Industry response: CFPB should proceed with caution on small business lending rule

Mixed responses on request for information

The Consumer Financial Protection Bureau is gearing up to assess the problems small businesses face, starting with a request for information from interested parties.

So far, industry response is mixed, advising the bureau to proceed with caution as it gets to work finding out how much credit small businesses can access, especially those owned by women and minorities.

Under Section 1071 of the Dodd-Frank Act, the CFPB is required to collect data about small business lending to help identify needs and opportunities in the market and to facilitate enforcement of fair lending laws.

Up until this point, there hasn’t been a lot of information available on how small businesses engage with credit markets.

David Pommerehn, vice president, associate general counsel with the Consumer Bankers Association, stated, “CBA member banks are critical to the U.S. small business economy. Banks with assets of more than $1 billion dollars make 70% of the small business bank loans today.” 

He explained that while they stand with the CFPB in its endeavor to better understand the small business lending market, they “urge the bureau to proceed cautiously in its rule-writing process for Section 1071 of Dodd-Frank.”

“As it currently stands, this statutory provision would place considerable and unnecessary burdens on small businesses and lenders, producing a negative effect for all involved and the greater economy,” continued Pommerehn.

The National Association of Federally-Insured Credit Unions Regulatory Affairs Counsel, on the other hand, wrote to the bureau urging it to exempt the credit union industry from any future rulemaking that would require further disclosure of business loan information.

"Credit unions serve distinct fields of membership, and as a result, institution-level data related to women-owned, minority-owned, and small business lending substantially differs in relation to other lenders," stated Andrew Morris, who is on the counsel. "Given the unique characteristics of credit unions and the limits placed on member business loans, the CFPB should seek to exempt credit unions from any future rulemaking that compels disclosure of business loan information."

Morris added the association is concerned about the possibility of increased compliance costs and further restricted lending activities for credit unions that could result from this Dodd-Frank Act requirement.

National Community Reinvestment Coalition Senior Advisor Josh Silver applauded the news, stating Section 1071 is invaluable:

“Here is where an obscure provision, Section 1071, of the Dodd Frank Wall Street Reform and Consumer Protection Act will be invaluable. …Section 1071 requires the CFPB to collect data from lending institutions regarding demographic characteristics of small businesses and to publicly report the data. Vital data to be collected includes the race, gender, and revenue size of the small business. The CFPB also has the discretion to collect data from a wide array of lenders – both banks and non-banks – and to include additional information about loan terms and conditions in the data. “Part of the reason why small businesses experienced a surge of high cost lending, particularly from online lenders, in the last few years is that lending trends remained opaque, cloaked in a veil of secrecy,” said. “Publicly available data pierces that veil and encourages lenders to compete against each other in serving communities with responsible lending. What could be more American and capitalistic than that?”



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