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Aug 23, 2023
In a world where privacy and security concerns are on the rise, a new federal banking regulation has taken data collection a step too far for small businesses across the country. The Consumer Financial Protection Bureau (CFPB) recently finalized a rule that will require all financial institutions — including The Bank of Elk River— to collect more than 80 data points from small business customers applying for a loan and then publicly report the data they collect to the federal agency.
Fortunately, Congress is considering a resolution to overturn this misguided regulation. Lawmakers from both parties should unite to reassess the rule in light of its potential effects on privacy and possible limitations it could impose on credit access for the small businesses that form the backbone of our nation’s economy, particularly the women- and minority-owned businesses this rule is designed to help.
A Closer Look at the Rule
The CFPB’s new rule implements a section of federal law (Section 1071) requiring lenders to collect and report data on credit applicants. The law specifies several data points financial institutions must compile on applications from women-owned and minority-owned businesses, including the race, sex, and ethnicity of the principal owners as well as gross annual revenue. Other data points for small business owners include what the loan is for and the number of employees. The intention of the new rule was to curb discriminatory lending; however, the agency didn’t take into consideration how making this information public could hurt those it was trying to protect. What small business wants to announce to its competitor why they are taking out a loan?
Impact on Local Economies
There are a few reasons why the CFPB's rule is causing worry, particularly in the context of small business lending. First, the rule raises significant concerns about the privacy of applicants for commercial credit, particularly in smaller communities and rural areas. Second, the CFPB’s rigid data collection requirements will hamper the ability of community banks to tailor loans to meet the unique needs of local businesses, which is a hallmark of relationship-based lending. The Section 1071 rule requires a standardized approach that will degrade community banks’ ability to offer small businesses the type of credit they need in a timely and efficient manner. These mandates would compound the regulatory and paperwork burdens that disproportionately affect community banks—the banks that make roughly 60% of all small business loans nationwide—limiting their ability to serve small businesses. Third, these requirements will ultimately harm the borrowers the bureau is trying to help — women-owned and minority-owned businesses.
A Path Forward
Given the ongoing considerations, including a pending Supreme Court case on the CFPB's funding structure, it would be wise for the bureau to delay the rule's implementation until a verdict is reached. Moreover, there's room for the CFPB to show flexibility by exempting more community banks and small businesses from the rule and aligning data collection with the legal requirements. Ultimately, a legislative solution might be the most effective way to address these concerns comprehensively.
If you do not want the federal government to collect this information about your small business – and risk your privacy – visit the ICBA’s website to send a letter to members of Congress asking for their support to repeal the Small Business Loan Data Collection rule: icba.quorum.us/campaign/sb1071
Fortunately, Congress is considering a resolution to overturn this misguided regulation. Lawmakers from both parties should unite to reassess the rule in light of its potential effects on privacy and possible limitations it could impose on credit access for the small businesses that form the backbone of our nation’s economy, particularly the women- and minority-owned businesses this rule is designed to help.
A Closer Look at the Rule
The CFPB’s new rule implements a section of federal law (Section 1071) requiring lenders to collect and report data on credit applicants. The law specifies several data points financial institutions must compile on applications from women-owned and minority-owned businesses, including the race, sex, and ethnicity of the principal owners as well as gross annual revenue. Other data points for small business owners include what the loan is for and the number of employees. The intention of the new rule was to curb discriminatory lending; however, the agency didn’t take into consideration how making this information public could hurt those it was trying to protect. What small business wants to announce to its competitor why they are taking out a loan?
Impact on Local Economies
There are a few reasons why the CFPB's rule is causing worry, particularly in the context of small business lending. First, the rule raises significant concerns about the privacy of applicants for commercial credit, particularly in smaller communities and rural areas. Second, the CFPB’s rigid data collection requirements will hamper the ability of community banks to tailor loans to meet the unique needs of local businesses, which is a hallmark of relationship-based lending. The Section 1071 rule requires a standardized approach that will degrade community banks’ ability to offer small businesses the type of credit they need in a timely and efficient manner. These mandates would compound the regulatory and paperwork burdens that disproportionately affect community banks—the banks that make roughly 60% of all small business loans nationwide—limiting their ability to serve small businesses. Third, these requirements will ultimately harm the borrowers the bureau is trying to help — women-owned and minority-owned businesses.
A Path Forward
Given the ongoing considerations, including a pending Supreme Court case on the CFPB's funding structure, it would be wise for the bureau to delay the rule's implementation until a verdict is reached. Moreover, there's room for the CFPB to show flexibility by exempting more community banks and small businesses from the rule and aligning data collection with the legal requirements. Ultimately, a legislative solution might be the most effective way to address these concerns comprehensively.
If you do not want the federal government to collect this information about your small business – and risk your privacy – visit the ICBA’s website to send a letter to members of Congress asking for their support to repeal the Small Business Loan Data Collection rule: icba.quorum.us/campaign/sb1071
