The Consumer Financial Protection Bureau's long-awaited plan to tackle small-business lending is still in its early stages, but it's already putting bankers on edge.
The agency recently cited providing equal access to small-business loans as one of nine top priorities for the next two years, saying it plans to build a team dedicated to the issue and infrastructure "to intake and analyze small-business lending complaints." The bureau has already posted a job for an assistant deputy for small-business lending, who would lead the team within the agency's research, markets and regulations division.
"We envision a market free from discrimination and where consumers have equal access to small-business lending," CFPB Director Richard Cordray said in a speech to the bureau's consumer advisory board last week.
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Equal-opportunity small business lending can go a long way toward helping minority groups rebuild the wealth lost during the Great Recession. The CFPB has delayed implementing reporting requirements that could close the credit gap for far too long.
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As the Consumer Financial Protection Bureau finishes regulations dealing with mortgage data reporting, a similar set of requirements for small business loans is waiting in the wings.
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But the push, which has long been expected as a result of requirements in the Dodd-Frank Act, is worrying the banking industry, which fears the CFPB will go too far.
"This is the Consumer Financial Protection Bureau, not the business financial protection bureau," said Don Lampe, an attorney at Morrison & Foerster. "Is this an area where the bureau would regulate with more authority than they really have?"
The Dodd-Frank Act gives the CFPB only partial oversight of small-business lending by making it the enforcer of the Equal Credit Opportunity Act, one of the few statutes to deal with that area.
The law also requires lenders to submit data on credit applications made by small as well as minority- and women-owned businesses. The data, like that under the Home Mortgage Disclosure Act, is meant to assess whether lending patterns reflect fair and equitable treatment or possibly discriminatory practices.
The CFPB has yet to propose how to implement the small-business disclosure requirements despite calls last year from House Democrats and consumer groups to
Although the CFPB has yet to issue its proposal or take other steps, industry representatives are wary it will go beyond its mandate.
"The concern is whether the bureau is going to get into the business lending side of things," said Wayne Abernathy, an executive vice president of the American Bankers Association.
Small-business lending may have "definitional boundary questions," Abernathy said, since people who start a small business tend to max out their personal credit cards before trying to get a loan.
"There isn't always a fine line between where a business ends and an individual begins," Abernathy said.
The question is whether the CFPB will go beyond disclosures and enforcement of anti-discrimination mandates "and subject small-business lending to other areas of agency jurisdiction, such as unfair, deceptive or abusive acts and practices," Lampe said. "We are keeping a close eye on this."
Currently, no federal agency collects data on small-business loans. Without such data, the CFPB said, there is a limited understanding of the market. The CFPB called small-business lending a "vast and complex" market of over $1 trillion, serving roughly 28 million businesses.
"Millions of consumers work in or own small businesses that rely on accessible and nondiscriminatory credit markets," the CFPB
Meanwhile, consumers groups said the added transparency is needed to ensure that owners taking out small-business loans are being treated fairly.
John Gamboa, the executive director of the California Community Builders, an affordable housing development organization in Berkeley, said he hopes financial institutions will start to recognize the upside potential of making small-business loans to minorities.
"It's going to be a lucrative source of profits," Gamboa said.
But he also expects "blowback" from financial institutions.
"This is brand-new sunshine on an issue and financial institutions are going to be really far behind, just like they first were on HMDA," Gamboa said. "Financial institutions will fight tooth and nail and use every resource they have to delay this."
