The Consumer Financial Protection Bureau (CPFB) has proposed that lenders should be more transparent when reporting and making credit decisions around lending to small businesses. The proposed rule would provide for increased transparency for loan denial reasons, demographics, and credit terms. The rule would apply to term loan lenders, credit card issuers, and lenders who issue lines of credit.
The purpose is so that CFPB could understand potential barriers for small business owners who apply for loans. Another intended consequence is that CFPB would be able to better enforce fair lending laws when it appears that a lender has broken equal opportunity lending codes.
If the rule is finalized, CFPB, a federal agency, would require that lenders have more relevant data to report about the credit applications they get from small business owners. CFPB wants to understand the underlying demographics and reasons the businesses are denied loans.
The information, in turn, would assist regulators in learning the barriers faced by entrepreneurs when attempting to gain access to financing.
CFPB is allowing the public 90 days to comment on the proposed rule.
CFPB’s acting director, Dave Uejio, said: “After homeownership, small business ownership is the primary means by which families and communities build wealth. Yet too often, small business development is starved for want of access to responsible, fairly priced credit.”
The pandemic has also shed light on the adverse economic impacts that occur if policymakers can’t address credit issues because they don’t have the accompanying data. CFPB says entrepreneurs had difficulty accessing relief funds during COVID, notably the Paycheck Protection Program. Access was more challenging through certain banking institutions.
Last Wednesday, the bureau also said that it had created a new web portal that businesses can share with regulators about their credit experiences.
CFPB is a U.S. government agency that was created in 2011 to protect consumers in financial sectors.