CFPB Finalizes Rule to Expose Lending Gaps for Women and Minority-Owned Small Businesses
The Consumer Financial Protection Bureau (CFPB) recently finalized a landmark rule known as “1071” that is poised to shed light on lending disparities for women and minority-owned small businesses. The rule, a provision of the Dodd-Frank Act, mandates that lenders collect and report data on the sex, race, and ethnicity of small-business loan applicants.
Under the finalized rule, small-business lenders will be required to commence data collection in 2028 and report the findings to the CFPB in 2029. The primary objective of the rule is to enhance transparency in small-business lending, pinpoint community development needs, and bolster the enforcement of fair lending laws.
Key Changes in the Final Rule
Acting CFPB Director Russell Vought significantly pared down the rule from its previous iterations, narrowing its scope to encompass only 280 small-business lenders—down from 2,500 under the 2023 rule. The final rule will entail the collection of a minimum of 13 data fields, a stark reduction from the 81 data fields stipulated in the prior version.
Moreover, the finalized rule stipulates that only the largest financial institutions that originate 1,000 or more small-business loans in consecutive years will be subject to its requirements. This revision represents a departure from the earlier threshold of 100 small-business loans in each of two consecutive years.
Reactions to the Rule
Elena Babinecz, a partner at Baker Donelson and former CFPB manager, expressed concerns regarding the final rule’s potential implications. Babinecz highlighted the limitation of data reporting to only the largest banks, which may obscure lending practices in rural areas and among minority and women-owned businesses.
Despite the rule’s aim to bolster lending transparency, it has faced opposition from various quarters. Lenders have raised apprehensions about the mandatory disclosure of sensitive personal data to the government, while efforts have been made by banking associations to lobby Republican lawmakers for the repeal or modification of the rule.
Industry Response
Rob Nichols, President and CEO of the American Bankers Association, and the Texas Bankers Association have voiced their intent to continue advocating for the rule’s revision. They contend that the prior 2023 rule would have imposed excessive reporting burdens on lenders and stifled small business lending.
Lindsey Johnson, President and CEO of the Consumer Bankers Association, commended regulators for heeding industry concerns and making adjustments to the rule. Johnson emphasized the importance of striking a balance between regulatory requirements and facilitating small business lending.
Conclusion
The finalization of the CFPB’s small-business lending rule marks a significant step towards addressing lending disparities for women and minority-owned businesses. While the rule has undergone substantial revisions, its core objective of promoting lending transparency remains intact.
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