ICBA Policy Resolution: CFPB Small Business Loan Data Collection Rule

Position

  • If legislative repeal of Section 1071 proves infeasible, ICBA urges the CFPB to use its authority under the Dodd-Frank Act to exempt community banks from data collection and reporting, limit any  collection to data points required by statute, and prioritize protecting customer privacy as it considers new data reporting requirements. 
  • ICBA supports the repeal of Dodd-Frank Section 1071 which requires the CFPB to implement HMDA-like data collection and reporting requirements for small business lending.

Background

Dodd-Frank Section 1071 requires the CFPB to implement rules for the collection and reporting of data on financial institutions’ small business lending under the Equal Credit Opportunity Act. Section 1071 requires the collection and reporting of 12 pieces of data in connection with credit applications made by women- or minority-owned businesses of any size as well as all small businesses regardless of ownership, including the race, sex, and ethnicity of the principal owners of the business. Section 1071 also gives the CFPB discretion to require the reporting of any additional information that would assist the Bureau in fulfilling the purposes of the statute. This data collection will impose significant new burdens and costs on community banks.

Moreover, commercial lending is a complex business that cannot be “commoditized” in the way that consumer lending can. Each individual commercial loan has customized terms based on an analysis of numerous factors. Complex lending should not be subject to simplified, rigid analysis, which might give rise to unfounded fair lending complaints. For this reason, the rules under Section 1071 will have a chilling effect on lenders’ ability to price for risk. This, in addition to the expense of data collection and reporting, may drive community banks from the commercial lending market. Community banks provide approximately half of all small business loans under $1 million, and their exit from the marketplace would significantly curb access to small business credit.

The breadth of the data required to be collected and potentially published under the CFPB’s initiatives may make it possible to identify an individual borrower. Consequently, private and potentially embarrassing financial data about applicants could be revealed. This is especially true in rural and underserved areas where the small number of loans and households make it easier to identify individual borrowers. Special consideration should be given to lenders that serve such areas. In October 2018, the Bureau moved the status of this rulemaking from “pre-rule” to “longer-term action,” indicating that it may be several more months before the next step in the rulemaking process.

Staff Contact: Michael Emancipator