NCRC Urges CFPB To Move Forward With Critical Small Business Lending Transparency Effort And Loan Data Collection
The Requirement Of Small Business Loan Data Collection
Section 1071 of Dodd-Frank required the CFPB to collect small business loan data to women-owned businesses and businesses owned by people of color. Ten years later, groups are still waiting for that requirement to be implemented.
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Yesterday, the National Community Reinvestment Coalition (NCRC) and 49 other community organizations responded to a Consumer Financial Protection Bureau (CFPB) proposal to move forward with a ten-year old requirement to collect application and approval data on loans made to small businesses — an important first step to preventing discrimination in loans made to woman-owned businesses and businesses owned by people of color.
The joint comment called on the Bureau to require banks, credit unions, online lenders and others to collect and report detailed information on a wide variety of credit used by small businesses, including small business credit cards, merchant cash advances and government-backed loans.
“Only a broad rule that applies to all small business lenders, covers all forms of small business credit, and includes all forms of small businesses can provide the necessary market-wide view of the small business lending activity necessary to identify lending trends and harmful practices before they become widespread,” the comment letter said.
The small business loan data collection requirement, known as Section 1071 from its title in the landmark Dodd-Frank banking reforms, required lenders to collect information on the race, ethnicity and gender of a small business owner during the application for small business credit and to publicly report on the action taken on the application. But the CFPB is only now setting rules for the data collection, under a court-ordered deadline following settlement of a lawsuit over the agency’s delays in implementing the 10-year-old law. Because of these delays, the NCRC and the community organizations called on the CFPB to issue a final rule expeditiously in 2021.
Support For The Proposed Rule
In the joint comment with NCRC, the organizations expressed support for much of the proposed rule.
“We believe that in many aspects, the bureau has taken the correct approach in evaluating the efficacy of the data collection options available. However, the bureau has also considered a number of options that will result in data collection gaps that, if adopted, will result in an incomplete picture of the small business market, limit the ability to conduct fair lending testing, and make it more difficult to ensure that lenders are meeting the credit needs of small businesses,” the comment stated.
It also noted the timing of the CFPB proposals, coming during a global economic and public crisis that has significantly impacted small businesses’ financial stability long into the future.
“The coronavirus pandemic has hit small businesses, especially women-owned small businesses and small businesses owned by people of color, particularly hard,” said Jesse Van Tol, CEO of the NCRC. “Having the CFPB take the steps outlined in our joint comment letter will ensure that we fully understand the credit needs of small businesses as we rebuild our nation and work towards a more just economy.”
NCRC also submitted a detailed comment describing how the Bureau and lenders could move forward with this small business loan data collection effort in the coming months.
- Joint comment to the CFPB on Section 1071 small business lending data collection requirements
- NCRC Paycheck Protection Program preliminary analysis underscores the need for equity in small business financing, and for stronger enforcement of fair lending laws