Sept 1 -- The Consumer Financial Protection Bureau (CFPB) invites public comment on a proposed rule, mandated by Dodd-Frank, 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. See https://www.consumerfinance.gov/about-us/newsroom/cfpb-proposes-rule-to-shine-new-light-on-small-businesses-access-to-credit/
CFPB proposes a new rule designed to help small businesses gain access to the credit they need and deserve by increasing transparency in the lending marketplace. This rule, mandated by Congress in the Dodd-Frank Act, would, if finalized, require lenders to disclose information about their lending to small businesses, allowing community organizations, researchers, lenders, and others to better support small business and community development needs. Under the proposal, lenders would be required to report the amount and type of small business credit applied for and extended, demographic information about small business credit applicants, and key elements of the price of the credit offered.
To provide better information about small business lending, the CFPB is proposing to require lenders to collect and report data about credit applications from small businesses, including women-owned and minority-owned small businesses. The data submitted by lenders would shed light on whether they are meeting the needs of the nation’s small businesses. The proposed requirements, which would apply to a wide range of credit products, including term loans, lines of credit, credit cards, and merchant cash advances, would help the CFPB and the public at large, better understand:
Information about the credit small businesses seek and obtain: Data regarding small business applications for credit would help us better understand small business lending. Lenders would be required to report information about the purpose, type, and amount of credit being applied for, the amount approved or originated, census tract, gross annual revenue, industry code, number of workers, time in business, number of principal owners, and key elements of the cost of the credit (the interest rate and certain fees).
Demographic information about small business owners: Demographic information about an applicant’s owners would help the government, lenders, and the public identify areas of business and community development needs, new lending program opportunities, and potential fair lending concerns. Lenders would be required to report whether the business is minority-owned or women-owned, and the ethnicity, race, and sex of the applicant’s principal owners. Under the proposal, applicants may decline to answer these questions if they so choose. Lenders would be required to tell applicants that they cannot discriminate on the basis of this demographic information.
How applications are received and their outcomes: Understanding how applications are received, and their outcomes, would, for the first time, shed light on application-level information related to small business lending. The CFPB is proposing that lenders report information about the application date, method the application was received (in-person, telephone, online, or mail), recipient of the application (the lender or its affiliate, or submitted via a third party), action taken by the lender on the application (originated, approved but not accepted, denied, withdrawn by the applicant, or incomplete), date of action taken, and denial reasons when applicable.
The CFPB is proposing to publish application-level data. However, to address privacy concerns, the CFPB is proposing to modify or withhold data from public disclosure based on an assessment of the risks to privacy interests and the benefits of publication.
The CFPB encourages comment on its proposal. In addition to comments on the overall proposal, the CFPB specifically seeks comments on a variety of issues, including:
How to define a small business for purposes of this data collection;
Where to set the activity threshold for when a lender is required to report information;
How best to collect pricing information for transparency into the cost of small business credit;
Whether and how to collect certain information about the sex of an applicant’s principal owners;
How to balance the benefits of public disclosure and the risk to privacy interests; and
The appropriate implementation period.
Specific and detailed feedback and suggestions for ways to improve the rule will be especially helpful as the CFPB works to finalize the rule in a timely manner. The comment period is 90 days from publication in the Federal Register, and the CFPB does not anticipate a deadline extension. All comments will be carefully considered. [Note: As of Sept 17, it does not appear that the proposed rule has been published in the Federal Register.]