Section 1071 Small Business Lending Data Collection Rulemaking

Section 1071 Small Business Lending Data Collection Rulemaking CFPB Advisory Committee Meeting | November 18, 2020

Background ▪ Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, report, and maintain data regarding applications for credit for womenowned, minority-owned, and small businesses. 15 USC § 1691 c-2(b). ▪ ECOA defines credit as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor. ” 15 USC § 1691 a(d); see also 12 CFR 1002. 2(j). ▪ Section 1071 is similar to HMDA for mortgage lending, but small business lending is more varied in both products and underwriting approaches. 2

Small business lending market estimates Term Loans & Lines of Credit [PERCENTAG E] SBA Loans (7(a), 504, and microloans) 7% Business Credit Cards 16% Merchant Cash Advance Factoring <1% 7% Equipment Leasing 13% A $1. 4 trillion market Supplier Financing 21% Source: CFPB, Key dimensions of the small business lending landscape (May 2017) 3

Section 1071’s statutory purpose ▪ “[F]acilitate enforcement of fair lending laws” and ▪ “[E]nable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses” 4

Data collection and reporting requirement ▪ Covers applications for credit for: � Women-owned businesses � Minority-owned businesses � Small businesses ▪ The Bureau will “prescribe such rules and issue such guidance as may be necessary to carry out, enforce, and compile data pursuant to this section. ” 5

Statutory data points Application number and date received Action taken by the institution and date of such action Type and purpose of the loan or credit Gross annual revenue in last fiscal year Race, sex and ethnicity of the principal owners Principal place of business (census tract) Amount of credit or credit limit applied for Amount of credit transaction or credit limit approved Also provides for “any additional data elements that the Bureau determines would aid in fulfilling the purposes of [section 1071]. ” 6

Proposals under consideration ▪ Scope of the rulemaking ▪ Covered lenders—definition of “financial institution” ▪ Covered applicants—definitions of “small business, ” “women-owned business, ” “minority-owned business, ” and “minority individual” ▪ ▪ ▪ ▪ Covered products—definition of “credit” Definition of “application” Data points (mandatory and discretionary) Shielding data from underwriters and other persons (firewall) Applicants’ right to refuse to provide certain information Compiling, maintaining, and reporting 1071 data to the Bureau Privacy considerations involving Bureau publication of 1071 data Implementation period 7

Section 1071 key considerations ▪ Provide more informative and inclusive small business lending data than currently available and in furtherance of 1071 statutory purposes. ▪ Minimize the burden from implementation and ongoing collection (avoid reducing credit availability). ▪ Prioritize simplicity in explanations and in rulemaking. ▪ Consider areas with the potential for consumer harm (less harm in practice, less need to capture). ▪ Minimize unintended consequences. 8

Rulemaking roadmap—completed milestones Milestone Date completed Notes White paper May 2017 “Key dimensions of the small business lending landscape” Field hearing May 2017 Held in Los Angeles Request for Information May 2017 Symposium on section 1071 November 2019 Two panels/11 thought leaders Data point January 2020 “Small Business Lending and the Great Recession” Outreach to stakeholders Ongoing 100+ meetings over multiple years 9

Rulemaking schedule, per California Reinvestment Coalition v. Kraninger ▪ Consistent with the its commitment to completing the 1071 rulemaking, the Bureau has agreed to: ü Release SBREFA outline by September 15, 2020. ü Convene SBREFA panel by October 15, 2020. � � After SBREFA panel report is complete, negotiate with Plaintiffs to establish a deadline for issuing the NPRM. After the end of the NPRM’s comment period, negotiate with Plaintiffs to establish a deadline for issuing the final rule. 10

Rulemaking roadmap—completed milestones (cont. ) Milestone Date completed Notes One-time implementation cost survey Summer/Fall 2020 Response period ended October 16, 2020 SBREFA outline released September 15, 2020 SBREFA panel convened October 15, 2020 The panel (comprised of the Bureau, SBA’s Office of Advocacy, and OMB’s OIRA) completed its meetings with small entity representatives in October. 11

Rulemaking roadmap—future milestones Milestone Timing Written feedback due from SERs on the SBREFA Outline November 9, 2020 Written feedback due from other stakeholders on the SBREFA Outline December 14, 2020 Complete SBREFA panel report December 2020 Notice of proposed rulemaking TBD Final rule TBD Effective date TBD 12