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Are you ready? Increasing regulation for small business lenders

July 11, 2017
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In December of 2016, the Consumer Financial Protection Bureau’s associate directors of the Office of Fair Lending expressed a new shift in priorities that will increase focus on small business lending, among other loan types. 


A group of bankers from the Tennessee Bankers Association met with representatives of the CFPB and expressed concern about this new focus, citing difficulties that prior data collection requirements from the CFPB on mortgage loans had caused.


Specifically, the bankers were worried about the feasibility of analyzing SMB loans for disparate impact on key demographics. Unlike mortgages, small business loans tend to be too variable, with each loan having many unique aspects, to allow for a meaningful aggregate analysis.


Kavita Shelat, a member of Baker Donelson’s Financial Services Group in Memphis, advises financial institutions in her article HMDA Data for Small Business Loans?, published in the May 2017 issue of BankNews.


Shelat suggests financial institutions prepare for these changes in two ways. First, banks should review the Dodd-Frank Act’s provision “Small Business Loan Data Collection,” which requires banks to collect information about:

1. Date of the application

2. Purpose of the loan

3. Amount of credit sought

4. Type and date of decision

5. Census for the principal place of business

6. Business’ gross annual revenue in the last fiscal year

7. The race, gender and ethnicity of the principal business owners.


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Second, Shelat recommends that “banks should ascertain whether their existing software platforms for small business loan applications and small business loan servicing is capable of collecting this data, and if not, determine what kind of technology upgrades would be necessary to collect and maintain this information.”

As regulatory bodies, such as the CFBP begin to apply more scrutiny to small business lending, it will be imperative for banks and credit unions to ensure that they have the processes and technologies in place to collect and report borrower data as required by regulators.

Request a demo to learn more about how Sageworks helps banks and credit unions collect, process and maintain loan origination and loan services data.

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Raleigh, N.C.-based Sageworks, a leading provider of lending, credit risk, and portfolio risk software that enables banks and credit unions to efficiently grow and improve the borrower experience, was founded in 1998. Using its platform, Sageworks analyzed over 11.5 million loans, aggregated the corresponding loan data, and created the largest

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