CSBS Issue Talking Points

Small Business Data Collection

CSBS Position

State regulators believe the implementation of the Dodd- Frank Act’s small business lending data collection requirements should be tailored to ensure the requirements do not have a disproportionately negative impact on community banks or disrupt small business lending in local communities.

Summary

Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act and granted the Consumer Financial Protection Bureau (CFPB) the authority to collect data on applications for credit by small businesses. Section 1071’s purposes are to: (1) facilitate enforcement of fair lending laws; and (2) enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, small businesses. The statute required the CFPB to collect a set of mandatory data points and provided the authority to collect other data points that are necessary to achieve the purposes of the statute. The CFPB, under the Obama and Trump administrations, was slow to implement the DFA 1071 requirements. Rulemaking is now moving forward following the settlement of a lawsuit in U.S. court in which plaintiffs sought to prove that the CFPB had violated the Administrative Procedures Act by failing to issue a regulation to implement 1071 in a timely manner. Under the agreement, the CFPB agreed to release an outline of a regulatory proposal to implement 1071 (which it did in September 2020), establish a Small Business Regulatory Enforcement Fairness Act panel (which it did in October 2020), negotiate deadlines for each additional step in the rulemaking process and issue periodic progress reports on rulemaking to the court. On September 1, 2021, the CFPB finally issued a notice of proposed rulemaking. Comments are due January 6, 2022, and CSBS is currently working on analyzing the proposal. Community banks hold a relatively small percentage of total industry assets but are responsible for a large share of small loans to businesses. A lack of transparency regarding how the small business loan data will be used in the examination or compliance assessment process could cause banks to reduce their small business lending. State regulators are concerned that the new data collection requirements could impose disproportionate compliance costs on smaller financial institutions. In sum, while the CFPB is required to promulgate rules under Dodd-Frank as well as pursuant to the terms of a settlement, the proposed data collection requirements should be tailored to the community bank business model. • After being stalled for multiple years, rulemaking on DFA 1071 small business reporting requirements is moving forward due to a court-mandated agreement. A proposed rulemaking was issued on September 1, 2021, and state regulators are currently assessing the scope and impact of the proposal. • We’ll closely monitor and will assess the proposed rulemaking to ensure it does not impose a disproportionate burden on smaller institutions. • Small business lending is highly individualized; underwriting and loan pricing depend on many heterogeneous variables that are difficult to capture in a standardized dataset. Why It Matters to State Regulators Talking Points

SME Contact: Alisha Sears, Senior Analyst, Policy Development: 202-759-9403 or asears@csbs.org

Date Updated: October 2021

FOR STATE REGULATOR USE ONLY