The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act. Consistent with section 1071, CFPB is proposing to require covered financial institutions to collect and report data on applications for credit for small businesses, including those that are owned by women or minorities. This rule would, if finalized, require lenders to disclose information about their lending to small businesses, allowing community organizations, researchers, lenders, and others to better support small business and community development needs. Under the proposal, lenders would be required to report the amount and type of small business credit applied for and extended, demographic information about small business credit applicants, and key elements of the price of the credit offered. The comment period on this proposal ends on January 06, 2022.
CFPB is proposing to apply the Section 1071 requirements to “covered financial institutions.” A covered financial institution would be a financial institution that satisfies an origination threshold. For this purpose, a financial institution would be any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in any financial activity. A financial institution would satisfy the origination threshold and thus be a covered financial institution, if it originated at least 25 credit transactions that would be “covered credit transactions” to “small businesses” in each of the two preceding calendar years. The final rule to implement Section 1071 would become effective 90 days after publication in the Federal Register, though compliance with the rule would not be required until approximately 18 months after publication in the Federal Register. The key proposals of CFPB include the following:
- To permit creditors that are not covered financial institutions to voluntarily collect and report data under Section 1071 in certain circumstances.
- To require that covered financial institutions collect and report data regarding covered applications from small businesses for covered credit transactions.
- To define a “covered application”—which would trigger data collection and reporting and related requirements—as an oral or written request for a covered credit transaction that is made in accordance with procedures used by a financial institution for the type of credit requested.
- To define a “small business,” about whose applications for credit data must be collected and reported, by reference to the definitions of “business concern” and “small business concern” as set out in the Small Business Act and Small Business Administration (SBA) regulations.
- To address the data points that must be collected and reported by covered financial institutions for covered applications from small businesses. Many of the proposed data points are specifically enumerated in section 1071; for the others, CFPB is proposing to use the authority granted by Section 1071 to require financial institutions to collect and report any additional data that CFPB determines would aid in fulfilling the purposes of Section 1071.
- To implement the requirement in Section 1071 that certain data collected be shielded from underwriters and certain other persons; CFPB refers to this as the “firewall.”
- To require that data be collected on a calendar year basis and reported to CFPB on or before June 01 of the following year. Financial institutions reporting data to CFPB would be required to provide certain identifying information about themselves as part of their submission. CFPB is proposing to provide technical instructions for the submission of data in a Filing Instructions Guide and related materials.
Comment Due Date: January 06, 2022
Keywords: Americas, US, Banking, SMEs, Data Collection, Lending, Small Business Lending, Credit Risk, Dodd-Frank Act, Disclosures, CFPB
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