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 small businesses in each of calendar years 2022 and 2023 but subsequently originates at least 100 such transactions in two consecutive calendar years, it must comply with the requirements of this rule, but in any case, no earlier than Jan. 1, 2026. The new rule provides that covered financial institutions may begin collecting applicants’ protected demographic information one year before their compliance date to help prepare for coming into compliance with this final rule. The CFPB is also adopting a new provision to permit financial institutions that do not have ready access to sufficient information to determine their compliance tier (or whether they are covered by the rule at all) to use reasonable methods to estimate their volume of originations to small businesses for this purpose. While the new rule requires data collection and reporting for only those that make at least 100 loans annually, the rule will cover the vast majority of bank small business lending, based on the CFPB’s analysis. In addition, the CFPB notes that lenders originating less than 100 loans per year will still have to adhere to fair lending laws (even though they are not having to report this loan data). Final Rule and Additional Resources The final rule may be accessed by scanning the QR code. https://files.consumerfinance.gov/f/documents/cfpb_1071-final-rule.pdf The CFPB has also developed a number of resources for financial institutions, including: • Filing Instructions Guide (FIG) for reporting the newly required data • Small entity compliance guide • Frequently asked questions (FAQ) • A set of Quick References • Sample data collection form from the regulation • Slide deck from a recent RegCast on the coverage of the rule 14 NEBRASKA INDEPENDENT BANKER
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