The Consumer Financial Protection Bureau (CFPB) has finalized a rule required by Congress that will improve transparency in small business lending, as well as helping to promote economic development while combating unlawful discrimination.
CFPB Finalizes Rule Aimed to Promote Transparency in Small Business Lending
The finalized rule means lenders will need to collect and report information about the small business credit applications they process. This information includes geographic and demographic data, as well as the price of credit and the reasoning behind their lending decisions.
Increasing Lending Transparency
The Section 1071 rule is supplemented and supported by the Community Reinvestment Act (CRA), which requires certain financial institutions to meet the needs of the communities they serve.
Working in tandem, Section 1071 and the CRA will increase lending transparency to benefit small businesses, as well as the likes of family farms, financial institutions and the broader economy.
SBA Gains ‘Access to Crucial Data’
On the CFPB website, Director Rohit Chopra explained the importance of lending data, saying: “Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program. 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.”
The Head of the SBA, Administrator Isabella Casillas Guzman, also issued a statement supporting the CFPB finalization of Section 1071, which read: “The CFPB’s important work to advance transparency and improve data collection in small business lending enables the Biden-Harris Administration to take a step forward in its mission to deliver equitable outcomes for Americans. Longstanding barriers to capital, for too long, have stood in the way of many small business owners in underserved communities. With today’s announcement, lenders and policymakers can more clearly understand gaps in small business lending. The SBA will now have access to crucial data needed to inform its work and better serve America’s small business owners.
“I commend Director Rohit Chopra and the CFPB team for advancing Section 1071 and look forward to using this data to help more Americans achieve the dream of business ownership.”
Section 1071 Explained
The rule will provide a comprehensive view of small business lending, with Section 1071 applying to lenders who make more than 100 covered small business loans per year.
There will also be more access to diverse forms of credit by all types of lenders thanks to the rule’s finalization, plus a shift towards using straightforward definitions and streamlined forms to make it easier for lenders to gather the relevant data.
This article, “CFPB Finalizes Rule Aimed to Promote Transparency in Small Business Lending” was first published on Small Business Trends