LOS ANGELES — The U.S. Chamber of Commerce and Union Bank urged the Consumer Financial Protection Bureau on Wednesday to narrow its approach to collecting data on small-business lending, fearing it could add costs and compliance burdens.
The agency has yet to release a proposal on data collection efforts, but took its first step early in the day by releasing a white paper calling for a deeper investigation into the small-business lending landscape. At a field hearing here, minority- and women-owned businesses described the difficulties they have had in getting traditional bank loans while consumer advocates cited the lack of data on what loans are being originated and by whom.
Lenders, however, were worried that potential new data collection requirements on such loans could add to their paperwork burden and cut off access to credit. The CFPB has not made clear the extent of its requirements or even what it will define as a "small business."
"Avoid saddling lenders with rules that are unnecessarily costly to implement and could lead to misleading data," said Todd Hollander, a managing director at Union Bank, who has been lending to small businesses for almost 30 years.
Kate Larson, the director of the U.S. Chamber of Commerce, said small-business lending has not fully recovered from the recent recession and that lenders are already concerned about extending small-business loans because of ability-to-repay requirements.
"We hope to minimize the regulatory hurdles and decrease the cost of underwriting," Larson said.
She asked the bureau to "propose a narrowly tailored definition of what is a small business."
The Chamber also said it is concerned about privacy aspects of the data collection.
The CFPB is required by the Dodd-Frank Act to collect data on small businesses for fair-lending enforcement. Congress identified specific pieces of information that should be collected, including the amount and type of financing applied for, the size and location of the business; the action taken on an application; and the race, ethnicity and gender of the principal small-business owners.
Bankers argued that done improperly, new data collection requirements could increase lender liability and legal costs. Overall, they fear outsiders could reach "incorrect conclusions with the output of the data."
"In order to issue fair and achievable rules, the CFPB may need to request meaningful changes from Congress," Hollander said.
CFPB Director Richard Cordray acknowledged that the line between consumer finance and small-business finance is blurred. That highlights the need for better information, he said.
"We do not know the extent to which small-business lending is shifting from banks to alternative lenders," Cordray said. "Nor do we know the extent to which the credit constraints that resulted from the Great Recession persist and to what extent."
Cordray said the bureau is "sensitive to the fact that various financial institutions may not currently be collecting and reporting all of this information in the context of other regulatory requirements."
"We understand that the changes imposed by this rule will create implementation and operational challenges," he said.
During the hearing, several small-business owners said they typically do not have access to bank loans and have had to turn instead to payday lenders or cash advance firms.
Makini Howell, an executive chef and owner of six vegan restaurants in Seattle with $3 million in annual revenue, said she grew her company by relying on what she called "predatory loans," including cash advances.
"I didn't do any of this with a bank loan, not a penny came from traditional lending," Howell said. "We have to change our understanding around what can be successful. People of color and women are the majority of small businesses, supplying jobs, so banks need to change the frame around who is deserving [of a loan]. The thinking has to change for lending to change."
A few small-business owners said they were unable to get a bank loan because they needed loan amounts of below $15,000, and they called for greater protections for small businesses, including caps on high interest rates from alternative lenders.
Community banks play an outsize role in making small-business loans, but many lenders have no standard underwriting criteria, an issue that was raised at the hearing.
Before the hearing, some credit union groups were lobbying for an exemption to the proposal when it is made. The National Association of Federally-Insured Credit Unions said expanding the data collection would create additional burdens for credit unions.
"Credit unions serve distinct fields of membership, and as a result, institution-level data related to women-owned, minority-owned, and small-business lending substantially differs in relation to other lenders," NAFCU Regulatory Affairs Counsel Andrew Morris said in a letter. "Given the unique characteristics of credit unions and the limits placed on member business loans (MBLs), the CFPB should seek to exempt credit unions from any future rulemaking that compels disclosure of business loan information."
