Changes to its Regulation B implementing the Equal Credit Opportunity Act (ECOA), including removal of provisions recognizing “disparate impact” and a narrowing of its small-business loan data collection requirements, are proposed by the Consumer Financial Protection Bureau (CFPB) with public comments due Dec. 15.
In one Federal Register notice Thursday, the CFPB said, among other things, that it’s proposing to remove language from Reg B and accompanying commentary related to the “effects test” – which is how the rule addresses liability for actions having a disparate impact on protected groups – and to add language that the “effects test” is not recognized by the ECOA.
Other proposed changes would narrow the application of the rule’s provisions barring “discouragement” of applicants or prospective applicants. They would also add specific language barring special purpose credit programs (SPCPs) offered by for-profit organizations from using the common characteristics of race, color, national origin, or sex as eligibility criteria – apparently barring provision of products to consumers based on their ECOA-protected status.
Presuming the changes are finalized, the bureau proposes that the revisions take effect 90 days after that.
The other proposal published Thursday would revise a portion Reg B on small-business loan data collection, which has long been subject to litigation. Noting that it wants to take an “incremental” approach with this rule, it says it is reconsidering coverage of certain credit transactions and financial institutions; the small business definition; inclusion of certain data points and how others are collected; and the compliance date.
Specifically, the proposal would exclude merchant cash advances (MCAs), agricultural lending, and small-dollar loans from the definition of covered credit transaction; exclude Farm Credit System (FCS) lenders from coverage; and, among other things. raise the origination threshold from 100 to 1,000 covered credit transactions for each of two consecutive years.
Stating that it believes the rule’s focus, at least initially, “should be truly small businesses,” the bureau also proposes to change the gross annual revenue threshold in the rule’s definition of small business from $5 million or less to $1 million or less.
It says the proposal would extend the compliance date for institutions “that remain covered by the rule” to Jan. 1, 2028.
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