CFPB issues its final rule on small business lending

The Consumer Financial Protection Bureau (CFPB) has finalized the rule on small business lending, which fulfills a mandate from Congress and aims to increase transparency while mitigating discrimination.

“Lenders will collect and report information about the small business credit applications they receive, including geographic and demographic data, lending decisions, and the price of credit,” the CFPB said in an announcement issued this week about the rule.

It will also work in concert with the Community Reinvestment Act (CRA), which requires financial institutions to meet the needs of the communities they serve. The increased transparency will benefit small businesses, family farms, financial institutions, and the broader economy, the CFPB said

One factor that helped inform the new rule is how certain businesses were impacted by the COVID-19 pandemic, according to Rohit Chopra, the CFPB director.

“Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program,” Chopra said. “This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly.”

The new rule partially aligns small business lending standards with the lending standards for the mortgage industry, including the requirement for lenders to submit data points required by Congress in addition to data points already included in lender files.

“For decades, the government has assembled data pursuant to Congressional mandates on residential mortgages,” the CFPB said. “Now, for the first time, data on small business lending will give investors and lenders more insights to identify new opportunities that support economic growth, help policymakers measure the effectiveness of any government programs, and provide a data-driven approach to detect potential discrimination.”

Duplicative reporting requirements are also reduced by the new rule, as loans reportable under the Home Mortgage Disclosure Act (HMDA) will not need to be reported under the small business lending rule.

In addition, the rule is designed to work in tandem with CRA requirements, and data submitted under this new rule satisfies CRA requirements, according to the Bureau.

The CFPB released supporting documentation with the announcement, which includes the final rule, an associated fact sheet, an executive summary, and an enforcement policy statement.

The CFPB has been examining this issue intermittently for several years. Inaugural CFPB Director Richard Cordray noted in 2017 that small business lending requirements should mirror those of the mortgage industry, which initially drew a mixed response from the impacted industries.