CFPB Finalizes Rule on Small Business Lending Data
Last week, the Consumer Financial Protection Bureau (CFPB) finalized a rule that they say will increase transparency with small business lending, fight against unlawful discrimination, and promote economic development. The rule will work in conjunction with the Community Reinvestment Act, which requires specific financial institutions to meet the needs of the communities they serve.
“Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program,” said Rohit Chopra, CFPB Director. “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 rule will provide a comprehensive view of small business lending, as lenders will submit data points mandated by Congress. It will cover closed-end loans, business credit cards, online credit products, lines of credit, and merchant cash advances by banks and other lenders. Banks, credit unions, and savings associations will be required to collect and report data.
To ensure a smooth transition to collecting small business lending data, the CFPB plans to phase in implementation for the biggest lenders first. According to Ballard Spahr, the first “compliance date tier” is on October 1, 2024 for financial institutions with at least 2,500 covered originations in 2022 and 2023.
The CFPB also plans to streamline the collection of demographic and financial data, reduce duplicative reporting requirements, allow new digital tools to be used by technology and industry partners, and give additional time to lenders that have strong records of service to meet the needs of the communities they serve.
Representative Patrick McHenry (R-N.C.), Chairman of the House Financial Services Committee (HFSC), criticized the Bureau’s action, saying that “by imposing burdensome reporting requirements on smaller lenders, Director Chopra is jeopardizing the privacy and security of small business owners’ personal and financial data.”
However, Congresswomen Maxine Waters (D-Calif.) and Nadia Velázquez (D-N.Y.) came out supporting the CFPB’s rule, saying that it will “shine a light on disparities in lending to small business owners and help Congress understand how to ensure that banks and other lenders are meeting the credit needs of all of our nation’s small businesses.”