CFPB Sues TransUnion For Repeat OffensesPhotographer: Samuel Corum/Bloomberg

Small business lending data collection rule change expected in March

Changes to the Equal Credit Opportunity Act (ECOA) that would require equipment lenders to submit to the Consumer Financial Protection Bureau credit application data for women-, minority- and black-owned businesses are expected in the coming months.

The CFPB has been since May 2017 working on regulations that would require lenders to “compile, maintain and submit” demographic data on small business lending application activity, according to the bureau. The CFPB issued a notice of proposed rulemaking in September 2021, and the public comment period closed Jan. 6, 2022.

The CFPB, for its part, is working to increase transparency in small business lending and increase access to credit, a CFPB spokesperson told Equipment Finance Connect.

“The success or failure of many small businesses turns on whether they can obtain credit, and the CFPB is working on finalizing, by March 2023, a new rule designed to help small businesses gain access to the credit they need and deserve by increasing transparency in the lending marketplace,” the spokesperson said. “The kind of data that will be provided by the forthcoming rule will help policymakers better target programs to meet the needs of these businesses — from origination through forgiveness.”

Still, changes to the rule could be onerous and costly to finance companies, especially smaller financiers, Equipment Leasing and Finance Association President and Chief Executive Ralph Petta told EFC.

Section 1071 of the Dodd-Frank Act, which amended ECOA, has “been our primary advocacy issue,” he said.

The new rule “essentially says to those who extend credit, you have to provide demographic information about the debtor. Is this a small business? Is this a minority-owned business? Is this a black-owned business?” Petta said.

“For example, if you’re a drugstore or if you’re a farm equipment supplier [or] a tiny provider of financing, you have to comply with this rule. The lenders and the small business having to collect this information and report it to the bureau would be hamstrung and at a disadvantage,” he said.

ELFA has provided input and commentary — public and private — and worked with the bureau for years to “try to come up with a viable, workable rule,” Petta said.

“Needless to say, they have taken some of this input into account. But their rule when they finally do come out with it — and we think that could be as early as the next couple of months — is not going to be good for anybody who extends credit,” he said.

ECOA “prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age,” according to the Department of Justice. The Dodd-Frank Act, which was passed in the wake of the 2008 credit crisis and created the CFPB, gave the bureau authority to adopt regulations governing the collection of small business data, .

Section 1071 is designed to facilitate the enforcement of fair lending laws and “enable communities, governmental entities and creditors to identify business and community development needs and opportunities for women-owned, minority-owned and small businesses,” according to the CFPB’s website.