Washington, D.C. — The Bank Policy Institute (BPI) commented today on a proposed rule by the Consumer Financial Protection Bureau (CFPB) that would implement changes to the Equal Credit Opportunity Act by requiring certain financial institutions to collect and report data on small businesses’ credit applications, including businesses that are owned by women or minorities. The proposed rule defines which institutions would be required to collect data, which institutions would be considered “small businesses,” what data would be requested and proposes general compliance expectations. The objective of Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was to facilitate the enforcement of fair lending laws and enable communities, governmental entities and creditors to identify business and community development needs and opportunities of women-owned, minority-owned and small businesses. BPI supports these objectives and efforts by the CFPB to achieve a final rule consistent with the statute’s intent.
“Small businesses provide economic opportunities to local communities, especially for women and minorities, and serving the diverse needs of these businesses starts with having the right data,” stated Paige Pidano Paridon, senior vice president and associate general counsel at the Bank Policy Institute. “BPI is committed to working with the CFPB to develop a final rule that helps to identify the business and community development needs of small businesses and to facilitate fair lending enforcement.”
In its letter, BPI recommends seven guiding principles that the final rule should adhere to that would help the Bureau better achieve the objectives of Section 1071:
- Provide additional time for companies to comply with the new rules so that small business lending isn’t unnecessarily interrupted or suspended while companies work to implement changes to existing business practices. The new rules are broader than the previous changes made to reporting requirements under the Small Business Regulatory Enforcement Fairness Act of 1996, which came with a two-year implementation period. The current rule grants only 18 months.
- Simplify certain aspects of the proposal, including by adopting — as proposed — a simplified size threshold for determining what businesses qualify as small businesses based on gross annual revenues; permitting financial institutions to collect and report applicant-provided data, without verification, in all circumstances; and limiting the non-statutory data points that financial institutions will be required to collect and report. A rule that is relatively simple to implement will promote industry compliance and encourage applicants to provide the requested data voluntarily by limiting the friction of the collection process and mitigating privacy concerns.
- Ensure the collection and reporting of accurate and reliable data that is comparable across a broad range of small business borrowers and lending products, not susceptible to misinterpretation, and useful for monitoring for potential discrimination in small business lending. For example, requiring institutions to determine and report a small business owner’s race or ethnicity based on visual observation or surname would generate inaccurate, unreliable and inconsistently-reported data.
- Respect applicant preferences and choices and clarify that financial institutions can rely on applicant-provided data in all circumstances, including by respecting the decision of certain applicants not to provide race or ethnicity data and not requiring institutions to determine and report a small business owner’s race or ethnicity based on visual observation or surname.
- Provide additional tailoring of the rule’s scope and coverage, including by excluding additional transactions and circumstances from the rule’s coverage. Specifically, BPI urges the Bureau to exclude from the definition of “covered application” applications for credit line increases and to exclude from the definition of “covered credit transaction” HMDA-reported transactions and overdraft lines of credit, among others. Collecting data in connection with these transactions and circumstances would not further the purposes of section 1071.
- Provide transparency about the data that will ultimately be shared publicly. Requiring public comment and rulemaking before determining which data will be made public would significantly help to address privacy concerns among applicants and may increase applicants’ willingness to provide certain demographic data.
- Provide clear guidance to facilitate compliance and provide flexibility to give regulated entities options for satisfying the rule’s requirements, including — for example — by establishing a safe harbor for all applicant-provided data.
To access a full copy of the letter, please click here.
About Bank Policy Institute.
The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.