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CFPB Turns Focus to Small Business Lending; Banking Trade Groups Object

May 16 – The Consumer Financial Protection Bureau is looking into ways to gather and use new and existing information to identify the financing needs of small businesses, especially those owned by women and minorities.

The agency has issued a Request for Information asking for public feedback to help the bureau better understand how to bridge this information gap. The CFPB says it will use data it collects about small business lending to help identify needs and opportunities in the market and to facilitate enforcement of fair lending laws.

“This inquiry will help us learn how we can best fulfill our duty to collect and report information on small business lending,” said CFPB Director Richard Cordray.

Based on publicly available data, and depending on the definition used, there are an estimated 27.6 million small businesses in the United States. This includes 9.8 million businesses owned by women and 7.9 million businesses owned by minorities.

The CFPB also released a white paper reviewing the available evidence concerning the small business lending landscape. The bureau estimates that small businesses access about $1.4 trillion in financing. However, current information on how small businesses engage with credit markets is incomplete or dated and does not paint a full picture of access to financing, particularly for small business owned by women and minorities.

For example, current information does not reflect whether there is more or less access to credit for a small business depending on its type or location. Nor does it show to what extent small business lending is shifting from banks to alternative lenders. And it does not indicate whether the tighter credit triggered by the great recession still persists.

The Request for Information aims to enhance the CFPB’s understanding of the small business lending industry. Section 1071 of the Dodd-Frank Act requires financial institutions to compile, maintain and report information about loans from small businesses, including those owned by women and minorities, in accordance with regulations to be issued by the bureau. This action is a first step toward crafting a rule for the collection and reporting of this lending data. The request covers these topics:

— Despite the pivotal role it plays in the U.S. economy, small business has a number of widely different definitions. Some are based on the number of employees or annual receipts. The bureau is seeking to learn more about how small businesses are defined by lenders and how that affects their credit application processes. From responses, the bureau aims to work toward a practical definition.

 —T he CFPB is seeking to learn more about where small businesses turn for financing and the various products they choose. The bureau is also looking into the roles of lending marketplaces, brokers, dealers and other third parties in the small business lending application process.

— The bureau aims to learn more about the business lending information that is currently used, maintained and reported by financial institutions. This includes what types of data are collected from small business borrowers, and when it is collected during the application process. The bureau is exploring how best to implement a reporting requirement for this information that will meet the objectives of Section 1071 while minimizing the burden on financial institutions.

— Some data that may be collected could involve sensitive, private or confidential information. The CFPB is exploring how to protect the privacy of loan applicants and borrowers, as well as the confidentiality interests of financial institutions in this process. The Request for Information provides an opportunity for the public to discuss ways the information can be shared as required by statute while easing privacy and confidentiality concerns.

The CFPB is requesting comments from individual businesses, consumer groups, com-munity development organizations, bank and nonbank lenders, regulators, and all other interested parties. The comment period for the public inquiry will end 60 days after the Request for Information is officially published in the Federal Register.

The Request for Information and the white paper are available at

Strong opposition to the CFPB’s data-collection and reporting requirements for small-business loans was voiced by two banking trade groups. The Independent Community Bankers of America issued a statement that called on the bureau and Congress to roll back what it called excessive and counterproductive reporting mandates that threaten community bank lending to local customers and communities.

“Community banks continue to implement and comply with an unprecedented number of new and amended regulatory requirements put into effect over the past several years,” ICBA President and CEO Camden R. Fine said. “The CFPB’s data-collection and -reporting mandates will compound existing regulatory and paperwork burdens, to the detriment of economic and job growth. ICBA continues its call for Congress and the CFPB to address the mounting regulatory burdens harming local communities.”

The American Bankers Association says it is forming a working group to help respond to the CFPB’s request, but also noted in a members’ only analysis that it has previously called for the repeal of Section 1071, calling it a conflation of consumer and commercial lending that is misguided.

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