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By Michael Emancipator, Vice President, Regulatory Counsel, Independent Community Bankers of America.
ICBA knows that many bankers are concerned about the privacy implications for their small business customers and are currently educating their small business customers about the forthcoming implementation of the CFPB’s rule on small business loan data collection (otherwise known as Section 1071).
To help engage and communicate with your customers and encourage their grassroots advocacy, ICBA is providing the following checklist for your consideration:
Post 1071 links on social media, and open up a Q&A in the comments.
Share information about 1071 with small businesses during local organization meetings such as Chambers and Rotary clubs.
Send an alert from your bank CEO to small business customers to explain 1071, its ramifications, and how to contact their members of congress.
Provide the sample letter they send to their members of congress.
Write an op-ed in your local newspaper.
The Consumer Financial Protection Bureau recently finalized a rule that will require financial institutions to burden small-business customers with invasive questions and publicly report the data they collect to the government. More info.
Policymakers in Washington should step in to block CFPB’s rule 1071 due to its harmful impact on privacy & its potential to restrict access to credit to the small businesses that drive the nation’s economy. Write to your representative and just say no. More info.
At a time of growing threats to privacy and security in an increasingly plugged-in world, a new federal regulation threatens to make the problem worse for the residents and small businesses of [LOCAL COMMUNITY] and other communities nationwide. The Consumer Financial Protection Bureau recently finalized a rule that will require financial institutions — including [NAME OF BANK] — to burden small-business customers with invasive questions and then publicly report the data they collect to the federal agency.
Policymakers in Washington should step in to block this misguided rule given its harmful impact on privacy and its potential to restrict access to credit to the small businesses that drive the nation’s economy, particularly the women- and minority-owned businesses this rule is designed to help.
Protect your privacy. Write to your member of Congress and just say no to the collection and reporting of your personal information.
A federal agency will soon require your bank to collect and report information on your small business and any loans it applies for, such as what you’re using the loan for, the number of your employees, and your gross annual revenue. Because the federal agency is required to publish this information in a public database, there is a risk that your information will be made public. For example, your neighbors could learn your gross annual revenue or your competitors could learn why you are taking out a loan. This information should remain private.
While the intention behind the information collection is admirable – to curb discriminatory lending – the federal agency is collecting too much information from too many loans. They have other options without putting your data and personal privacy at risk.
Now, by writing to your member of Congress, you have a chance to stop this rule from even taking effect. If you do not want the federal government to collect this information about your small business – and risk your privacy - please consider submitting the following letter to your U.S. Senator or Representative.
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“Dear [member of congress] – I am a small business owner that is asking you to repeal the Small Business Loan Data Collection rule by supporting [bill number]. As a small business owner, I do not want the federal government to collect my sensitive data about my business or my loans, such as my interest rate, the purpose of my loan, how many people I employee, or my gross annual revenue. This is personal information that I do not want to share and the CFPB has not explained which of that information will become public.
I trust my community bank, and I value the relationship they have with my community. By asking my bank to collect more than 80 data points on every single loan application, I am concerned that my community bank will strain under the additional burden, possibly constricting their lines of credit to offset costs.
I am concerned about my business’s privacy and my ability to get a loan when I need it most. With interest rates soaring, and experts predicting the next recession, this is a bad rule at the wrong time. Please support [bill number]
Sincerely,
[NAME]
By [NAME]
At a time of growing threats to privacy and security in an increasingly plugged-in world, a new federal regulation threatens to make the problem worse for the residents and small businesses of [LOCAL COMMUNITY] and other communities nationwide. The Consumer Financial Protection Bureau recently finalized a rule that will require financial institutions — including [NAME OF BANK] — to burden small-business customers with invasive questions and then publicly report the data they collect to the federal agency.
Fortunately, Congress is considering a resolution to overturn this misguided regulation. Lawmakers from both parties should unite to roll back the rule given its harmful impact on privacy and its potential to restrict access to credit to the small businesses that drive the nation’s economy, particularly the women- and minority-owned businesses this rule is designed to help.
The CFPB’s new rule implements a section of federal law requiring lenders to collect and report data on credit applicants. The law specifies several data points financial institutions must compile on applications from women-owned and minority-owned businesses, including the race, sex, and ethnicity of the principal owners as well as gross annual revenue.
While these requirements are mandated by Section 1071 of the Dodd-Frank Act of 2010, the CFPB has the authority to exempt any class of financial institutions from the standards it develops and to limit mandatory data points to those required by the law. Unfortunately for applicants served by community banks — which make roughly 60 percent of the nation’s small-business loans and are leaders in meeting the credit needs of women- and minority-owned businesses — the CFPB has opted to apply the rule to the vast majority of local financial institutions and the businesses they serve. And the data points it requires these institutions to collect and report far exceed those required by law, compounding its impact on small businesses and community banks.
The CFPB’s rule will have a substantial negative impact on small-business lending for several reasons.
First, the rule raises significant concerns about the privacy of applicants for commercial credit, particularly in smaller communities and rural areas. Community bankers are concerned for small-business customers that are the only business of their type in their local community, such as the town dentist or auto repair shop — a significant concern in [NAME OF COMMUNITY] and communities like it. Requiring financial institutions to collect and report data on loan applicants will make it possible for them to be identified, potentially driving small businesses away from community banks and local communities.
Second, the CFPB’s rigid data collection requirements will hamper the ability of [NAME of BANK] and other community banks to tailor loans to meet the unique needs of local businesses, which is a hallmark of relationship-based lending. While community banks look at each small business individually and make highly customized loans based on numerous borrower characteristics and market variables, the Section 1071 rule requires a homogenized approach that will degrade their ability to offer small businesses the type of credit they need in a timely and efficient manner. Small-business lending is not and should not be a commodity.
Third, these requirements and their chilling effect on small-business lending will ultimately harm the borrowers the bureau is trying to help — women-owned and minority-owned businesses. These mandates would compound the regulatory and paperwork burdens that disproportionately affect community banks, limiting their ability to make small-business loans. By targeting the community banks that are outpacing larger institutions in serving minority and women borrowers, the CFPB’s self-defeating rule threatens to undermine a part of the banking sector that is working as it should.
With the U.S. Supreme Court considering a case challenging the constitutionality of the CFPB’s funding structure, the bureau should first issue a stay on the rule’s effective date until the high court issues a decision, which will likely come next year. Meanwhile, the CFPB should use its authority to exempt more community banks and small businesses from its rule and limit mandatory data points to those required by law. Finally, Congress should step in and pass legislation to eliminate these harmful requirements once and for all.
Community bank small-business lending is a complex process that cannot be commoditized like consumer or mortgage lending, which would have a chilling effect on access to credit, particularly for the borrowers Washington is seeking to help. To avoid disadvantaging small businesses in local communities, including right here in [NAME OF COMMUNITY], Congress should unite to suspend and ultimately block this misguided policy.
[NAME] is [TITLE] of [BANK NAME].