CFPB Issues Final Ruling Aimed At Increasing Transparency and Access to Loans for Small Businesses

The Consumer Financial Protection Bureau (CFPB) recently issued a final rule implementing Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to help combat discrimination and promote investment. Consistent with Section 1071 and to foster accountability, this ruling imposes data collection and reporting requirements on small business creditors, including banks, credit unions, online lenders, and a wide range of lending products that originate at least 100 loans of any amount annually.

CFPB Director Rohit Chopra said many small businesses, defined as an entity with gross revenue under $5 million in this last fiscal year, failed during the COVID-19 pandemic because they struggled to access credit under the Paycheck Protection Program. This small business loan census will be the key to collecting data broken down by race, ethnicity, gender, and sexual orientation of business owners, ensuring banks and non-banks are serving small businesses fairly. The credit application information will be compiled in a comprehensive, publicly available database to help policymakers, borrowers, and lenders better address economic development needs and adapt to future challenges.

          The final rule is effective 90 days after publication in the Federal Register, and lenders will follow a tiered compliance date structure starting:

• October 1, 2024, for lenders originating at least 2,500 small business loans annually
• April 1, 2025, for lenders originating at least 500 small business loans annually
• January 1, 2026, for lenders originating at least 100 small business loans annually

According to National Community Reinvestment Coalition (NCRC), the langue of Section 1071 requires the collected data to

 include the following:

• The number of the application and the date on which the application was received.
• The type and purpose of the loan or other credit being applied for
• The amount of the credit or credit limit applied for, and the amount of the credit transaction or the credit limit approved for such applicant
• The type of action taken with respect to such application, and the date of such action
• The census tract in which is located at the principal place of business of the women-owned, minority-owned, or small-business loan applicant
• The gross annual revenue of the business in the last fiscal year of the women-owned, minority-owned, or small business loan applicant preceding the date of the application
• The race, sex, and ethnicity of the principal owners of the business
• Any additional data that the CFPB determines would aid in fulfilling the purposes of this section

         This ruling will provide business owners with insights into the cost of business loans which will aid in more informed decisions about financing options, and also ensure that small businesses are not unfairly discriminated against when applying for loans and provide greater regulatory oversight of the lending market. Read the final ruling here. The CFPB has also created several resources to assist with implementation (e.g., executive summary, fact sheet, etc.), which are located here.           

If you need assistance navigating your requirements under this policy, contact us at 202-505-5309 or info@thesjslawfirm.com to book a consultation.