WASHINGTON–The revisions made by the Consumer Financial Protection Bureau (CFPB) to its Section 1071 small-business lending rule are expected to not just lighten the regulatory burden on credit unions already making business loans, but also induce other CUs to begin making the loans as well, America’s Credit Unions believes.
As the CU Daily reported here, the rule scales back requirements from the Bureau’s 2023 framework and sets a single compliance deadline of Jan. 1, 2028. The rule implements Section 1071 of the Dodd-Frank Act, which requires lenders to collect and report data on small-business credit applications, including those from women- and minority-owned firms, to help regulators identify potential discrimination and improve market transparency.
The changes were welcomed by America’s Credit Unions, which said the finalized rule aligns with recommendations it had made earlier.
The Key Changes
Among the key changes, the final rule:
- Raised the threshold for covered lenders to those originating at least 1,000 small-business loans annually, up from 100 in the original rule
- Reduced the definition of a “small business” to firms with $1 million or less in annual revenue, down from $5 million
- Eliminated several discretionary data points that had been required under the 2023 rule and removed certain procedural requirements governing how lenders must collect demographic information from applicants.
- Replaced the prior tiered compliance schedule with a single implementation date, saying it was giving affected institutions more time to prepare and aligning compliance across the industry.
James Akin, head of regulatory advocacy with ACU, noted during a call with the media that the rule makes it easier on credit unions that want to do small business loans, but otherwise would have been reluctant to do so, due to the regulatory burden.
‘Went Beyond the Statute’
“The initial rule that the CFPB issued went beyond the statute and added a bunch of discretionary data points that would have been impractical for financial institutions to ascertain,” said Akin. “ Simply having the processes in place to gather that data would have added fixed costs for small financial institutions that would have just made it more difficult for them to get involved and created sort of another hurdle for credit unions considering entering small business funding.”
Akin added that CUs already face challenges given the 12.5% member business lending (MBL) cap.
While the CFPB’s proposed rule was never in place, it would just be conjecture to guess how many CUs it might have affected had it been enacted as proposed, Akin said it would have just been “one more layer of burden” for credit unions, especially smaller CUs, which would have likely also needed to add staff to handle the compliance.
“I could see credit unions considering whether it was worth the cost and additional burden to do so,” Akin said in response to a question from the CU Daily.
The Example of HMDA
While it will never be known what effect the CFPB proposal might have had, there is an example to be had in Home Mortgage Disclosure Act (HMDA) requirements, according to Greg Mesack, SVP-advocacy with America’s Credit Unions.
“We have heard from many of our small credit union about HMDA and the burdens it creates…They talk about the hours and hours of paperwork from complying with HMDA,” Mesack said. “To James’ point, a credit union has to look at how much time and money (it wants to invest) and you’re like, ‘Do I want to go through this for small business lending?’ It does weigh in. It’s so much more than the time consumed. There is the legal risk and all of that. It does have a big impact, especially for the smaller credit union.”
