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    CFPB to Develop Rules for Small Business Lending and Credit Models

    February 23, 2022

    The U.S. Consumer Financial Protection Bureau (CFPB) announced that it will be working together with the Federal Trade Commission to ensure that small businesses are treated fairly when it comes to accessing loans. CFPB is developing regulations to implement the congressional directive in Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and report to CFPB certain data on applications for credit by small businesses. Once the rule is finalized, regulators will be better able to understand the landscape of credit availability to small businesses, which for too long have had to rely on opaque business credit reporting agencies as gatekeepers of financing.

    Additionally, CFPB and other federal agencies issued a joint statement encouraging lenders to explore opportunities available to them to increase credit access through special purpose credit programs to better serve the historically disadvantaged individuals and communities. These federal agencies are the Board of Governors of the Federal Reserve System (FED), the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Federal Housing Finance Agency (FHFA). CFPB also outlined options to ensure that computer models used to help determine home valuations are accurate and fair. The options will now be reviewed to determine their potential impact on small businesses. Dodd-Frank Act requires CFPB and other federal agencies to develop regulations for quality control standards for automated valuation models, which include computerized models used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer’s principal dwelling.

    The Dodd-Frank Act has added Section 1125 to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which requires that automated valuation models meet quality control standards designed to ensure a high level of confidence in the estimates produced by automated valuation models, protect against the manipulation of data, seek to avoid conflicts of interest, require random sample testing and reviews, and account for any other such factor that the agencies determine to be appropriate. The aforementioned federal agencies are working together to develop a proposed rule to implement Section 1125 of FIRREA. However, prior to issuing a proposed rule, CFPB is required to assess the impact on small entities that are likely to be directly affected by the proposals under consideration. Therefore, CFPB is requesting feedback on the outlined options from small entities or their representatives by April 08, 2022. CFPB requests other stakeholders wanting to provide written feedback to do so no later than May 13, 2022.


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    Keywords: Americas, US, Banking, SME, Lending, Credit Risk, Mortgage Lending, Credit Risk Modeling, Artificial Intelligence, Regtech, CFPB

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