Small Business Loan Application Data Collection

Position

• While ICBA supports ensuring that financial institutions meet the credit needs of all small businesses in accordance with fair lending laws, we believe that application of the data collection and reporting requirements of Section 1071 of the Dodd-Frank Act is misguided and will have a chilling effect on community banks’ ability to meet the unique needs of local small businesses.
• ICBA supports legislation that would exempt community banks and mission-oriented banks from Dodd-Frank Section 1071.
• If legislative repeal of Section 1071 proves infeasible, ICBA urges the CFPB to use its authority under the Dodd-Frank Act to exempt community banks from data collection and reporting, limit any collection to data points required by statute, and prioritize protecting customer privacy as it considers new data reporting requirements.
• In defining which businesses are covered applicants under the rule, ICBA urges the Bureau to define a “small business” as one with gross annual revenue of $1 million or less. This is a simple, bright-line definition that will make compliance more efficient and straightforward.
• Any final 1071 rule should stagger the implementation date so that smaller community banks are among the last entities required to collect and report the data under the rule. In addition, any actions under the Fair Lending Act should be based on data collected under 1071 for a period of at least three years. This delay will allow community banks to refine data collection systems and procedures and will allow regulators to observe trend data.
• The ability to re-identify applicants is a violation of privacy that could be sufficient to drive small business borrowers to larger banks, larger cities, or online lenders to remain anonymous.

Background

Small business lending is a complex business that cannot be “commoditized” in the same way as consumer lending. Each small business loan is unique and has customized terms based on an analysis of numerous factors. Imposing rigid data collection requirements may limit the ability of community banks to tailor loans to meet the unique needs of their small business customers, which is the cornerstone of relationship lending.

The CFPB has issued a proposal to implement rules for the collection and reporting of data on financial institutions’ small business lending under the Equal Credit Opportunity Act. This includes the collection of data that will be used to facilitate enforcement of fair lending laws.

While the governing statute requires the collection and reporting of 13 pieces of data, the CFPB is using its discretionary authority granted by statute to propose collecting an additional 8 data points. These discretionary data points have little to do with a borrower’s credit risk but will increase the costs of originating loans and pose a privacy risk to small business applicants. Further, the breadth of the data required to be collected and potentially published under the CFPB’s initiatives may make it possible to identify an individual borrower.

The Bureau has the authority to exempt community banks from compliance with this rule and has proposed to exempt lenders that originate fewer than 25 qualifying small business loans per year. This threshold is far too low; the data collection requirements would apply to a majority of community banks, resulting in increased compliance costs for community banks and a higher cost of credit for small business borrowers.