WASHINGTON— The Consumer Financial Protection Bureau (CFPB) has finalized rule over collecting data around small business that is being called “arduous” and “overly broad” by the credit union trade associations.
The rule is aimed at implementing Section 1071 under the Dodd-Frank Act and now requires credit unions to collect and report certain data on applications for credit by small businesses. The data to be collected includes information on geographic and demographic data, lending decisions, and the price of credit.
The rule applies to credit unions and CUSOs that originated at least 100 covered small business loans per year to collect and report the data. The new requirements are being phased in, with the CFPPB stating:
- Lenders that originate at least 2,500 small business loans annually must collect data starting Oct. 1, 2024.
- Lenders that originate at least 500 loans annually must collect data starting April 1, 2025.
- Lenders that originate at least 100 loans annually must collect data starting Jan. 1, 2026.
The 100 loan threshold is an increase over the original proposal, in which the threshold had been 25. Other changes in the final rule include removal of the visual observation requirement.
The new rule is partially the result of a 2019 court decision against the CFPB in a lawsuit brought by the California Reinvestment Coalition, which was based around a provision in the 2010 Consumer Financial Protection Act that required lenders to make data available to the public about their small business lending activity. The CFPB, however, never issued rules implementing the requirement and the court had ordered the CFPB to finalize the rule by today, March 31.
‘Aimed at Transparency’
In announcing the final rule, the CFPB said it was required by Congress and is aimed at increasingtransparency in small business lending, promoting economic development, and combatting unlawful discrimination.
“The rule will work in concert with the Community Reinvestment Act, which requires certain financial institutions to meet the needs of the communities they serve,” the Bureau said. “The increased transparency will benefit small businesses, family farms, financial institutions, and the broader economy.”
The CFPB said most of the nation’s 33 million small businesses have a relationship with a local financial institution, but there is currently “limited data” on small business entrepreneurs’ access to credit, and no comprehensive information available about small business lending.
NAFCU: ‘Arduous’ Requirements
NAFCU said the new, final rule will “impose arduous small business lending data collection practices and costs for credit unions,” which would then be passed on to consumers and Main Street.
“The CFPB continues to pursue misguided policies that will hurt the small businesses and consumers they purport to protect,” said NAFCU President and CEO Dan Berger. “The final rule to implement section 1071 ignores valid concerns raised by credit unions and community development groups. It 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. NAFCU will continue to fight for relief to ensure credit unions can effectively support Main Street businesses across the country."
In its analysis of Section 1071, NAFCU said the final rule also “arbitrarily defines” a small business as "any business with prior-year gross annual revenue of $5 million or less," “unnecessarily raising the cost of small business borrowing as we face a recession.”
CUNA Response
CUNA CEO Jim Nussle, meanwhile, said, “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,” said CUNA President/CEO Jim Nussle. “However, we do appreciate several changes made by the bureau that are intended to ease compliance for the nation’s smallest lenders.”
CUNA noted it had earlier filed a comment letter in which it shared its concerns with “the potential for unintended consequences and substantial costs of compliance associated with the creation of a broad data collection where one does not currently exist.”
CFPB: ‘More Insights’
In releasing its final rule, the CFPB said that for decades, the government has assembled data pursuant to congressional mandates on residential mortgages.
“Now, for the first time, data on small business lending will give investors and lenders more insights to identify new opportunities that support economic growth, help policymakers measure the effectiveness of any government programs, and provide a data-driven approach to detect potential discrimination,” the Bureau said.
According to the CFPB, its rule today will:
- Provide a comprehensive view of small business lending.
- Cover diverse forms of credit by all types of lenders.
- Use straightforward definitions and streamlined forms.
- Ensure a Smooth Transition to Collect Small Business Lending Data from Lenders
Focus on Simplification
The CFPB said it has undertaken significant planning to simplify implementation and prepare for the submission of data from thousands of lenders.
“While many of these lenders already report mortgage data, the CFPB recognizes that small business lending has a number of key differences,” the Bureau stated.
To that end, the CFPB said the final rule will:
- Phase in implementation for the largest lenders first.
- Streamline and improve demographic and financial data collection.
- Reduce duplicative reporting requirements.
- Allow for the use of new digital tools developed by industry and technology partners.
- Give extra time to lenders with strong records of service to meet the needs of the communities they serve.
Supplemental Info Coming
The CFPB further said it intends to issue a supplementary proposal that would, if finalized, provide additional implementation time for small lenders that have demonstrated high levels of success in serving their local communities, as measured by their performance under relevant frameworks like the Community Reinvestment Act and similar state laws.
In addition, the CFPB said that to emphasize financial institutions’ obligations to collect this important data it is also issuing a policy statement noting that it intends to focus its supervisory and enforcement activities in connection with the new rule on ensuring that lenders “do not discourage small business loan applicants from providing responsive data, including responses to the requests to provide demographic information about their ownership.”
Bankers Also Push Back
It isn’t just credit unions pushing back on the rule.
Independent Community Bankers of America (ICBA) President and CEO Rebeca Romero Rainey issued a statement saying, “ICBA and the nation’s community banks are deeply frustrated that the CFPB has finalized a rule that will require community banks to burden millions of their small business customers with invasive questions about their business and livelihood. With the finalization of this rule, the Bureau has dramatically exceeded the clear letter of the law and is requiring community banks to collect numerous intrusive data points beyond what Congress mandated, ignoring the concerns we have voiced about data privacy for these small businesses.
“As relationship bankers, community banks look at each small-business loan individually and often in customized terms based on many factors,” Romero Rainey continued. “The CFPB’s rigid data collection requirements will hamper the ability of community banks to tailor loans to meet the unique needs of local businesses.”