MBA criticizes CFPB's final rule on small business loan reporting

The Mortgage Bankers Association has expressed its disappointment with a rule finalized by the Consumer Financial Protection Bureau (CFPB) requiring lenders to collect and report information about the small business credit applications they receive.

Enacted by Congress in 2010, the Section 1071 of the Consumer Financial Protection Act requires lenders to make data available to the public about their small business lending activities, including geographic and demographic data, lending decisions, and the price of credit. According to the CFPB, the rule aims to increase transparency in small business lending, promote economic development, and combat unlawful discrimination.

Finalized last week, the rule now covers lenders making over 100 small business loans per year – accounting for more than 95% of small business loans by banks and credit unions. Like with mortgages, lenders will submit data points required by Congress, as well as additional data points that are typically already included in lender files.

The rule will also now cover closed-end loans, lines of credit, business credit cards, online credit products, and merchant cash advances by banks, nonbanks, credit unions, and other lenders. The CFPB defined a small business as one with gross revenue under $5 million in its fiscal year.

"Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program," said CFPB director Rohit Chopra. "This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly."

To "ensure a smooth transition," the bureau said it will reduce duplicative reporting requirements. "Loans reportable under the Home Mortgage Disclosure Act will not need to be reported under the small business lending rule," the CFPB said in its announcement. "The rule is also designed to work in concert with rules under the Community Reinvestment Act's reporting requirements. Under the regulators' Community Reinvestment Act proposal, data submitted under the CFPB's rule would satisfy the relevant Community Reinvestment Act requirements.

Additionally, the CFPB will allow financial institutions to work with third parties to develop services and technologies that will help in collecting and reporting data. The CFPB will also give additional implementation time to small lenders with strong records of service, as measured by their performance under relevant frameworks like the Community Reinvestment Act and similar state laws.

However, MBA president and CEO Bob Broeksmit was not all too happy with the final rule.

"While we are pleased that loans reportable under the Home Mortgage Disclosure Act will not need to be reported under the Bureau's final rule, it is disappointing that this exclusion is not applied to all investment property lending," Broeksmit said in a statement. "MBA agrees with federal regulatory agencies' long-held view that lending to finance income-producing properties is not small business lending.

"The longer implementation timelines and higher loan reporting thresholds are appreciated, but we are concerned that the final rule imposes burdensome and costly data collection and reporting requirements on some commercial real estate lenders. Commercial real estate markets are already facing headwinds from financial market volatility, economic uncertainty, and higher interest rates. Preparing for new compliance obligations only adds to these challenges and will likely raise costs for borrowers."

Broeksmit said MBA will work with its members covered under the final rule and provide ongoing feedback and recommendations to the CFPB before the implementation dates.

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