CU Trades: CFPB Plan Would Distort View of CU Lending

Credit union trade groups are warning the Consumer Financial Protection Bureau that requiring a credit union to report data reflecting its lending to minority- and women-owned businesses would deliver a skewed view of the financial institution’s business.

Field of membership rules and a member business loan cap imposed by the National Credit Union Administration limit a credit union’s ability to lend money to all businesses, they said.

The CFPB has been soliciting comment on a proposed rule requiring financial institutions to report lending to minority- and women-owned businesses. The CFPB is required to collect the information under the Dodd-Frank Act.

Comments on the rule were due Thursday.

“As entities bound to serve a specific field of membership, the data collected from credit unions would likely be incomparable to other lenders that are legally permitted to serve anyone walking through its doors or accessing its websites,” Alexander Monterrubio senior director of advocacy and counsel at the Credit Union National Association wrote in a letter to the CFPB.

Monterrubio went further and wrote that credit unions have no history of discriminatory lending and therefore should be exempt from the CFPB rule.

The National Association of Federally-Insured Credit Unions also said that reporting of lending data by a credit union would paint a misleading picture of the institution’s lending practices.

“The publication of small business data from credit unions risks presenting a misleading portrait of overall credit availability due to variables such as field of membership and aggregate MBL limits,” Dale Baker, NAFCU’s regulatory affairs counsel, wrote in a letter to the bureau. “As a result of these unique statutory restrictions, credit union lending patterns may not translate easily when compared to other institutions.”

The two groups also said that the rule, if implemented, would place a huge regulatory burden on credit unions.

“In conversations with members, NAFCU has observed that anxiety regarding section 1071’s future costs may already be having a chilling effect on future plans to expand small business lending operations,” Baker wrote.

“As community-based financial institutions, the…data collection will likely add substantial strain on credit unions’ finite compliance resources but provide an unknown tangible benefit,” Monterrubio wrote.

Among other suggestions, the groups recommended that the CFPB increase the threshold for triggering the reporting requirements. In the proposed rule, financial institutions would be required to report lending information once they make 25 loans meeting the rule’s definitions. The groups said that threshold should be increased to 500 loans.

The trade groups also railed against the proposed rule’s requirement that, under certain circumstances, a financial institution’s employee would be required to identify a person’s gender, racial or ethnic background by looking at the person or examining their surname.

“A requirement to report based on visual observation or surname would clearly undermine the accuracy of the data reported and the CFPB’s analysis of that data,” Monterrubio wrote.

Baker agreed. “Humans have immense and persistent difficulties accurately and precisely identifying others’ race and ethnicity,” he wrote.

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