Under the 2010 Dodd-Frank Act, the Consumer Financial Protection Bureau is required to enforce rules written into the law that require lenders to collect data on their small business lending processes. But the CFPB has yet to actually do so, meaning data that analysts saw that are crucial to ensuring a healthy SME lending market — including information on business revenue, rejection rate and more — has nowhere to be collected, accessed and analyzed.
Five years after Dodd-Frank came into action, lawmakers began calling on the CFPB to get the SME lending data collection ball rolling. The latest developments suggest the agency is starting to answer those calls, too.
Here’s a look at how the CFPB will do so and what it took to get the bureau to act this year.
On The Agenda
Late last month, the CFPB published its Fall 2015 rulemaking agenda. Analysis from Morrison & Foerster noted that the agenda didn’t raise any eyebrows; it included plans to address payday lending behavior, debt collection practices and other standard lending topics for the body.
But last on that agenda was what many policymakers up to that point had been pushing for: data collection on business lending.
According to reports, the CFPB stated that it is continuing its research and efforts to implement the rule requiring the bureau to enforce data collection for small business lenders. Unfortunately, for advocates of this process, the CFPB noted that it would continue this preliminary effort through the fall of 2016, meaning enforcement of the data collection requirements won’t likely come into play anytime soon.
The CFPB did note, however, that those rules are likely to take a similar shape to that of the Home Mortgage Disclosure Act, implemented under Regulation C, which came into effect last October.
While its rulemaking agenda may not have come as a surprise to many, one action by the CFPB just days before that agenda was published did.
According to November reports in CFPB Monitor, the bureau hinted at its renewed interest in small business lending practices when it sent some of its representatives to the American Banker’s Small Business Banking Conference.
Soon after, the CFPB made an unexpected statement following the conference. The bureau’s deputy associate director for research, markets and regulations, Dan Sokolov, said that while the CFPB focuses on consumer lending, it has jurisdiction over some areas of small business lending (specifically, what is mentioned in Dodd-Frank), and that attendance of the Small Business Banking Conference was part of the CFPB’s research efforts to act on that jurisdiction.
Sokolov also reportedly stated that the CFPB is currently in the process of seeking an assistant director of small business lending, a position that will lead enforcement of the data collection rules. But according to reports, that call for a small business assistant director hinted at the CFPB’s broader plans for small business lending.
The position, the CFPB said in a notice, will “monitor, analyze and interpret developments in small business loan products,” as well as have a “once-in-a-career opportunity to make the market for small business finance fairer and more transparent.”
Years In The Making
The CFPB’s recent actions have sparked some debate as to whether the body, generally considered a consumer-facing group, may be eyeing an expansion, or even an overstepping, of its jurisdiction with the newfound interest in small business lending.
But the bureau hadn’t always hinted at such interest in SMEs. In addition to the five years that had passed between Dodd-Frank’s implementation and the CFPB’s actions to fulfill its SME loan data collection enforcement requirements under the law, policymakers fought to have the CFPB act in this space — efforts that ramped up in 2015.
Last July, a group of 19 Democratic senators called on the CFPB to accelerate its efforts to draft guidelines on how it would enforce those data collection rules.
“Access to capital is often limited in underserved and underrepresented communities — the same communities that disproportionately endure financial hardship and lack broader access to opportunities,” the senators stated in their letter to the bureau. “While access to capital has improved in these areas, it is difficult to gauge whether lending practices have broadened to incorporate businesses that operate and employ in these underrepresented communities.”
Collecting data on small business lending practices, especially lending to minority- and women-owned SMEs, is key to addressing the needs of these demographics, the lawmakers said, adding that since 2012, the CFPB had approached the enforcement of data collection as a “long-term action item” and not a short-term priority.
Just weeks later, 84 Democrats from the House of Representatives sent a letter to CFPB Director Richard Cordray with a similar message.
The bureau seems to have listened. With small business lending on the agenda, 2016 could bring the market closer to more robust data collection practices and a deeper level of insight into industry trends. But it may also bring some controversy regarding whether the CFPB will overstep its jurisdiction by meddling in business lending, some analysts said.