On May 10, 2017, the Consumer Financial Protection Bureau (“CFPB”) issued a request for information on small business lending. In a press release accompanying the request, the CFPB stated that its goal is to “learn more about how small businesses engage with financial institutions, with a particular focus on women-owned and minority-owned small business,” in order to help “implement [its] data collection rule.” The small business data collection rule, mandated by Section 1071 of the Dodd-Frank Act but not yet proposed by the CFPB, will impose reporting requirements on financial institutions for information concerning “credit applications made by women-owned, minority-owned, and small businesses.” The CFPB has previously clarified that “financial institutions’ obligations under [S]ection 1701 do not go into effect until the Bureau issues necessary implementing regulations.”
The request for information does not come as a surprise, given the CFPB’s indication in its Fifth Annual Fair Lending Report (which we discussed last month) that it will increase its focus on small business lending. In a speech at the Small Business Lending Field Hearing held on May 10, CFPB Director Richard Cordray emphasized that “business opportunity — especially opportunities for small businesses — often hinges on the availability of financing.”
In the request for information, the CFPB acknowledged that it is in the “early stages” of implementing a small business data collection rule that is designed to “fill existing gaps in the general understanding of the small business lending environment” and identify “potential fair lending concerns regarding small businesses.” The CFPB further stated its belief that the rule should cover “an extensive share of the market and contain enough flexibility to analyze different market segments.” At the same time, the CFPB expressed interest in “exploring potential ways to implement [the rule] in a balanced manner” that would minimize burden to both industry and the CFPB.
The request for information focuses on five key categories: defining small business, data points targeted by the data collection rule, financial institutions that lend to businesses, access to credit, and privacy. The following summarizes the CFPB’s questions in each category:
• Small business definition: The CFPB’s questions center on the challenges faced by applicants when small businesses are defined using specific size regulations, as well as definitions the industry currently uses. The CFPB indicated that it is exploring an alternative to the industry-specific size standards used by the Small Business Administration that would not rely on North American Industry Classification System (“NAICS”) codes.
• Data points: The second category of questions focuses on the data points that should be collected under the rule. These questions also focus on the standards financial institutions currently use to describe, collect, and record data on small business financing, how financial institutions maintain this information in the ordinary course of business, and how they use this data to inform their application processes. In particular, the CFPB asks whether the rule should require the collection of any additional data not specifically mandated by the statute.
• Exemptions: The third category of questions asks whether any classes of financial institutions should be exempt from the data collection rule and what role brokers, marketplaces, and dealers play in the small business lending application process.
• Access to Credit and Product Offerings: The fourth category focuses on the types of credit products currently offered to small businesses and the application process. The CFPB also included questions suggesting that the CFPB is considering whether to apply the rule to the preapproval, prequalification, and account review stages.
• Privacy: The final category addresses the potential privacy concerns implicated by public release of any of the data collected pursuant to the data collection rule and how the CFPB can mitigate such concerns.
Responses to the request for information will be due 60 days from the request’s publication in the Federal Register.
In addition to the request for information, the CFPB simultaneously released a white paper outlining the “key dimensions of the small business lending landscape.” The paper highlights the role that small, women- and minority-owned businesses play in the broader economy, but acknowledges that defining this market is a complex endeavor. In addition, the paper emphasizes the importance of the availability of credit to small business growth. Based on available data, the paper estimates that there are 27.6 million small businesses in the United States. The paper further estimates that term loans and lines of credit occupy the largest market share of financing products available to small businesses (36%), with supplier financing and business credit cards accounting for 21% and 16% of the market share respectively. The paper hints that, at a minimum, lines of credit, term loans, and business credit cards will be among the business credit products covered by the rule, while supplier financing, such as trade credit, might be excluded. The CFPB used the paper as an opportunity to highlight what it views as the importance of the data collection rule in providing information that can be used to identify the needs of women- or minority-owned small businesses and enforce fair lending laws.