The Consumer Financial Protection Bureau released its final rule on banks’ lending data reports, addressing industry concerns by easing the threshold for lenders that must submit small business loan demographic information.
Under the rule released Thursday, only those lenders that issue 100 small business loans each year must collect and report data about small business loan recipients’ race, ethnicity, gender, and other information.
The CFPB’s initial proposal—to apply the requirement to firms that make at least 25 loans a year—caused lenders’ outcry that the threshold was too low.
The rule, mandated by Section 1071 of the Dodd-Frank Act, would still capture demographic data on more than 95% of small business loans issued in the US each year, the CFPB said.
“This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly,” CFPB Director Rohit Chopra said in a statement.
The final rule also was revised to require demographic information provided only by borrowers themselves. Lenders were concerned that the initial proposal had provisions that could have forced loan officers to make judgments about a potential borrower’s race, gender, ethnicity or other factors, if the applicant didn’t provide that data.
The rule also clearly defines what constitutes a small business, only requiring lenders to report data on loans issued to firms with gross revenue under $5 million in the previous fiscal year.
The CFPB emphasized that the requirement also applies to all nonbank lenders—including credit unions, savings associations, and fintechs.
Small lenders will have additional time to phase in the rule.
Lenders that issue at least 2,500 small business loans each year will have to begin collecting data on Oct. 1, 2024. Those that issue at least 500 small business loans will have to begin collecting data on April 1, 2025.
And small lenders issuing between 100 and 500 small business loans each year won’t have to start collecting data until Jan. 1, 2026.
In addition, the CFPB is working on a supplementary proposal that would give more compliance time for small lenders that already score well on providing loans to minority- and women-owned small businesses.
The CFPB took other steps to simplify reporting. The final rule waives a requirement to report any data about loans that lenders supply under the Home Mortgage Disclosure Act.
The agency is also allowing lenders to use tools developed by third-party firms or industry groups to improve data reporting. The CFPB provided a model form that lenders can use for reporting.
“Increased transparency around small business lending can boost lending to underserved smalI businesses in the same way that better mortgage data increased lending to Black and Latinx borrowers,” Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, said in a statement.
The CFPB’s model form, standards for reporting and making new requirements compatible with existing reporting requirements make the rule “largely beneficial to helping ETA members provide loans to small businesses,” said Scott Talbot, senior vice president for government relations at the Electronic Transactions Association, referring to its payments tech company members.
The CFPB is required to make small business data public, but is still working on ways to anonymized them for borrowers’ privacy.
The agency said it plans to use enforcement tools to ensure that some lenders don’t discourage loan applicants from providing data.
The 1071 rule has had a long path to completion.
Included in Dodd-Frank, the CFPB didn’t release a proposal until the California Reinvestment Coalition sued the agency. They eventually settled and agreed to a March 31 deadline to release a final rule.
Republican lawmakers and the Independent Community Bankers of America, a trade group for small banks, sought to delay the rule.
But the CFPB noted that a pending proposal from the Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency relies on the 1071 data collection to evaluate banks’ lending and investment into low- to moderate-income communities.
A CFPB official said on a call with reporters Thursday that any potential lawsuit from industry to block the rule could have implications for the banking agencies’ attempts to rewrite rules for the Community Reinvestment Act, a federal law that seeks to encourage lending to underserved communities.
