CFPB Prepares To Drive Financial Inclusion Agenda Forward With Proposed Rule Requiring Annual Reports on Small Business Credit Applications | Eversheds Sutherland (United States) LLP


On September 1, 2021, the CFPB published a proposed rule that would add a new subpart to Regulation B, which implements the Federal Equal Credit Opportunities Act (ECOA). The rule would implement Section 1071 of the Dodd-Frank Act and require covered financial institutions to report data on small business loans. The aim is to create a centralized database of small business credit applications and make this database accessible to the public in order to facilitate compliance with the ECOA and highlight underserved areas of the small market. companies.

The rule would apply to “financial institutions,” broadly defined to include businesses “carrying on financial activity,” including deposit-taking institutions, non-bank lenders, fintechs and platform lenders. Covered transactions would include cash advances from merchants, equipment financing, loans, lines of credit, and credit cards, but would not include factoring transactions, trade credits, or leases. For the purposes of the rule, a “small business” includes any business with gross sales of $ 5 million or less for the preceding fiscal year.

Covered entities that initiated 25 or more covered small business transactions in each of the preceding two calendar years would be required to file reports on their small business transactions for the preceding twelve month period by no later than June 1 of the next year. The data points to be reported would include both demographic information (i.e. census tract in which the business is located.

The proposed rule also implements the “firewall” provision of Section 1071, which requires covered financial institutions to limit the access of employees and agents responsible for assessing the request to data regarding the status of the application. minority or female owned business of a credit applicant and the principal of the applicant the sex, race and ethnicity of the owners. The rule provides an exception for situations in which the financial institution determines that it is not possible to restrict access and discloses to the requester that these persons will have access to this type of data. The proposed rule contains a sample notice to be used for this purpose.

The rulemaking is part of a multi-year study and data collection process by the CFPB, which began to focus on ECOA compliance in the area of ​​small business loans shortly after the creation of the Bureau in 2011. The ECOA protects applicants for both consumers and small businesses. credit. The ECOA and Regulation B prohibit creditors from discriminating on the basis of an applicant’s race or sex (among other protected characteristics) at all stages of a credit transaction and require creditors who take action adverse on an application, including the granting of credit at a higher price, notify the applicant of the appeal and the main reasons for it.

The dual focus on consumers and small businesses places the ECOA and the proposed data collection rule at the crossroads of two important trends in the enforcement of financial regulation. First, the pandemic has highlighted the impact of access to credit on the ability of small businesses to weather economic shocks and the need to increase access to credit for women and minority-owned businesses. Second, the CFPB made financial inclusion and racial equality a key theme under the Biden administration. We expect the CFPB to use its enforcement authority under the ECOA and the data it collects under the current proposal to advance these initiatives with respect to both consumers and consumers. small enterprises.

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