Saturday, July 20, 2024

Small business lending focus of CFPB meeting

Most bankers are aware the Consumer Financial Protection Bureau has put forth a Request for Information that deals with the small business lending market. In particular, the Bureau wants information about current practices as they relate to small businesses that are minority- or women-owned.

This request comes about because Section 1071 of Dodd-Frank has mandated bankers compile, maintain and report information concerning your bank’s small business customers. The Bureau ostensibly wants to learn more about the small business financing market, the products that are offered to small businesses in an effort to further eradicate violations of the nation’s fair-lending laws.

In the Bureau’s defense, so to speak, it says it wants to learn more about small business lending, any data that is currently used by lenders and the potential complexity and cost of small business data collection and reporting. The Bureau is also seeking comment from the public on privacy concerns related to the disclosure purposes of section 1071.

A group of state bankers association executives met with representatives from the CFPB on July 31 to begin discussions about banker concerns in trying to implement Sec. 1071.

Included in that group was OBA President and CEO Roger Beverage.

“The RFI has to do with the mandatory collection of certain data on commercial lending activities,” Beverage said.  “Among other things, the Bureau wants to know what data is used now in processing small business loans in general, and particularly about minority- and women-owned business loan applications. I know they’re just trying to do their job, but I wish they wouldn’t try so hard.”

Beverage has been compiling information about the specific questions outlined in the RFI.

“We didn’t go over to the Bureau with guns blazing, so to speak,” Beverage said. “Rather, we described the process of commercial lending generally and how it differs from consumer or mortgage lending. We tried to explain what we believe some of these data collection requirements will mean in the life of both bankers and consumers.

“Small business lending is more of an art than it is a science. It’s not something you can readily squeeze into a pre-determined questionnaire and it’s definitely not the type of loan you can commoditize.”

Beverage said the group pointed out what the normal process entails for a small business loan to be finalized.

“For instance,” he said, “there isn’t a ‘loan application’ per se. Many times, loan officers visit with their customer and listen to what he or she has in mind.  In this role, the loan officers tend to serve more in the nature of advisors; they take notes, study business plans, check out options and present their recommendations to the board. By its very nature it’s not something that you can apply across the board, because in this area there definitely is no “one-size-fits-all” approach.

“For years banks have approached the business of commercial loans with a blind eye to its minority status or whether it’s owned by a female. Now that seems as if it’s all going to be turned on its head.”

Beverage noted the OBA will submit a written comment by the Sept. 14 deadline.