A new data-reporting rule issued by the federal Consumer Financial Protection Bureau (CFPB) has Pennsylvania’s community bankers worried about its implications for them and the businesses they serve.
The regulation requires lenders making at least 100 small business loans annually to gather data regarding the entities’ applications, including credit prices, geographic figures, lending determinations, and demographic information. The banks must then publish the data they collect. Entities meeting the definition of “small business” are those with gross revenues under $5 million in their last fiscal year.
When the rule was finalized last week, CFPB Director Rohit Chopra couched the issue regarding transparency. He suggested the mandate will aid industrial development and help authorities address discrimination.
“Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program,” he said in a statement. “This small business loan census will give the public key data on this market to ensure that banks and nonbanks are serving small businesses fairly.”
Federal administrators first resolved to disclose such information in 2010 after enacting the Consumer Financial Protection Act (also known as Dodd-Frank). However, the CFPB noted it did not initially adopt rules to meet this objective. A leftist nonprofit called the California Reinvestment Coalition sued the board four years ago and eventually secured a court order prompting the agency to create its new regulation pursuant to Section 1071 of Dodd-Frank. The largest small-business lenders must begin their data collection in October 2024, while banks making between 100 and 500 small-business loans must start before January 2026.
The Pennsylvania Association of Community Bankers (PACB) and many of its members fear these developments will compromise businesses’ privacy and interrupt their pursuit of loans. Last week, Jonestown Bank & Trust President Troy Peters testified to that effect before the U.S. House of Representatives Small Business Committee and Subcommittee on Economic Growth, Tax and Capital Access.
“I feel like this rule would cause… unintended consequences,” he said. “It will not be in the best interest of my clients and the communities that we serve.”
With the rule now in place, PACB President Kevin Shivers told The Pennsylvania Daily Star that 124 community banks headquartered in 49 of the Keystone State’s 67 counties could be impacted. Pennsylvania has the fifth-highest number of these institutions of any state.
“Community banks play a very powerful economic development role in our commonwealth,” he said.
One concern community bank officials have is that their smaller clients will object to having their private data promulgated. Such disclosures could, they say, put the businesses at an economic disadvantage by enabling data mining by their competitors. The bankers also believe revealing denials of loan applications could unduly embarrass small entities and sole proprietors, potentially costing them business.
“Our small-business customers especially, 1071 would be onerous on them,” Mercer County State Bank president and PACB Chairman-elect Scott Patton said. “It’s going to a lot of extra work for them; it’s going to be a lot of reporting and quite honestly a lot of stuff that they’re not going to want to disclose. The ramifications are [such that] they might be the only business in my county that does what they do [and] if somebody knows that and looks up the reporting… they’re going to be able to tell exactly what that business is doing and I just think that’s not a good use of government collecting our data.”
Shivers said the federal government, in supposedly using 1071 to combat discrimination by lending institutions, is also overreaching in adopting certain new practices like requiring bank staffers to capture data related to applicants’ gender or race. In some cases, he said, this will require bank employees to perform guesswork. Meanwhile, he added, strong preexisting rules prohibit ethnic and sex discrimination by banks, rendering the new regulation unneeded.
Opponents of the CFPB’s mandate say policymakers should also appreciate how it could drive business from smaller lending institutions to larger ones. Shivers pointed out that community banks issue 70 percent of all small-business loans and 80 percent of agricultural loans. If the federal government burdens these institutions in a way that threatens local entrepreneurs’ privacy, he said, more small-business owners may seek lending from large banks where their data would be less easy for onlookers to observe.
Shivers said members of Congress have drafted at least three pieces of legislation to address the more burdensome components of the 1071 rule. He said small businesses could possibly also decide to challenge the regulation in court.
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Bradley Vasoli is managing editor of The Pennsylvania Daily Star. Follow Brad on Twitter at @BVasoli. Email tips to [email protected].
Photo “Small Business” by Khachik Simonian.
