In May, the Consumer Financial Protection Bureau announced that it would seek public comment on proposed rules for small business lending. This marks the bureau’s first foray into regulating small business loans, and the announcement raises many questions for lenders that deal with small business. The formal request for comment can be found here.
The CFPB’s action is based on a provision of the Dodd-Frank financial reform law that requires lenders to collect and report data on credit sought by small businesses, minority-owned businesses, and women-owned businesses. With the aim of helping the government enforce fair lending laws, the law directs financial institutions to compile 13 separate data points from lenders. These include the amount of funding sought and approved, the type and purpose of the financing, and the location and most recent annual revenue of the applicant. The law allows the agency to specify “any additional data that the bureau determines would aid in fulfilling the purposes” of the law. The bureau, in its request, seeks guidance from the public about how lenders define a small business, how they collect information from prospective borrowers now, and the challenges they anticipate in having to collect the data required by Dodd-Frank.
“Small businesses fuel America’s economic engine, create jobs, and nurture communities. Yet little is known about how well the lending market serves their financing needs,” said CFPB Director Richard Cordray. “This inquiry will help us learn how we can best fulfill our duty to collect and report information on small business lending.” Cordray noted that very little data is available on small business lending. It wasn’t until 2010, for example, that banks were required to report the size of their small-business loan portfolio on a regular basis, and even the definition of a small business loan is unclear.
The day the CFPB announced its inquiry, the Independent Community Bankers of America, a trade association representing small banks, expressed concerns. “The CFPB’s data-collection and reporting mandates will compound existing regulatory and paperwork burdens, to the detriment of economic and job growth,” the association said in the statement. They were particularly concerned with the bureau’s discretionary authority to demand additional lending data.
“We’re concerned about any data collection, considering they don’t even know how to define what a small business loan is,” the ICBA said. “And unlike mortgage lending, where there’s a very discrete set of products, every small business loan is unique.”