Traders urge caution on business loan rule

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CUNA and NAFCU have called on a federal regulator to exempt small lenders and give others more time to comply with a new data collection rule designed to strengthen enforcement of fair lending laws.

The CFPB is developing the rule under the direction of Congress, and the groups filed their comments on the last day of a three-month comment period.

Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Equal Credit Opportunity Act to require financial institutions to submit data to the CFPB on credit claims. credit for women, minorities and small businesses.

The data would describe the credit applied for, demographic information about the small business credit applicant, and key elements of the price of credit offered.

The CFPB said the goal was twofold: to facilitate the enforcement of equitable lending laws and to enable communities, government entities and creditors to identify the needs of women, minorities and small businesses.

And CFPB was tasked with creating regulations to make this work.

In a joint three-page letter to CFPB on Thursday, NAFCU President / CEO Dan Berger and CUNA President / CEO Jim Nussle stressed their agreement with the goal of the rule to promote fair loans.

“That said, it remains important for the bureau to ‘get it right’, and there is a general concern that the complexity and significant costs of the proposed rule will disproportionately burden credit unions in a way that will ultimately lead to to fewer and less favorable outcomes for all small commercial borrowers, ”they wrote.

Nussle and Berger highlighted three changes they would like to see in the proposed rule:

1. Reduce the number of small lenders who must comply by setting the reporting threshold to those who complete at least 500 covered credit transactions in each of the previous two years. The CFPB currently recommends a threshold of 25 loans per year.

2. Refine the definition of small business. CUNA and NAFCU have proposed setting the cap for small businesses to those generating $ 1 million or less in annual revenue; the CFPB is currently proposing a cap of $ 5 million. “Defining an artificially high annual income would not only unnecessarily increase the cost of borrowing for small businesses, but make it more difficult for small business stakeholders to draw statistically significant conclusions about the health and financial needs of true small businesses,” said declared the groups.

3. Extend the time frame for lenders to comply. NAFCU and CUNA have requested that compliance be required no earlier than three years after the bureau adopts a data collection rule. They said the bureau’s proposed 18-month schedule “would be aggressive even for the largest and most technologically savvy credit unions.”

“The vast majority of credit unions potentially eligible for coverage by financial institutions under the proposed rule will be forced to wait for one or more IT vendors to update, redeploy, and cross-test software and tools. Section 1071 compliant small business loan, ”they said. .

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