The Consumer Financial Protection Bureau (CFPB) has put forward revisions to its small-business lending data rule, aiming at refining the scope and timeline of data collection. These modifications by the bureau are intended to improve data quality while reducing compliance costs for financial institutions. The changes were detailed in a 198-page notice set for publication. This move stems from the agency’s reassessment of the economic impact and the need for a more focused approach.
In previous reports, the CFPB’s focus was broader, encompassing a wider range of financial activities. The recent narrowing of scope, particularly the exclusion of agricultural and merchant cash advance loans, reflects an attempt to streamline oversight and respond to industry feedback. Additionally, redefining a “small business” to one having $1 million or less in revenue contrasts with earlier standards, aligning with broader regulatory metrics. The dialogue around these regulations has evolved, prompting the CFPB to consider this revised approach.
What Changes Are Proposed?
The proposed adjustments will concentrate the initial reporting phase on essential lenders, products, and data points. By limiting coverage to larger credit providers and excluding smaller loans, the CFPB plans to create a more manageable regulatory environment. The changes suggest removing discretionary data fields such as application method and recipient, denial reasons, pricing information, and number of workers. This streamlining is intended to decrease the burden on financial institutions and ensure compliance with executive directives on data collection.
How Might This Impact Small Businesses?
With the revised definition of a small business, more enterprises could fall under the simplified reporting requirements. The agency believes that a $1 million revenue threshold should cover a “supermajority” of firms. CFPB estimates indicate a shift in coverage where approximately 25% of rural branches and 63% of non-rural branches would belong to covered institutions. This recalibration could aid smaller establishments in maintaining flexibility while adhering to financial regulations.
The CFPB’s proposal comes in light of its current financial limitations, as it cannot draw additional funds from the Federal Reserve. This fiscal constraint impacts the bureau’s operations, with its funding expected to suffice only until the end of 2025. The DOJ’s legal stance further complicates matters, as the Federal Reserve’s reporting of combined earnings restricts CFPB’s access to future funds.
“Our phased approach mirrors the gradual roll-out seen with Home Mortgage Disclosure Act,” stated the CFPB, reflecting lessons from historic experiences. “We believe a more focused set of requirements works in the market‘s best interest,” the bureau spokesperson added.
Current discourse around the CFPB’s future is influenced by ongoing efforts to revise its budget and workforce structure. The Trump administration’s push to dismantle the bureau has added to the uncertainty, leading to staff reductions and strategy shifts.
By navigating these complex regulatory and financial landscapes, the CFPB aims to balance the needs of financial entities while ensuring adequate oversight. This careful recalibration could shape the way forward for small-business lending, fostering an environment that supports both compliance and economic growth.
