Elizabeth Warren’s mutant stepchild, the Consumer Finance Protection Board has been signaling as of late that they are looking to look into various aspects of small business lending in a big way – and given their track record, that could spell trouble for community lenders:
“Small businesses fuel America’s economic engine, create jobs, and nurture communities. Yet little is known about how well the lending market serves their financing needs,” CFPB Director Richard Cordray said. “This inquiry will help us learn how we can best fulfill our duty to collect and report information on small business lending.”
The bureau estimates that small businesses access about $1.4 trillion in financing. Current information on how small businesses engage with credit markets is incomplete or dated and does not paint a full picture of access to financing, particularly for small business owned by women and minorities.
This request for information is the first step toward crafting a rule for the collection and reporting of this lending data. The CFPB is looking for information on what defines a small business, what types of business lending information are used by financial institutions, and what is the privacy impact of the public release of small business lending data.
What do these steps by the Consumer Finance Protection Board mean for small town South Dakota lenders? To start with, it means a lot of red tape, and close scrutiny from regulators for lenders who have already watched as the CFPB already make the business of lending more expensive because of the heavier hand of the federal government.
Small, mid-size and regional banks could see the most significant impact from the CFPB’s proposals. Based on the Bureau’s research, 46% of the small businesses that were surveyed applied for credit at a small bank. Of those that applied, the percentage of approval was higher at small banks than at larger banks.
…the time is now for small, mid-size and regional banks as well as non-bank financial institutions to assess their small business underwriting programs for compliance not only with ECOA but to ensure these programs do not otherwise conflict with any other state lending or securities laws. The CPFB has repeatedly stepped up enforcement activity in advance of proposing new rules, and lenders in this market sector would be well-advised to increase their vigilance on all compliance obligations.
Another wake-up call for Congress and the Trump administration to strip the CFPB of power, and do away with the unaccountable agency.