CFPB Annual Fair Lending Report Addresses Small Business Lending

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The Bureau of Consumer Financial Protection issued its seventh Fair Lending Report to Congress.  The report, released June 28, 2019, describes the Bureau’s fair lending activities in prioritization, supervision, enforcement, rulemaking, interagency coordination, and outreach for calendar year 2018.

The report summarizes the Bureau’s priorities and activities over calendar year 2018.  There were no enforcement matters referred to the Department of Justice, but the report indicated there were a number of ongoing investigations.

Of the many things of note in the report, one was the attention to small business lending with respect to fair lending.  The first was the Bureau’s intentions with regard to data collection for small business lending.  Section 1071 of the Dodd-Frank Act amends ECOA to require financial institutions to collect, report, and make public race, gender and ethnicity information of credit applications made by small businesses. 

The Dodd-Frank Act also provides authority for the Bureau to require any additional data that the Bureau determines would aid in fulfilling the purposes of section 1071.  The report indicates the Bureau will begin implementation efforts stating, “The Bureau will recommence its work on section 1071 with a symposium on small business loan data collection. Details regarding the symposium will be announced on the Bureau’s website at a later time.”

The second point was a discussion of fair lending procedures to review small business lending of financial institutions.  The report suggests the Bureau has worked to develop specific procedures and tests to review small business lending.  Supervisory Highlights discussed the procedures and methodologies used as part of the Bureau’s small business examination process

The Interagency Fair Lending Examination Procedures have been adopted in the Bureau’s Supervision and Examination Manual regarding small business. In describing some areas of examination, the report states, “Some ECOA small business lending reviews may evaluate an institution’s fair lending risks and controls related to origination or pricing of small business lending products.”  Potential redlining is also a potential area of review stating, “Some reviews may include a geographic distribution analysis of small business loan applications, originations, loan officers, or marketing and outreach, in order to assess potential redlining risk.” 

Finally, the approach to fair lending examinations of small business lending appears to be typical of the methods used for consumer lending, including reviews of policies, procedures, file reviews and statistical analyses.

Needless to say, a focus on small business coupled with data collection and reporting requirements would significantly increase the regulatory risk for many institutions.  It would also dramatically increase the work load for CMS as well as lending staff. 

As this is an emerging area, there are still a lot of unknowns.  The tone of the report, however, suggests that institutions may expect ramped up efforts on the part of the Bureau with respect to a wide range of fair lending and consumer protection issues.


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