The Consumer Financial Protection Bureau proposed a rule governing the collection of small business lending data.
Under the proposal, which would implement Section 1071 of the Dodd-Frank Act, 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. The proposed requirements would apply to a wide range of credit products, including term loans, lines of credit, credit cards, and merchant cash advances.
The rule would apply to a company which originated 25 credit transactions in each of the two preceding calendar years to a small business, which the CFPB would define as one which had $5 million or less in gross annual revenue for its preceding fiscal year. The credit transactions the rule applies to largely follow those laid out in Regulation B, with the exclusion of re-evaluation requests, extension requests, or renewal requests on an existing business credit account, unless the request seeks additional credit amounts; or inquiries and prequalification requests.
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).
They would also 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.
And, under the proposal, lenders would have to 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via a third party), action taken by the lender on the application (originated, approved but not accepted, denied, withdrawn by the applicant, or incomplete), date of action taken, and denial reasons when applicable.
“Small businesses are the primary job creators and wealth builders in communities across the country,” said CFPB Acting Director Dave Uejio. “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.” The rule will help the CFPB and other stakeholders “learn how small enterprises fare when trying to access financing, and what barriers are holding them back from further prosperity,” Uejio said.
The CFPB is asking for feedback on how to define ‘small business’; where to establish an activity threshold for when a lender is required to report data; how to best collect pricing information; whether and how to collect certain information on the sex of the applying business’ owners; how to balance public disclosure with privacy concerns; and the appropriate implementation period.
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 use the data in ongoing fair lending, supervisory and enforcement efforts.
The CFPB also launched a web portal for small business entrepreneurs to share their stories about applying for credit, which the agency plans to use to understand challenges and successes in accessing credit.