CFPB Proposes Rule on Small Business Lending Data Collection
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.
Related Links
Comment Due Date: January 06, 2022
Keywords: Americas, US, Banking, SMEs, Data Collection, Lending, Small Business Lending, Credit Risk, Dodd-Frank Act, Disclosures, CFPB
Previous Article
BoE Survey Finds Cyber-Attacks to be Most Cited RiskRelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards