ICBA believes that rules under Dodd Frank Section 1071, which requires the CFPB to implement HMDA-like data collection and reporting requirements for small business lending, will have a chilling effect on community banks’ ability to price for risk, which allows them to meet the unique needs of local small businesses.
ICBA supports legislation that would exempt community banks and mission-oriented banks from Dodd-Frank Section 1071.
Complex lending should not be subject to simplified, rigid analysis, which might give rise to unfounded fair lending complaints.
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.
In defining which businesses are covered applicants under the rule, ICBA urges the Bureau to define a “small business” as one with gross annual revenue of $1 million or less. This is a simple, bright-line definition that will make compliance more efficient and straightforward.
If the Bureau finalizes a 1071 rule, it should stagger the implementation date so that smaller community banks are among the last entities required to collect and report the data under the rule.
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. Small business lending is a complex business that cannot be “commoditized” in the same way as consumer lending. Each small business loan is unique and has customized terms based on an analysis of numerous factors.
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. Even if individual borrowers are not identified, the perception of that risk is sufficient to drive small business borrowers to larger banks, larger cities, or online lenders to remain anonymous.
The Bureau published an Outline of Proposals in fall 2020 and a Small Business Regulatory Enforcement Fairness Act (“SBREFA”) report. The Outline of Proposals contemplates a definition for “small business” as a business with gross annual revenues of $1 million of less. Banks would only have to collect and report data made by “small business” applicants. The Outline also solicited comment on the compliance date and implementation period for the final rule. The Bureau is expected to publish a proposed rule as early as summer 2021.