Consumer Groups Praise CFPB Small Business Lending Rule

Consumer advocates are praising the Consumer Financial Protection Bureau’s proposed rule that would require financial institutions, including credit unions, to report demographic information about their small business lending.

Lenders that made at least 25 credit transactions in each of the past two years would be required to report demographic information about their small business credit applicants, under the rule.

“Publicly accessible data on small business lending can motivate lenders to increase their lending to women-owned and minority-owned small businesses,” the National Community Reinvestment Coalition said.

Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, praised the CFPB’s proposal. “This proposed rule is an important step in addressing longstanding gaps in small business lending data – gaps that have hampered our understanding of small business lending and made it difficult to assess whether loans are distributed fairly and equitably to women- and minority-owned small businesses,” Brown said.

“Minority-owned businesses deserve a fair chance at financial stability, and implementing [the rule] strengthens the fight to addresses racial disparities in banking that have existed for far too long,” said Kiyadh Burt, senior policy analyst at the Hope Policy Institute, an affiliate of the Hope Credit Union in Jackson, Miss. The disparities are particularly serious in the Deep South, where a history of discrimination limited lending to minority-owned businesses, according to Burt.

However, a conservative policy analyst questioned whether the results of such reporting would increase access to credit at small businesses. “As written, the CFPB rule would greatly increase the reporting requirements of lenders, a cost that will inevitably be passed to consumers,” said Thomas Wade, director of financial services policy at the American Action Forum, a conservative think tank. Wade added that additional reporting requirements will not “magically create additional available capital at lenders.”

Financial trade groups have expressed initial apprehension about the rule and some said it would be a disaster for small financial institutions. Credit union trade groups have said in the past that such reporting for credit unions might be inaccurate because of field of membership limits.

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