It’s finally here. After a decade of anticipation of the Dodd-Frank Act’s requirement for the CFPB to establish small business data reporting, the CFPB has released a proposal on how they plan to implement the requirement of the Dodd-Frank Act.
As you would expect, this topic will be covered in our Fall 2021 Quarterly Compliance Update, which should be available in mid-to-late October, 2021.
On 9/1/2021, the CFPB issued a proposal that would require lenders to disclose information about their lending to certain small businesses. The proposed requirements, which would apply to a wide range of credit products, including term loans, lines of credit, credit cards, and merchant cash advances, would help the CFPB and the public at large, better understand:
Information about the credit small businesses seek and obtain: Data regarding small business applications for credit would help us better understand small business lending. Lenders would be required to report information about the purpose, type, and amount of credit being applied for, the amount approved or originated, census tract, gross annual revenue, industry code, number of workers, time in business, number of principal owners, and key elements of the cost of the credit (the interest rate and certain fees).
Demographic information about small business owners: Demographic information about an applicant’s owners would help the government, lenders, and the public identify areas of business and community development needs, new lending program opportunities, and potential fair lending concerns. Lenders would be required to report whether the business is minority-owned or women-owned, and the ethnicity, race, and sex of the applicant’s principal owners. Under the proposal, applicants may decline to answer these questions if they so choose. Lenders would be required to tell applicants that they cannot discriminate on the basis of this demographic information.
How applications are received and their outcomes: Understanding how applications are received, and their outcomes, would, for the first time, shed light on application-level information related to small business lending. The CFPB is proposing that lenders report information about the application date, method the application was received (in-person, telephone, online, or mail), recipient of the application (the lender or its affiliate, or submitted via a third party), action taken by the lender on the application (originated, approved but not accepted, denied, withdrawn by the applicant, or incomplete), date of action taken, and denial reasons when applicable.
Similar to HMDA reporting, the CFPB is proposing to publish application-level data. However, to address privacy concerns, the CFPB is also proposing to modify or withhold data from public disclosure based on an assessment of the risks to privacy interests and the benefits of publication.
The CFPB encourages comment on its proposal, and specifically seeks comments on a variety of issues, including:
How to define a small business for purposes of this data collection;
Where to set the activity threshold for when a lender is required to report information;
How best to collect pricing information for transparency into the cost of small business credit;
Whether and how to collect certain information about the sex of an applicant’s principal owners;
How to balance the benefits of public disclosure and the risk to privacy interests; and
The appropriate implementation period.
Comments will be accepted for 90 days from publication in the Federal Register, and the CFPB does not anticipate a deadline extension.
The CFPB announcement can be found here.
The full proposed rule can be found here.
A summary of the proposed rule can be found here.