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CBA Comment Letter re 1071 SBREFA Outline
Dear Director Kraninger:
The Consumer Bankers Association (CBA) greatly appreciates the opportunity to comment on the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) Small Business Regulatory Enforcement Fairness Act (“SBREFA”) outline concerning the small business lending market and the pending rulemaking pursuant to Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Section 1071 amends the Equal Credit Opportunity Act (“ECOA”) to require financial institutions to compile, maintain, and report information concerning credit applications made by women-owned, minority-owned, and small businesses. Under Section 1071, every financial institution must inquire of any business applying for credit whether the business is a small business, or a women- or minority-owned business, maintain a record of the information separate from the application, and report the information along with related information about the application to the CFPB. The information must be made public on request in a manner to be established by regulation and will be made public annually by the Bureau.
As we have maintained since the promulgation of Section 1071, CBA and its member institutions strongly believe that the CFPB should keep top of mind that although Section 1071 mandates this rule, it is not as simple as data collection efforts undertaken on other lending products such as residential mortgages. The notion that business lending parallels nicely to residential mortgage lending is misplaced. The use of Home Mortgage Disclosure Act (“HMDA”)-like reporting for business lending activity to ferret out potential discrimination is, in our opinion, a tremendously flawed premise because the two types of transactions differ inherently in many key aspects:
• Residential lending all share the same type of collateral. Business lending may not be secured at all, and when secured, the type of collateral varies tremendously.
• Residential lending has (with rare exceptions) consumers as the applicants. Business lending involves loans to all sorts of applicants, ranging from sole proprietors to sophisticated corporate structures.
• Business loans are often renewals rather than new loans. These renewals are not akin to refinances in the residential world.
• Business loans have much shorter and varied durations.
• The appropriate property address for a business loan to use for reporting and analysis can be debated with no easy or right answer.
• Capturing business loan applicants for reporting and analysis can be debated with no easy or right answer given the various ownership and structures.