Consumer Watchdog Receives Mixed Response to Small Business Lending Inquiry

Last week, the Consumer Financial Protection Bureau (CFPB) announced it would launch an inquiry into the small business financing market and called for comments from interested parties including banks, alternative lenders, small businesses and consumer groups. So far, the industry response has been mixed. While many have advised the bureau to proceed with caution, others are calling for exemption to any further rulemaking that could increase regulatory burdens on the small business lending sector.

At a field hearing in Los Angeles on May 10, the CFPB announced it would launch the inquiry, delving into the credit needs of small businesses, particularly those owned by women and minorities.

The CFPB intends to identify the types of credit products being offered to small businesses by financial institutions, the sources that small businesses typically contact for credit and how lenders define and quantify small businesses. Additionally, the bureau hopes to bridge the information gap in the business lending process when it comes to the data being used by financial institutions in connection with credit applications made by small businesses, as well as address the privacy concerns related to the data collection.

According to David Pommerehn, vice president and associate general counsel with the Consumer Bankers Association, the group stands with the CFPB in its examination of the small business lending market and they “urge the bureau to proceed cautiously in its rule-writing process for Section 1071 of Dodd-Frank.”

“As it currently stands, this statutory provision would place considerable and unnecessary burdens on small businesses and lenders, producing a negative effect for all involved and the greater economy,” he said.

Credit unions are also chiming in, asking the bureau to exempt them from any new rules that would conflict with NCUA requirements or require the disclosure of business loan information, saying the data collection could be misleading. Andrew Morris, regulatory affairs counsel for National Association of Federally-Insured Credit Unions said any information collection that mixes credit union business lending data with the data gathered from banks could be unhelpful if small business loans aren’t narrowly defined under new rules.

“Credit unions serve distinct fields of membership, and as a result, institution-level data related to women-owned, minority-owned, and small business lending substantially differs in relation to other lenders,” said Morris. “Given the unique characteristics of credit unions and the limits placed on member business loans, the CFPB should seek to exempt credit unions from any future rulemaking that compels disclosure of business loan information.”