Endorsed Partner LENDERS COVERED BY NEW SMALL BUSINESS DATA RULE BY WILLIAM J. SHOWALTER, CRCM, CRP; SENIOR CONSULTANT; YOUNG & ASSOCIATES, INC.; KENT, OHIO The Consumer Financial Protection Bureau (CFPB) has issued its final rule to implement the rule required by Congress that is intended to increase transparency in small business lending, promote economic development and combat unlawful discrimination. This is probably the last provision of the Dodd-Frank Act of 2010 to be implemented. The CFPB stated that it undertook significant planning to simplify implementation of the new rule and prepare for the submission of data from thousands of lenders. Many of these lenders already report mortgage data under the Home Mortgage Disclosure Act (HMDA). The CFPB recognizes that small business lending has important differences from mortgage lending. Background In 2010, Congress enacted requirements that would result in lenders making data available to the public about their small business lending activity in Section 1071 of the Consumer Financial Protection Act, as part of the Dodd-Frank Act. However, the CFPB did not issue rules to implement this requirement. The California Reinvestment Coalition sued the CFPB in 2019, leading to a court order requiring the CFPB to finalize the rule by March 31, 2023. The CFPB has undertaken significant planning to simplify implementation and prepare for the submission of data from thousands of lenders. While many of these lenders already report mortgage data, the CFPB recognizes that small business lending has a number of key differences from mortgage lending. After considering a wide range of feedback and thousands of public comments, the CFPB has finalized the rule and planning for implementation. Under the new rule, 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 rule will work in concert with the Community Reinvestment Act (CRA), which requires certain financial institutions to meet the needs of the communities they serve. The increased transparency is expected to benefit small businesses, family farms, financial institutions and the broader economy. Covered Lenders The CFPB is defining the term “financial institution,” consistent with the definition in section 1071 of the Dodd-Frank Act, as any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization or other entity that engages in any financial activity. Under this definition, the requirements of the new rule apply to a variety of entities that engage in small business lending, including depository institutions (i.e., banks, savings associations and credit unions), online lenders, platform lenders, community development financial institutions (CDFI), Farm Credit System lenders, lenders involved in equipment and vehicle financing (captive financing companies and independent financing companies), commercial finance companies, governmental lending entities and nonprofit nondepository lenders. Phased Implementation The CFPB considered a wide range of feedback and thousands of public comments in this rulemaking process. The agency finalized the rule and planned for implementation to take a phased approach. During its rulemaking process, the CFPB found that there were key differences in how large financial institutions would implement the rule, compared to relationship-based local lenders. The CFPB is adopting a tiered compliance date schedule because it believes that smaller and mid-sized lenders would have particular difficulties complying within the single 18-month compliance period in the original proposed rule. So, the final rule takes a phased approach that requires the largest lenders, which account for most of the small business lending market, to collect and report data earlier than smaller lenders. This phased schedule provides for compliance beginning as follows: • Lenders that originate at least 2,500 small business loans annually must collect data starting Oct. 1, 2024. • Lenders that originate at least 500 loans annually must collect data starting April 1, 2025. • Lenders that originate at least 100 loans annually must collect data starting Jan. 1, 2026. The term “covered financial institution” is a financial institution that originated at least 100 covered credit transactions for small businesses in each of the two preceding calendar years (with compliance phased in based on the loan volumes above). Only financial institutions that meet this loan-volume threshold are required to collect and report small business lending data under the final rule. For the phased implementation, lenders are to look at their lending in 2022 and 2023 to determine their coverage. For lenders in the third tier, if the financial institution did not originate at least 100 covered credit transactions for 10 In Touch
RkJQdWJsaXNoZXIy ODQxMjUw