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.