In a June 30 letter to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, 19 Democratic Senators urged the bureau to expedite its rulemaking process on Section 1071 of the Dodd-Frank Act. Now, 84 members of the House of Representatives have sent a letter of their own, also urging the CFPB to move forward on Section 1071.
“For three years, the CFPB has listed Section 1071 rulemaking (Regulation B) as a Long Term Action item on its Unified Agenda and Regulatory Plan. Section 1071 mandates the CFPB to centralize small business lending data to help lending institutions gain a broader understanding of the credit needs of small businesses. Now is the time for CFPB to initiate rulemaking on Section 1071,” the Aug. 21 letter to Cordray stated.
The letter was led by Reps. Donald M. Payne, Jr. (D-N.J.) and Chris Van Hollen (D-Md.).
“We were encouraged by your remarks that ‘in theory and practice’ the collection and disclosure of small business lending data would be similar to the collection and disclosure of mortgage credit data under the Home Mortgage Disclosure Act (HMDA),” the letter continued. “As the agency finalizes the HMDA regulation, we urge you to initiate a comparable Section 1071 rulemaking.”
It was noted in the letter that small business lending had plummeted since the Great Recession.
According to the U.S. Small Business Administration, “[s]mall business borrowing conditions continued to improve gradually in the first quarter of 2015. For example, the percent change in small business loans outstanding (in amounts of $1 million or less) remained positive or unchanged for the sixth consecutive quarter. Small business loans outstanding totaled $595 billion and remained relatively flat from the previous quarter, but year-over-year (Q1 2014 to Q1 2015) showed an increase of 1.7 percent.”
Large consolidated lenders with $10 billion or more in assets numbered 112 in the first quarter of 2015, representing about 2 percent of all depository lenders, were found to “dominate the banking industry in terms of small business loan share,” holding roughly 48 percent of the small business loan market. Total small business lending by these lenders totaled $286.3 billion in the first quarter of 2015.
Alternative lenders were found to have higher approval rates, but tend to be more costly. Of the three traditional lenders, large banks had the lowest approval rates.
“Within the banking industry, small banks have higher approval rates when compared with large lenders. The approval rate gap (for loans by small business owners) between small and large lenders appears to be narrowing as these institutions continue to make more loans,” the Small Business Administration stated. “In general, small business loans outstanding continue to recover at a gradual pace. Small depository lenders continue to approve more loans than their counterparts. Small firms seeking credit have more options available to them, but the cost of credit provided by non-traditional lenders tends to be higher when compared to traditional lenders.”