Small lenders question the rules proposed by the CFPB
Two organizations representing lenders have expressed reservations about a new rule proposed Wednesday, September 1 by the Consumer Financial Protection Bureau (CFPB). The rule, if finalized, would require lenders to disclose information about their small business loans.
Independent Community Bankers of America (ICBA) President and CEO Rebeca Romero Rainey released a declaration saying the organization thinks the proposal would apply to too many community banks.
“The bureau’s proposal – covering community banks that issue 25 or more loans – would trap even the smallest community banks in rural and other underserved areas, where barriers to credit should be reduced,” she said. in the press release. “Imposing new data collection and reporting requirements on community banks would hurt small business lending just as local businesses struggle to recover from the COVID-19 pandemic. “
Find out more: CFPB’s proposal to help SMEs access credit
The Credit Union National Association (CUNA) responded to the CFPB proposal, which the bureau said is mandated by section 1071 of the Dodd-Frank Act, with a Publish on the CUNA website.
“CUNA supports the objectives of Section 1071 to ensure fair and equitable financial opportunities, but is also concerned about the potential for unintended consequences and the substantial compliance costs associated with completing complex and overbroad data collection.
“CUNA wrote to CFPB in December – the first steps in rule making – outlining the credit unions’ long-standing support for fair lending laws and stressing the need for financial institutions and consumers to have a clear understanding of regulations and statutes. “
Transparency in the loan market
The CFPB said the proposed new rule is designed to help small businesses access the credit they need and deserve by increasing transparency in the lending market.
He said the proposed rule would provide better information on small business loans by requiring lenders to collect and report credit information that small businesses seek and obtain, demographic information about small business owners, and how requests are received and their results.
In the text of the proposed rule, the CFPB explains that it used a report carried out by PYMNTS in collaboration with Fundbox to estimate the size of the trade credit market. Using these figures, the CFPB estimated that the trade credit market for businesses with less than $ 1 million in annual revenue totaled $ 51 billion in overdue balances in 2019. For businesses between $ 1 million and $ 5 million, it’s $ 88 billion.
During press call On the day the proposed rule was announced, CFPB Acting Director Dave Uejio said, “The small business lending rule that we are proposing today, if finalized, will help us all better understand this. vital component of the US economy and to ensure that entrepreneurs can access credit without discrimination or other barriers.
Uejio said that during the Great Recession and the COVID-19 pandemic, small businesses were hit hard and struggled to access credit.
Resources for small businesses
“The rule proposed today will help us ensure that creditworthy small businesses can get the credit they need, when they need it, in times of crisis and in good times,” Uejio said.
PYMNT research found that 56.2 percent of small and medium-sized enterprises (SMEs) typically experience cash flow shortages. Among less profitable and younger companies, the percentage is even higher: 65.5%.
On Wednesday, alongside the proposed regulation, the CFPB also announced the launch of a new Tell your story portal which allows small businesses to share their stories about applying for credit. These stories, he said, will help inform the work of the CFPB.