Congress Opposes Small Business Lending Data Collection Rule
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Efforts to improve transparency in small business lending continue to hit snags in the courts and in Congress
Last week, the House voted narrowly to nullify the Consumer Finance Protection Bureau’s Section 1071 final rule. This comes after the Senate also voted to overturn the rule last month and amid multiple lawsuits the CFPB is facing. This joint resolution aims to halt the implementation of the CFPB’s Small Business Lending Rule, which requires small business lenders to collect and report demographic data of borrowers. The Biden-Harris Administration has stated they strongly oppose the resolution and will veto it.
The agency issued their Small Business Lending Rule for Section 1071 of the Dodd-Frank Act in March of this year. Over the summer, CFPB had multiple lawsuits brought against it. In addition to challenges to the constitutionality of its funding structure, the agency is battling a nationwide injunction that prevents the implementation of the Section 1071 rule. The injunction came after two lawsuits in federal district courts in Texas and Kentucky claimed the CFPB violated the Administrative Procedure Act in issuing the 1071 rule.
The Supreme Court will need to rule on the constitutionality of the CFPB’s funding structure (expected in January 2024) before the lower courts can rule on the 1071 lawsuits.
OFN has supported implementation of the rule as a key measure to improving transparency in the small business lending ecosystem. The rule requires small business lenders to collect and report geographic, demographic, and other data about the applications they receive. This data will facilitate enforcement of fair lending laws and better identify the credit needs of our nation’s small businesses, particularly the very small, rural, underserved businesses that face greater challenges accessing credit.
Critics of the rule raise concerns about privacy and the burden of reporting. However, the CFPB made efforts to address these concerns in the final rule. The rule offers a tiered approach to minimize the burden on smaller and mission-focused lenders. Smaller lenders will have more time to comply with the rule, and only lenders making more than 100 loans per year are required to report.
Section 1071 has important policy implications to improve transparency in the small business lending market, which is currently not well-understood given the lack of meaningful available data. Similar reporting has been required of mortgage lenders for decades and is not without precedent.
The Dodd-Frank Act was passed in 2010, yet this provision of the financial reform statute has yet to be implemented more than a decade later. The pending legal challenges only further delay implementation of this long-overdue rule.
OFN will continue to monitor the status of the Section 1071 rule.
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