The Consumer Financial Protection Bureau is proposing revisions to its small-business lending data rule to scale back the scope of data collection, saying that adopting a “longer-term” approach that allows for the future addition of more data points would be the best way to enforce the regulation.
The CFPB released a final rule in 2023 to implement Section 1071 of the Dodd-Frank Act, which requires financial institutions to report data on small-business lending. Several lawsuits followed, including one brought by the Texas Bankers Association and American Bankers Association, which resulted in a stay of the mandatory compliance dates for members of the associations pending the outcome of the case.
In a proposed rule to be released on Thursday, the CFPB said it plans to start with “more modest requirements” focused on core lending products, lenders and data. The bureau said it plans to take an “incremental approach” in which the rule could be revisited in the future to add more data points to the collection requirements, if needed.
Among the revisions, the proposed rule would remove the following discretionary data points added by the 2023 final rule: Application recipient and method, denial reasons, pricing information and number of workers.
Other proposed changes include:
- Excluding merchant cash advances, agricultural lending and small-dollar loans from the definition of covered credit transaction.
- Excluding Farm Credit System lenders from coverage, and raising the origination threshold for which institutions are covered from 100 to 1,000 credit transactions for each of two consecutive years.
- Decreasing the gross annual revenue threshold in the rule’s definition of a small business from $5 million or less to $1 million or less.
- Extending the rule’s compliance date provisions to Jan. 1, 2028, for all covered financial institutions.
The CFPB will accept public comment on the rule for 30 days following publication in the Federal Register.
ABA applauds proposed revisions
In a statement, American Bankers Association President and CEO Rob Nichols welcomed the proposed rule, saying that the original rulemaking “exceeded the bureau’s legal authority and constrained banks’ ability to make small business loans that are so essential to economic growth.”
“This is one of many recent regulatory reforms advanced by the CFPB that will unleash America’s banks, allowing them to better serve their customers and communities while avoiding excessive compliance costs,” Nichols said. “While we welcome these important changes to the rulemaking, we also continue to urge Congress to fully repeal Section 1071 so that banks of all sizes can remain focused on providing credit to small businesses.”
