The Consumer Financial Protection Bureau recently wrapped up a commenting period in which institutions could voice concerns about the CFPB’s data collection practices regarding small businesses, and the American Bankers Association had much to say.
The data collection process is part of required compliance to the Dodd-Frank Act, which says lenders must report data on their lending practices, to help the government enforce fair lending laws.
The ABA responded during the commenting process, as did many individual bankers who cited the differences between consumer and commercial lending as proof that government enforcement of fair lending laws in commercial loans is, as one banker wrote, “unworkable.”
“Consumer lending is relatively consistent from borrower to borrower,” he wrote, “[but] commercial lending decisions are unique and are not only guided by ratios, but also by bank lending concentrations, prior loss experience within a particular industry, staff competency within an industry, etc.”
The ABA weighed in as well, and the organization’s comment only served to reinforce that position.
“Small business lending at banks is highly individualized, and underwriting and loan pricing depend on many heterogeneous variables that are inherently unsuitable for mass-data fair lending analysis…[and] the great variations and unique attributes of individual small business loans will make legitimate comparisons excessively difficult, if not impossible.” The ABA went on to point out that establishing a mass-analysis database would also make false accusations of discrimination possible through statistical manipulation.
The ABA drafted a white paper, presented to the Treasury Department in opposition to the Dodd-Frank requirements on reporting, that said the legislation judges consumer and commercial lending – two incredibly different fields – by the same yardstick.
Some small business owners, however, claim that discrimination is a critical problem that occurs frequently in commercial lending. One business owner commented to say that even with a credit score above 725, she was denied a business loan and instead offered a $2,000 line of credit – an amount she said was not enough to grow her business.
Experts point out that there is a distinct lack of data on commercial lending to women- and minority-owned businesses, many of whom reach out to the government’s Small Business Administration for loans – a phenomenon that signals to some that they are having a harder time being served by community banks in their area
Forbes reports that the comments largely consist of a “campaign by the community bank industry to oppose prospective regulation in advance.” Many of the comments are from officers from smaller community banks, who tend to have closer one-on-one relationships with customers as opposed to having departmental specialists; these officers say the reporting requirements and additional regulations will hit their small banks hard with disproportionate costs that will be hard to offset and still stay in business.
The ABA had other concerns as well; namely, that the CFPB confirm it would not be collecting data on complaints. Such collection, argues the ABA, is beyond the scope of the CFPB’s jurisdiction.