CFPB’s Small Business Lending Rules Headed for More Scrutiny on Capitol Hill

Small business lending’s new data-driven approach may be headed for more scrutiny on Capitol Hill.

To that end, Rep. Maxine Waters (California), the top Democrat ranking member on the House Financial Services Committee, and Rep. Nydia Velázquez (D-New York), ranking member on the House Small Business Committee, weighed in on the latest changes in a letter to Consumer Financial Protection Bureau Director Rohit Chopra asking for a briefing among House Democrats.

“While we are still reviewing the final rules, we are pleased that the CFPB will phase in implementation so that smaller financial institutions have more time to prepare,” the representatives wrote in a letter dated Monday (May 15). Waters and Velazquez noted in the letter that “the small business lending market is relatively opaque, but once these small business lending rules take effect, we will finally have actionable data that the public, industry, and policymakers can use to identify ways to foster small business growth and development.”

The final rule has drawn criticism from some quarters of Congress. After the final rule was announced, Patrick McHenry, (R-North Carolina) and Chairman of the House Financial Services Committee, said in a statement that the rule would wind up “imposing overly burdensome reporting requirements on smaller lenders,” and added that Chopra is jeopardizing the privacy and security of small business owners’ personal and financial data.

Scope and Details of Data Collection are Broadening

As reported here at the end of March, the nature and the scope of the data collected by lenders have been broadened to include demographic information. The rule had been part of the Dodd-Frank Act of 2010 as part of section 1071. And in a “ Small Entity Compliance Guide ” that was issued by the CFPB last Friday (May 12th), the new data collection mandates apply to those firms that issue more than 100 small business loans annually — a designation that touches the lenders that extend more than 95% of small business loans issued in the states. As to the phased implementation mentioned in the letter from Waters and Velazquez, the firms that issue 2,500 small business loans each year — these would be larger entities — will have to begin collecting data on Oct. 1 of next year. The lenders that issue at least 500 small business loans must begin collecting data on April 1, 2025.

As per the compliance guide, the covered credit transactions include loans, lines of credit, credit cards, merchant cash advances, and other credit products to be used for business and commercial purposes. The

The expanded data include Information about the applicant firms and the firms’ owners, including gross revenue, whether the businesses are women-owned, minority-owned and/or LGBTQ+-owned.

The CFPB’s changes come as PYMNTS data reveal 26% of Main Street businesses across the U.S. have access to the equivalent of at least 60 days’ worth of revenue — which indicates a rough road to keeping the doors open after that.

Separately, the Fed’s senior loan officer opinion survey last month found that standards are tightening and noted weaker demand for commercial loans in the first quarter, which includes loans made to smaller firms.

The collection of the data as spotlighted by the CFPB will be tied to “the use of new digital tools developed by industry and technology partners” and “allows financial institutions to work with third parties, including industry consortia, to develop services and technologies that will aid in collecting and reporting data.” In addition, the CFPB said, it plans “to provide Application Programming Interfaces in an open-source environment to spur the development of accurate and efficient data reporting tools.”

That opens the door to a slew of providers to help collect, analyze and ultimately leverage that data even as they help lenders make better underwriting decisions. In one example noted here earlier in the year, Enigma Technologies Chief Operating Officer and Chief Product Officer Scott Steinberg told PYMNTS that alternative data sources (at the bank account level) could help lenders gauge risk more effectively.