Smaller institutions tell bureau they support rules on reporting of small business lending data

Smaller financial institutions are generally supportive of rules requiring reporting of small business lending data in order to build a better understanding of the lending market, according to feedback released Tuesday by the federal consumer financial protection agency.

The Consumer Financial Protection Bureau (CFPB) said its report on input from smaller institutions that are likely to be directly affected by the information collection through a statutorily mandated (and controversial) rule on small business lending data collection found that the businesses (referred to as “small entity representatives” or SERs) not only support the making of a regulation but also want guidance on how to comply.

“The SERs requested, and the panel agreed that, among other things, the Bureau should issue implementation and guidance materials specifically to assist small financial institutions in complying with an eventual Section 1071 rule, and to consider providing sample disclosure language,” the CFPB said in a release.

The bureau referred to a panel created under the Small Business Regulatory Enforcement Fairness Act (SBREFA), made up of representatives of CFPB, the advocacy office of the Small Business Administration (SBA), and the White House’s Office of Management and Budget (OMB). CFPB said the panel consulted with representatives of small entities likely to be affected directly by the Section 1071 regulation (the SERs).

The SERs also, the CFPB said, provided feedback on the bureau’s proposals under consideration for a proposed rule issued under Section 1071 and the potential economic impacts of complying with those proposals. Both the panel and SERs also discussed regulatory alternatives to minimize potential impacts, the bureau said.

Among the provisions under consideration for an NPRM, according to CFPB, are: scope of the rulemaking; what are “covered lenders” (and the definition of “financial institution”) under the proposal; what are “covered applicants (and the definitions of “small business,” “women-owned business,” “minority-owned business,” and “minority individual”) under the proposal; what are covered products (including definition of “credit”); and the definition of “application.”

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), the CFPB is charged with prescribing “such rules and issue such guidance as may be necessary to carry out, enforce, and compile data pursuant” to section 1071 of the law. That section amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, report, and maintain data regarding applications for credit for women-owned, minority-owned, and small businesses.

However, the rulemaking is itself controversial. On the one hand, those advocating robust reporting requirements argue that availability of more data will help women- and minority-owned small businesses access the capital they need. On the other hand, those opposing the reporting claim financial institutions will not take on the cost of complying with burdensome reporting requirements to borrowers.

The agency has been in the process of developing a final rule since at least as early as May 2017 – which included a two-year “request for information.” That pace, however, was inadequate to some: Last February, a settlement was reached between the CFPB and a California group which had sued the agency in federal court arguing the bureau had failed to issue the rules. Under the terms of the court-approved agreement, the CFPB agreed to a court-supervised process that includes public reporting and specific timetables for the development of the regulation.

Part of that agreement was that the bureau, by the middle of this month (Tuesday is the 15th), the bureau must release a report on input from small businesses that are likely to be directly affected by the information collection regulation.

Following that, the bureau is required to negotiate with the plaintiffs in the lawsuit (the California Reinvestment Coalition [CRC]) to establish a deadline for issuing a notice of proposed rulemaking (NPRM). Once the NPRM comment period ends, the bureau must negotiate with the CRC to set a deadline for issuing the final rule. An effective date will also be outlined in the final rule.

But it is unclear when that NPRM will surface. What is more clear is that next steps in the process will be taken after President-elect Joe Biden takes office in mid-January. He is widely expected to replace current CFPB Director Kathleen Kraninger.

Consumer Financial Protection Bureau Releases Report on Implementing the Dodd-Frank Act’s Small Business Lending Data Collection Requirement