CFPB PROPOSED RULE ON SMALL BUSINESS LENDING DATA COLLECTION WORTH A CREDIT UNION REVIEW AND POSSIBLE COMMENT TO BE SENT ON THE PROPOSAL    

The Consumer Protection Financial Bureau (CFPB) is now back in full regulatory swing with the Biden administration’s new Bureau Director having been confirmed by the US Senate.

Remember that the CFPB has no board or commission that must approve proposed rules and final rules by a majority vote.  The CFPB Director is the rule maker.  Period.

So, when a proposed rule comes forward under an activist CFPB Director’s signature such as Director Rohit Chopra who has spoken to his priorities for being a much stronger watchdog than his predecessors, you can be assured that the Bureau has worked on the proposal extensively and it reflects very strongly their preferences for a final rule.

The only thing that can slow down or alter a final rule would be a strong outcry from affected parties that even the CFPB, due to the possibility of congressional oversight hearing pressure, cannot ignore.

With this in mind, the CFPB has just recently put out for public comment a proposed rule to require extensive data reporting from financial institutions that do small business lending.  The purpose of the data reporting is apparently to establish HMDA-type metrics to evaluate whether a financial institution’s lending policies, underwriting, and decisions on small business loans is having a disparate impact (negative impact regardless of intent) on protected minorities in the application for small business credit.

Since not-for-profit member-owned credit unions have become one of the “go to” sources for small business lending among many who have been underserved by the for profit banking sector that seems more interested in financing a $60 million office complex than a $175,000 loan for a start-up carpet cleaning business, the additional data reporting requirements of this proposed rule – if finalized as currently proposed – will be, at best, a penalty to credit unions for making such loans and, at worst, an actual deterrent to making as many of them.

For those credit unions interested in looking into this CFPB proposal, the link below will take you to the rule as it has been proposed.

https://www.consumerfinance.gov/rules-policy/rules-under-development/small-business-lending-data-collection-under-equal-credit-opportunity-act-regulation-b/?utm_source=real_magnet&utm_medium=email&utm_campaign=113021%5Fadvo%5Fceo%5Faction%5Falert%5Fmembers

You will notice that the proposal has an imbedded link where you can offer a comment on the proposed rule if you so desire.  While it appears the CFPB is moving quite quickly on this rule and the chances of stopping or significantly revising it seems unlikely, there is no downside to having your voice heard and on record about the proposed rule.

If you elect to comment on the proposed rule, we would recommend some language along the lines of the following:

On behalf of ABC Credit Union, I would like to express our concerns about the reporting burden and associated costs from the recent CFPB proposed rule (Docket #CFPB-2021-0015) on small business lending. 

As a not-for-profit, member-owned financial cooperative, our credit union has made it a policy priority and strategic mission to offer small business lending to more of our members from all walks of life – including those that are regularly underserved by for-profit financial institutions that much prefer commercial project lending in the tens of millions to the start-up and sustaining loans of smaller businesses that may be in the less profitable, but equally as important, range of a couple hundred thousand dollars.

Our concern is that the costs and resources required to comply with the reporting burden of this proposed rule will result in fewer such loans being made because of diverted resources to compliance or less funds for borrowing being available because of balance sheet decisions that would shift available lending dollars into areas with less unnecessary reporting and regulatory requirements.

We encourage you to withdraw this proposed rule or to provide an exemption for credit unions, and smaller financial institutions or apply a higher trigger of the size small business loan that would require reporting – perhaps in the range of $10 million.

Thank you for your consideration.

Our prediction is that this will not be the last CFPB proposal that will come onto the radar screen of credit unions in the months to come.  It might be a good time to get into the practice of submitting comments to the CFPB.

Feel free to adapt the above draft language to better fit your writing style.  Or use it as is if it aligns with your position on the proposed rule.  Either way, the CFPB needs to recognize that there will be opposition to many of their most burdensome proposals as they move forward.

You may not oppose them all.  Or you may.  You may even support some.  But expressing your views to the CFPB on new rules that affect how you do business as a credit union may be a common occurrence for industry leaders like yourself in the next several years.

Until next time.

Dennis Dollar