Trades Urge Caution on Business Lending Rule

CUNA and NAFCU have asked a federal regulator to exempt small lenders and give others more time to comply with a new data collection rule designed to bolster enforcement of fair lending laws.

The CFPB is developing the rule under the direction of Congress, and the groups filed their comments on the last day of a three-month comment period.

The Dodd-Frank Wall Street Reform and Consumer Protection Act’s Section 1071 amended the Equal Credit Opportunity Act to require financial institutions to submit data to the CFPB on applications for credit for women-owned, minority-owned and small businesses.

The data would describe the credit applied for, demographic information about the small business credit applicant and key elements of the price of the credit offered.

The CFPB said the purpose is two-fold: Facilitating enforcement of fair lending laws and enabling communities, governmental entities and creditors to identify the needs of women-owned, minority-owned and small businesses.

And CFPB was charged with creating regulations to do that job.

In a three-page joint letter to the CFPB Thursday, NAFCU President/CEO Dan Berger and CUNA President/CEO Jim Nussle emphasized that they agreed with the purpose of the rule to promote fair lending.

“That said, it remains important for the bureau to ‘get it right,’ and there is widespread concern that the proposed rule’s complexity and significant costs will weigh disproportionately on credit unions in ways that ultimately lead to fewer and less favorable outcomes for all small business borrowers,” they wrote.

Nussle and Berger emphasized three changes they would like to see in the proposed rule:

1. Reduce the number of small lenders that have to comply by setting the reporting threshold as those making at least 500 covered credit transactions in each of the preceding two years. CFPB currently is recommending a threshold of 25 loans per year.

2. Narrow the small business definition. CUNA and NAFCU proposed setting the ceiling for small businesses at those generating $1 million or less in yearly revenue; the CFPB is currently proposing a $5 million ceiling. “Setting an artificially highly gross annual revenue would not only unnecessarily raise the cost of small business borrowing but will make it more difficult for small business stakeholders to draw statistically significant conclusions about the health and financial needs of truly small businesses,” the groups said.

3. Lengthen the time for lenders to comply. NAFCU and CUNA asked that compliance be required no sooner than three years following the bureau’s adoption of a data collection rule. They said the bureau’s proposed 18-month timeline “would be aggressive even for the largest, most technologically savvy credit unions.”

“The vast majority of credit unions likely to be covered financial institutions under the proposed rule will be forced to wait for one or more IT vendors to update, redeploy and cross-test section 1071-compliant small business lending programs and tools,” they said.