NAFCU Member to Testify at House Hearing on Commercial Lending Data

A NAFCU member will testify Tuesday before a House subcommittee about rules that require credit unions to report information about small business loan applications.

The CFPB began the process of establishing the rule in 2017, which Congress required the agency to make under the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010 to prevent the kind of banking abuses that led to the Great Recession.

Section 1071 of the law has required the CFPB to adopt regulations governing the collection of small business lending data. The CFPB has said the intent is to increase transparency in the conditions small businesses encounter when seeking loans and ultimately make it easier for them to obtain the credit they need.

Michael Wilson, chief experience officer at the $6.9 billion Members 1st Federal Credit Union of Philadelphia, will be testifying before the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access. The hearing starts at 10 a.m.

NAFCU said Wilson is expected to ask the bureau to adopt common sense definitions, right-sized thresholds and a reasonable, phased mandatory compliance schedule for the rule to protect credit unions and their ability to serve small businesses.

After four years of hearings and research, the CFPB proposed the new rule in 2021. It would require any lender originating 25 or more commercial loans a year to provide data annually on each of its commercial loan applications.

Lenders would have to provide a set of data similar to that required for residential mortgages under the Home Mortgage Disclosure Act:

• How much money a borrower requested and the action taken by the lender.
• If approved, the lender would provide the amount originated and pricing information. If denied, it would provide a reason.
• Racial, ethnic and gender information about the applicants to the extent available.

Because these are business loans, the CFPB also wants to know the number of workers, years in business and the prior year’s gross annual revenue.

Businesses with $5 million or less in gross revenues in the prior year are considered “small businesses” whose applications must be reported under the rule. Among other changes, NAFCU has said it would like that definition narrowed to businesses with $1 million or less in gross revenues.

In a NAFCU call with media on Monday, Ann Petros, vice president of regulatory affairs, said the burden of compiling an annual report with that data might drive some small credit unions to abandon commercial lending.

A lender with at least 25 business loans has to report, “which captures virtually every lender,” Petros said.

“Our main concern is the really low threshold to submit information to the CFPB,” she said. “It will have a chilling effect on small institutions, like credit unions. It’s going to be very expensive and unfeasible for some institutions.”