A new data-driven approach to small business lending could lead to more scrutiny on Capitol Hill.
To that end, Reps. Maxine Waters (Calif.), the ranking Democrat on the House Financial Services Committee, and Nydia Velazquez (D-New York), a member of the House Small Business Committee, reviewed the latest. Changes in letter to Consumer Financial Protection Bureau Director Rohit Chopra to brief House Democrats
“While we are still reviewing the final rules, we are pleased that CFB has returned to implementation to give smaller financial institutions more time to prepare,” the representatives said. He wrote in a letter Dated Monday (May 15). “The small business lending market is relatively opaque,” Waters and Velázquez said in the letter, “but once these small business lending regulations are in place, we will finally have data that the public, industry and policymakers can use to identify ways to grow small business.” .
The final legislation drew criticism from some quarters of Congress. After the final rule was announced, Patrick McHenry, (R-North Carolina) and chairman of the House Financial Services Committee; he said in a statement. Chopra said the rule would “impose overly burdensome reporting requirements on small lenders” and put the privacy and security of small business owners’ personal and financial information at risk.
The scope and details of data collection are expanding.
As reported here in late March, The nature and scope of information collected by lenders has expanded to include demographic information. The regulation was part of Section 1071 of the Dodd-Frank Act of 2010. and in “Small Entity Compliance GuideThe new data collection obligations issued by the CFPB last Friday (May 12) apply to more than 100 small business loan originators — a designation that affects more than 95% of lenders that extend small business loans. in the regions. Regarding the implementation of the standard mentioned in the letter sent from Waters and Velázquez, every year 2,500 organizations that provide small business loans – these will be the largest entities – must start collecting data on October 1 of next year. Lenders offering at least 500 small business loans must begin collecting data by April 1, 2025.
According to the compliance guidelines, covered credit transactions include loans, lines of credit, credit cards, merchant cash advances and other credit products used for commercial and business purposes. of
The expanded information includes information about the applicant organizations and the organizations’ owners, including gross revenue, whether the businesses are women-owned, minority-owned, and/or LGBTQ+ owned.
CFPB changes PYMNTS data will show Only 26 percent of high street businesses across the US have at least 60 days of revenue — which spells a tough road to keep the doors open after that.
Separately, the Fed’s senior credit officer opinion survey He found that last month Standards are tightening and demand for business loans was weak in the first quarter, including loans to small companies.
The data collection is focused on The CFPB will “use new digital tools developed by industry and technology partners” and “allow financial institutions to work with third parties, from industry consortia, to develop services and technologies that help collect and report data.” CFBB also said it plans to “provide an application programming interface in an open source environment to develop accurate and efficient data reporting tools.”
That opens the door for more providers to collect, analyze, and ultimately use that data all the time to help lenders make better underwriting decisions. in An example is mentioned here Earlier this year, Scott Steinberg, chief operating officer and chief product officer of Enigma Technologies, told PYMNTS that alternative data sources (at the bank account level) can help lenders identify risk more effectively.