Capitol to examine rules on SME lending by CFPB

A new policy for data-driven small business lending is facing increased scrutiny in Capitol Hill. Representative Maxine Waters, a senior Democrat on the House Financial Services Committee, and Representative Nidia Velázquez have written to Consumer Financial Protection Bureau Director Rohit Chopra seeking clarification. In their letter, Waters and Velázquez stated that whereas the small business lending market is relatively opaque, regulations would yield the data necessary to help industry, policy, and the public create strategies for small business development and growth. The final rule has received criticism from the House Financial Services Committee Chairman Patrick McHenry, who has voiced concern that the rule would ultimately burden small financiers, exposing the security of small business owners’ personal and financial data at risk.

The nature and scope of data collected by lenders to include demographic information has expanded. The rule was included in Section 1071 of the Dodd-Frank Act of 2010. As reported earlier in March, upcoming legislation regarding the collection of data obliges financial institutions issuing more than 100 small business loans annually that provide 95% or more of the small business loans issued in the state. These companies will have to share both financial and demographic data. Covered credit transactions include loans, lines of credit, credit cards, merchant cash advances, and other covered credit products used for business and commercial purposes. The expansion of data includes information about the applicant company and its owners’ total revenue and whether the company is women-owned, minority-owned, or LGBTQ+-owned.

The CFPB’s focus on data collection is tied to industry and technology partners’ development of new digital tools to help financial institutions work with third parties to collect and report data. The CFPB plans to provide an application programming interface in an open-source environment to develop accurate and efficient data reporting tools. This will open the door to many providers to collect, analyze, and ultimately help lenders make better underwriting decisions. The CFPB’s change comes as PYMNTS data reveals that 26% of Main Street businesses nationwide have access to at least 60 days worth of revenue. The CFPB’s plan is necessary as businesses continue to face a rough road ahead.

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