The Consumer Financial Protection Bureau (CFPB) has issued a rule that will require banks and other lenders to collect personal data on their small business customers and submit it to the CFPB for publication. The CFPB has elected to make this rule without going through the public rule-making procedure — meaning banks and small businesses don’t get to share their concerns.
The data collection requirements were mandated by Congress in 2010, although the CFPB has the authority to make exemptions. This power could be used to limit the burden on small banks and protect the privacy of small borrowers. The CFPB has instead elected to increase the number of data points collected and widen the group of borrowers impacted by defining a small business as one realizing gross annual revenue under $5 million.
Under the rule, small businesses must be presented with a set of personal questions that larger businesses don’t have to answer — questions that an applicant might find offensive or think are illegal to ask. Additionally, the data that is subject to publish by the CFPB could be enough for a small business to be identified (by a customer, vendor or competitor) if they are in a smaller community or there aren’t many similar companies. It is easy to understand why many applicants will refuse to answer some or all of these questions. While data collection can be useful, in this scenario it is likely to yield incomplete and unreliable data.
Small businesses typically bank with smaller banks, and roughly 60 percent of the nation’s small business loans are made by community lenders. These banks are the leaders in meeting the credit needs of women — and minority-owned businesses. Of course, the smaller the financial institution, the bigger the burden of collecting, firewalling and submitting the data to the CFPB for publishing. Consequently, this rule will unduly burden banks working to serve the businesses that are supposed to be helped by this rule, potentially driving them out of the market.
Enforcing fair lending, supporting community development efforts and collaboration aimed at helping small businesses are laudable goals shared by bankers throughout Nevada. Nevada banks have more than $6 billion invested in small businesses throughout the state, including more than 19,811 traditional small business loans. When COVID-19 hit, more than 85 percent of the small businesses in Nevada received a Paycheck Protection Program (PPP) loan, the 12th highest percentage in the country.
Banks and resource groups like the Small Business Administration, Community Development Financial Institutions, small business development corporations and others work side by side to support small businesses. Nevada Bankers Association hosts four to six meetings annually with the specific goal of connecting bankers and community resources to help small businesses, and there are at least that many hosted by other organizers.
When there are too many obstacles, customers walk away. When questions get too personal, customers walk away. Rule 1071 stands to harm access to credit for small businesses throughout Nevada — especially those owned by women and minorities.
The CFPB should reduce the data points and adjust the thresholds to minimize the rule’s negative impact. The bureau should use its power to exempt more banks and businesses.
Congress has an opportunity to pass a Congressional Review Act resolution in both the House and Senate. Alternatively, Congress could pass legislation to ease the burden on community banks and protect small business privacy. In any case, Congress should step up and use its power to block or limit the data collection rule and preserve small-business lending.
Phyllis Gurgevich is the CEO of the Nevada Bankers Association, the united voice of Nevada’s diverse bank and trust industry. Its members are dedicated to providing the best financial products, services and resources to drive and support economic growth, job creation and prosperity throughout Nevada.