Small Lenders Question Scope, Impact of CFPB’s Proposed Disclosure Rules

Two organizations representing lenders have expressed reservations about a new rule proposed Wednesday (Sept. 1) by the Consumer Financial Protection Bureau (CFPB). The rule, if finalized, would require lenders to disclose information about their lending to small businesses.

Independent Community Bankers of America (ICBA) President and CEO Rebeca Romero Rainey issued a statement saying the organization believes the proposal would apply to too many community banks.

“The bureau’s proposal — covering community banks that originate 25 loans or more — would ensnare even the smallest community banks in rural and other underserved areas, where barriers to credit should be reduced,” she said in the statement. “Imposing any new data collection and reporting requirements on community banks would harm small-business lending at the very time local businesses are working to recover from the COVID-19 pandemic.”

Learn more: CFPB Proposal to Help SMBs Gain Access to Credit

The Credit Union National Association (CUNA) responded to the CFPB proposal, which the bureau says is mandated by Section 1071 of the Dodd-Frank Act, with a post on the CUNA website.

“CUNA supports the goals of Section 1071 to ensure fair and equitable financial opportunities, but also has concerns regarding potential for unintended consequences and substantial compliance costs associated with the finalization of a complex, overly-broad data collection.

“CUNA wrote to the CFPB in December — the early stages of the rulemaking — outlining credit unions’ longstanding support for fair lending laws and emphasizing the needs for financial institutions and consumers to have a clear understanding of regulations and statutes.”

Transparency in the Lending Marketplace 

The CFPB said the proposed new rule is designed to help small businesses gain access to the credit they need and deserve by increasing transparency in the lending marketplace.

It said the proposed rule would provide better information about small business lending by requiring lenders to collect and report information about the credit small businesses seek and obtain, demographic information about small business owners, and how applications are received and their outcomes.

In the text of the proposed rule, the CFPB explains it used a report done by PYMNTS in collaboration with Fundbox to estimate the trade credit market size. Using these figures, the CFPB estimated the trade credit market for businesses under $1 million in annual revenue to total $51 billion in outstanding balances in 2019. For businesses between $1 million and $5 million, it’s $88 billion.

During a press call on the day the proposed rule was announced, CFPB Acting Director Dave Uejio said, “The small business lending rule we are proposing today, if finalized, will help all of us better understand this vital component of the American economy and help ensure that entrepreneurs can access credit free from discrimination and other barriers.”

Uejio said that during the Great Recession and the COVID-19 pandemic, small businesses were hit hard and found it found it difficult to gain access to credit.

Resources for Small Businesses 

“Today’s proposed rule will help us work toward ensuring that credit-worthy small businesses can get the credit they need, when they need it, in times of crisis and in times of prosperity,” Uejio said.

PYMNT research has found that 56.2 percent of small and medium-sized businesses (SMBs) commonly experience cash shortfalls. Among less profitable and younger businesses, the percentage is even higher: 65.5 percent.

On Wednesday, together with the proposed rule, the CFPB also announced the launch of a new Tell Your Story portal that lets small businesses share their stories about applying for credit. These stories, it said, will help inform CFPB’s work.