Many Credit Unions Excused From Business Lending Reporting
CFPB revisions in its final rule reduce the number of lenders that must report annually on loans to small businesses.
The number of credit unions that will have to report on their small business lending fell sharply under a new CFPB rule.
The CFPB lifted the volume threshold for small business lenders from those who produced 25 or more loans a year, to those producing 100 or more in the preceding year under its final rule issued Thursday.
The CFPB kept its definition of small businesses as those with gross revenue of $5 million or less in the preceding year. Credit union trade groups had pushed for the definition to be lowered to $1 million or less.
The exact number of credit unions falling out of the compliance mandate can’t be determined from NCUA data, because it doesn’t distinguish loans by size of borrower.
However, credit unions tend to lend to small businesses, and the NCUA’s data on the total number of commercial loan originations showed the scale of the impact from the rule change.
The NCUA showed that there were 597 credit unions last year that produced at least 25 commercial loans in 2022, including 388 that originated 25 to 99 loans.
The CFPB said the 100-loan threshold accounts for more than 95% of small business loans by banks and credit unions. The 209 credit unions with 100 or more total commercial loans last year produced 62,830 commercial loans worth $29.7 billion. They accounted for 71% of the total 88,879 commercial loans and 57% of their $52.6 billion value.
Only 1,257 of the nation’s 4,863 credit unions produced any commercial loans last year.
The CFPB also stretched out the compliance calendar so that only lenders with at least 2,500 small business loans in the preceding year must collect data starting Oct. 1, 2024. Last year the only credit union producing more than 2,500 commercial loans regardless of borrower size was Interra Credit Union of Goshen, Ind. ($1.7 billion in assets, 91,640 members), which originated 3,393 loans for a total of $378.4 million, or an average of $111,520 per loan.
Lenders originating 500 to 2,499 loans must collect data starting April 1, 2025. There were 29 credit unions in that range for all commercial loans last year.
Lenders that originate at least 100 loans per year must collect data starting Jan. 1, 2026. There were 179 credit unions with 100 to 499 total commercial loans last year.
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 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.
“Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program,” CFPB Director Rohit Chopra said. “This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly.”
The CFPB has said most of the data is already collected by lenders. But both NAFCU and CUNA have argued that collecting the data would be hard for many credit unions, raising lending costs that would be have to be passed on to borrowers.
“Credit unions fully support efforts to provide all members with fair and equitable financial opportunities, but we believe the size and scope of this rulemaking may have unintended impacts on the small business lending market,” CUNA President/CEO Jim Nussle said Thursday. “However, we do appreciate several changes made by the bureau that are intended to ease compliance for the nation’s smallest lenders.”
NAFCU President/CEO Dan Berger said the final rule to implement section 1071 will add significant compliance costs and burdens to business lending, forcing many small credit unions to stop making these loans all together.
“This harms the many rural towns and underserved communities where credit unions and community banks are the only lender left,” Berger said. “The CFPB continues to pursue misguided policies that will hurt the small businesses and consumers they purport to protect.”
However, the rule was praised by Luz Urrutia, CEO of Accion Opportunity Fund, a leading CDFI and nonprofit small business lender,
Urrutia said the costs of compliance are minimal compared to the benefits of added data lenders can use to make better decisions.
“Sunlight is the best disinfectant,” Urrutia said. “Collecting this data will provide clarity on which small businesses are, or are not, getting access to the capital they need — as well as which lenders are positioned to increase lending to America’s diverse entrepreneurs.
“We cannot manage what we do not measure.”