NEWS: Many credit unions will have to start collecting and reporting data about the demographics and income of small business loan applicants under a new rule published today by the Consumer Financial Protection Bureau (CFPB).
Under the Dodd-Frank Act, Congress required the CFPB to start collecting data on small business lending decisions – so that officials could look for patterns of discrimination. It has taken the CFPB more than a decade to implement a final rule.
The League commented on the CFPB’s proposed rule more than a year ago, and some of the changes we suggested are implemented in the new rule.
The League will publish an ii Release to summarize the rule in the coming months as we learn more about these significant new requirements.
The rule is found in new Subpart B of the CFPB’s Regulation B, which implements the Equal Credit Opportunity Act.
Important points
The following are some of the key provisions in the new rule.
Covered lenders: The rule will cover credit unions and other lenders making more than 100 covered small business loans per year, which accounts for more than 95% of small business loans by banks and credit unions. A proposed rule would have set this threshold at just 25 loans, something The League opposed.
Non-depository financial institutions, a growing sector accounting for roughly $550 billion in financing to small businesses, will also be required to collect and report data.
“Lenders originating less than 100 loans per year will still be required to adhere to fair lending laws,” the CFPB stressed.
Effective dates: The final rule requires the largest lenders to collect and report data earlier than smaller lenders. Specifically:
- A financial institution must begin collecting data and otherwise complying with the final rule on October 1, 2024, if it originated at least 2,500 covered originations in both 2022 and 2023.
- A financial institution must begin collecting data and otherwise complying with the final rule on April 1, 2025, if it:
- Originated at least 500 covered originations in both 2022 and 2023;
- Did not originate 2,500 or more covered originations in both 2022 and 2023; and
- Originated at least 100 covered originations in 2024.
- A financial institution must begin collecting data and otherwise complying with the final rule on January 1, 2026, if it originated at least 100 covered originations in both 2024 and 2025.
Covered loans: The rule covers closed-end loans, lines of credit, business credit cards, online credit products, and merchant cash advances by banks, credit unions, and other lenders.
Loans reportable under the Home Mortgage Disclosure Act (HMDA) will not need to be reported under the small business lending rule. Certain other types of loans will be exempt, as well.
Covered “small businesses”: The rule defines a “small business” as one with gross revenue under $5 million in its last fiscal year. This “makes it easy for lenders to know on which applications to collect data,” the CFPB said.
Required data points: As with mortgage data reporting required under HMDA, covered lenders will submit data points required by Congress, as well as additional data points that the CFPB says “are typically already included in lender files.”
Demographic information: Small businesses will be able to self-identify as women-, minority-, or LGBTQI+-owned. Lenders will be able to rely on the financial and other information provided by the small business. Loan officers will not be required to make their own determinations of an applicant’s race, ethnicity, or any other demographic information.
Streamlined forms: The rule includes a streamlined sample form for lenders to use, if they choose, to collect demographic data from small business credit applicants.
Use of new digitized tools: The rule allows financial institutions to work with third parties, including industry consortia, to develop services and technologies that will aid in collecting and reporting data, the CFPB noted. “While individual lenders are ultimately responsible for ensuring fair and accurate collection and reporting, the rule permits them to work with third parties, including industry consortia and other partners, to collect and report data in ways that are tailored to their business model. For example, the CFPB plans to provide Application Programming Interfaces in an open-source environment to spur the development of accurate and efficient data reporting tools.”
Supplementary proposal expected: The CFPB intends to issue a supplementary proposal that would, if finalized, provide additional implementation time for small lenders that have demonstrated high levels of success in serving their local communities
Resources: The CFPB is making a number of resources available to help lenders prepare for compliance.
- Read today’s final rule.
- Read a fact sheet about the rule.
- Read an executive summary of the final rule.
- Read the enforcement policy statement.
- The CFPB is providing many plain language resources to help lenders prepare to comply with the rule. Additional technical resources, such as an online filing instructions guide, are intended to facilitate data collection and reporting. These webpages will be updated to include additional resources in the coming months, and lenders may sign up to receive updates and ask technical and compliance questions about the final rule by email.