The Consumer Financial Protection Bureau (CFPB) has finalized a rule to increase transparency in small business lending, promote economic development, and combat unlawful discrimination. Lenders will collect and report information on small business credit applications, including demographic data, lending decisions, and the price of credit. The rule aims to benefit small businesses, family farms, financial institutions, and the broader economy.
Key points of the new rule include:
Providing a comprehensive view of small business lending by covering lenders making over 100 covered small business loans per year, accounting for more than 95% of small business loans by banks and credit unions.
Covering diverse forms of credit by all types of lenders, including closed-end loans, lines of credit, business credit cards, online credit products, and merchant cash advances by banks, credit unions, and other lenders.
Using straightforward definitions and streamlined forms, defining a small business as one with gross revenue under $5 million in its last fiscal year and including a streamlined sample form for lenders to collect demographic data.
The CFPB has planned for a phased implementation of the rule:
Lenders originating at least 2,500 small business loans annually must collect data starting October 1, 2024.
Lenders originating at least 500 loans annually must collect data starting April 1, 2025.
Lenders originating at least 100 loans annually must collect data starting January 1, 2026.
The rule allows for the use of new digital tools developed by industry and technology partners, including Application Programming Interfaces in an open-source environment to spur the development of accurate and efficient data reporting tools. The CFPB also plans to issue a supplementary proposal providing additional implementation time for small lenders with strong records of service.
What is the impact on brokers? How is "lender" defined?