It will also help governments, community groups, financial institutions, and other stakeholders to identify opportunities and gaps in the market, thereby enhancing business and community development and boosting broad-based economic activity and growth,” it wrote.