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Advocates praise new rule’s potential to create transparency, while critics worry about increased regulatory burden on credit unions and banks.
Democrats, consumer groups and progressive organizations are praising the CFPB’s final rule requiring financial institutions to report their small business lending—a regulation that has been panned by credit union and banking trade groups.
“This critical rule will shine a light on disparities in lending to small business owners and help Congress understand how to ensure that banks and other lenders are meeting the credit needs of all of our nation’s small businesses—especially those that are women-owned and minority-owned,” House Financial Services Committee ranking Democrat Rep. Maxine Waters of California and Rep. Nydia Velazquez of New York, the ranking Democrat on the House Small Business Committee, said.
They continued, “This transparency will promote competition and help lenders, especially community financial institutions, identify new opportunities to serve the needs of small businesses.”
Backstory and Context
The CFPB released its long-awaited final rule requiring credit unions, banks and other financial services organizations to provide the agency with demographic information about their small business lending. Lenders making more than 100 covered small business loans would be required to report the data, an increase from the 25-loan threshold that was included when the agency first proposed the regulation.
The final rule also omits a provision that would have pushed financial institution employees to determine the sex, race or ethnic makeup of prospective borrowers if those borrowers declined to make that identification themselves.
Credit union trade groups have criticized the rule, contending that it will increase the regulatory burden on financial institutions and that it may have the unintended consequences of driving some credit unions out of the small business lending market.
In fact, in advance of the rule being released, a House subcommittee held a hearing raising the question of whether the rule could spell an end to relationship banking.
Support for the Rule
However, several groups said that is unlikely to be the case.
“The absence of reliable lending data has obscured the full scope of challenges small businesses face in securing the capital they need to sustain and scale their entrepreneurial efforts,” the Center for Responsible Lending, the National Association for Latino Community Asset Builders and the National Coalition for Asian Pacific Community Development, wrote, in a letter to the House Small Business Committee subcommittee that held the hearing.
The letter continues, “Data on the availability of affordable credit based on the type and location of businesses can help policymakers and lenders develop targeted programs to address inequities in access and ensure that small businesses can obtain the capital they need to realize their full potential.”
Officials from Inclusiv agreed.
“The CFPB’s commitment to making small business lending transparent will help mission-driven lenders understand the small business lending landscape and find opportunities to close lending gaps and address disparities,” the organization, which represents CDFI credit unions, stated.
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