By Natalie DeCoste
The Consumer Financial Protection Bureau (CFPB) proposed a new rule on Sep. 1 aimed at helping small businesses gain access to credit through increasing transparency in the lending marketplace.
The CFPB’s new rule would amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) made by section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
Should the proposal pass, it would require lenders to disclose information about their lending to small businesses. The disclosure would enable community organizations, researchers, lenders, and others to better support small business and community development needs.
The proposed rule is based on the existing Dodd-Frank Act that was amended to require that financial institutions collect and report certain data regarding applications for credit for women-owned, minority-owned, and small businesses to the CFPB. The CFBPB said the new rule would enable it to better implement many of its policies.
“Small businesses are the primary job creators and wealth builders in communities across the country. After homeownership, small business ownership is the primary means by which families and communities build wealth. Yet too often, small business development is starved for want of access to responsible, fairly priced credit. Today, we are proposing a rule that would help us all learn how small enterprises fare when trying to access financing, and what barriers are holding them back from further prosperity,” said CFPB Acting Director Dave Uejio.
The small business lending market makes up a vital component of the U.S. economy. Small businesses employ more than 60 million Americans, which translates to over 1-in-3 working adults. Between 2010 to 2019, small businesses created nearly twice as many net new jobs as large businesses. Because of these factors, lending to small businesses can foster a great deal of wealth creation for individuals and communities, making the CFPB’s work all the more important.
The new rule would require the CFPB to create the first comprehensive database of small business credit applications in the United States. The database would include critical information about women-owned and minority-owned small businesses to help regulators and the public identify and address fair lending concerns.
Lenders would be required to report the amount and the type of small business credit for which consumers applied and what was extended. Beyond the demographic information about small business credit applicants, the database would also house information about the key elements of the price of the credit offered.
The database would also enable a variety of stakeholders to better identify the needs of business and community development and opportunities for small businesses, specifically geared towards women-owned and minority-owned small businesses.
While the proposal states that it intends to benefit all small businesses within the scope of the rule, it also makes repeated mentions of the benefits that adopting this rule would give to women-owned and minority-owned businesses.
Alongside the announcement of the proposed rule, the CFPB also launched a web portal for small business entrepreneurs to share their stories about applying for credit. This portal will help the CFPB understand the challenges that small businesses face and the successes they achieve when attempting to access credit.