WASHINGTON— The Consumer Financial Protection Bureau (CFPB) has proposed a new rule it said is designed to help small businesses “gain access to the credit they need and deserve by increasing transparency in the lending marketplace.” But NAFCU is raising concerns over the burden the new reporting requirements may create.
According to the Bureau, the rule, mandated by 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, the CFPB said 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.
Primary Job Creators
The CFPB said it has also launched a web portal for small business entrepreneurs to share their stories about applying for credit, which will help the CFPB understand small business entrepreneurs’ challenges and successes in accessing credit.
“Small businesses are the primary job creators and wealth builders in communities across the country,” CFPB Acting Director Dave Uejio said in a statement. “After homeownership, small business ownership is the primary means by which families and communities build wealth. Yet too often, small business development is starved for want of access to responsible, fairly priced credit. Today, we are proposing a rule that would help us all learn how small enterprises fare when trying to access financing, and what barriers are holding them back from further prosperity. Over the next three months, we look forward to hearing from small business entrepreneurs, community organizations, researchers, lenders, and others about how we can improve on this proposal to make sure the final rule serves the purposes Congress had in mind when it mandated this rulemaking in 2010.”
NAFCU Response
In response to the CFPB announcement, NAFCU President/CEO Dan Berger said, “Credit unions support fair and affordable access to credit in the small business lending market. The proposed rulemaking, however, raises concerns about how significant new data collection requirements will impact borrowers and smaller financial institutions like credit unions. As the Bureau continues to move this proposed rulemaking through the process, NAFCU will work to ensure that the complexities of section 1071 data collection are minimized in order to ensure credit availability and lender participation in the small business lending marketplace.”
Congressional Mandate
Saying Section 1071 of the Dodd-Frank Act requires the CFPB 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, the Bureau said the data that would be collected under the proposed rule would assist the CFPB and other stakeholders to identify and address difficulties small businesses experience in trying to access credit, and how current lending practices can be improved.
“Policymakers, community groups, investors, and bankers will be able to use the data to design more effective small business and community development programs across the nation,” the Bureau said. “Additionally, the CFPB and other government agencies will be able to use the data to aid their ongoing fair lending, supervisory, and enforcement efforts.
‘Better Information’
The Bureau said to provide better information about small business lending, it is proposing to require lenders to collect and report data about credit applications from small businesses, including women-owned and minority-owned small businesses.
Specifically, it said it will look to gather:
- Information about the credit small businesses seek and obtain
- Demographic information about small business owners
- How applications are received and their outcomes
The CFPB said it is proposing to publish application-level data, but to address privacy concerns it 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.
Specific Comments Sought
The CFPB said it is specifically seeking comments on:
- 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
- The appropriate implementation period.
New Portal Launched
The CFPB said it has also launched a new “Tell Your Story” portal, which lets small business entrepreneurs share their stories about applying for credit.
“The shared stories of challenges and successes in the credit marketplace will help inform the CFPB’s work, including consumer education, supervision, and enforcement, to protect small business entrepreneurs and create a fairer lending marketplace,” the Bureau said.