New small business lending reporting rule finalized after 13 years in the making

A new rule requiring lenders to collect and report information about the small business credit applications they receive, including geographic and demographic data, lending decisions, and the price of credit, was finalized Thursday by the federal consumer financial protection bureau.

The rule by the Consumer Financial Protection Bureau (CFPB), it said in a release, is aimed at increasing transparency in small business lending, among other things. The agency said that the rule, for the first time, will provide data on small business lending that, it asserted, “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 also asserted that the new rule would have, had it been in effect, benefitted the Paycheck Protection Program (PPP). That program, instituted at the height of the financial impact of the coronavirus crisis in 2020, was designed to help businesses keep their workers paid. The bureau said the PPP would have benefited “from the kind of small business lending data that will be captured by this rule. Such data could have led to better targeted, more effective lending during the COVID-19 public health emergency,” the agency said.

The bureau also said it expects the new rule to work in concert with the anti-redlining Community Reinvestment Act (CRA).

The new rule is partly the outcome of a 2019 court decision against the bureau in a lawsuit brought by the California Reinvestment Coalition, the agency said. The agency noted that the lawsuit revolved around a provision in the 2010 Consumer Financial Protection Act (CFPA) which required lenders to make data available to the public about their small business lending activity. However, the CFPB never issued rules implementing the requirement.

The court ordered the CFPB to finalize the rule by tomorrow, March 31.

The bureau said largest lenders would face implementation of the rule first under a phase in approach. Smaller lenders would follow.

“Specifically, lenders that originate at least 2,500 small business loans annually must collect data starting October 1, 2024,” the bureau said.

Lenders that originate at least 500 loans annually must collect data starting April 1, 2025. Those that originate at least 100 loans annually must collect data starting Jan. 1, 2026.

“While the rule announced today requires data collection and reporting for those that make at least 100 loans annually, the rule will still cover the vast majority of bank small business lending, based on the CFPB’s analysis,” the bureau said. “Lenders originating less than 100 loans per year will still be required to adhere to fair lending laws.”

Other aspects of the new rule include, the bureau said:

  • Loans reportable under the Home Mortgage Disclosure Act (HMDA) will not need to be reported under the small business lending rule.
  • The rule is designed to work in concert with rules under CRA reporting requirements. The bureau noted that proposed revisions to CRA rules (awaiting final approved by the federal bank regulators), data submitted under the CFPB’s rule would satisfy the relevant CRA requirements.
  • The bureau is developing 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.”

CFPB Finalizes Rule to Create a New Data Set on Small Business Lending in America