knows. But in the meantime the Bureau started the regulatory
process, also in May, by issuing a Request for Information Regarding the Small Business Lending Market, along with a White Paper
on the key dimensions of the small business lending landscape.
The Bureau is “focused on outreach and research to develop our
understanding of the small business lending market,” which will
help them formulate the specifics of the rule.
In response to request from a number of industry trade associations, the Bureau extended the comment period by 60 days,
reflecting that this is indeed is a hot topic. The Bureau is also
looking for feedback on the privacy implications of making this
type of information public.
It would be extremely risky to assume a rule will never appear,
so in the meantime banks should do some homework to investigate
what they may have to do. So when this new regulation is written,
what will it look like? Like other rulemaking initiatives in the
Dodd-Frank Act, the Bureau has discretion to craft the regulation, including exceptions, as it generally sees fit. But we can look
to the statutory language to get a general idea of what is coming.
A New “LAR” (Loan Application Register):
Business Loan Data Collection and
Note that this new requirement will be completely separate from
the data collection and reporting requirements of both HMDA
and the Community Reinvestment Act (CRA); however there
may be some applications and/or loans that are reported under
more than one regulation.
Who Will Be Covered?
The new requirements apply to “financial institutions,” as that
term is defined in the ECOA amendments. It’s a broader definition than what is found in the CRA, for instance, but suffice it to
say that all banks are included, as “engages in financial activity”
is the key determinant for coverage.
However, the Bureau is given the authority (“by rule or order”)
to adopt exemptions to any class of financial institution “as the
Bureau deems necessary or appropriate to carry out the purpose
of this section.” 1 It remains to be seen whether the Bureau will
enact exemptions similar to those in HMDA (dependent a bank’s
asset size, loan volume, etc.), or any at all.
For What Applications and Loans Will Information be
Collected and Submitted?
According to the statute, lenders will be required to collect and
report data for “any application to a financial institution for credit
for women-owned, minority-owned, or small business.” 2 What
precisely is covered here?
Application. The rule requires reporting of applications for
covered loans, not just originated loans, just as HMDA does.
There is no definition of “application” in the Dodd-Frank Act’s
ECOA amendments, but since this will be part of Reg. B, we can
look there: “Application means an oral or written request for an
extension of credit that is made in accordance with procedures
used by a creditor for the type of credit requested.” 3
Commercial lenders commonly have no specific application
procedures, especially for larger loans. So what must be developed
internally in banks; in other words, what will constitute a report-
able application? Reg. B’s commentary provides some assistance:
The term “procedures” refers to the actual practices followed
by a creditor for making credit decisions as well as its stated
application procedures. For example, if a creditor’s stated
policy is to require all applications to be in writing on the
creditor’s application form, but the creditor also makes credit
decisions based on oral requests, the creditor’s procedures are
to accept both oral and written applications. 4
Many times commercial loans are initiated by oral requests, and
those would clearly constitute applications under the regulation.
But when is the actual “request for” credit made? It’s often hard to
pin that down precisely, but the statute requires “the date on which
the application was received” to be submitted. This time before a
regulation is finalized should be used to determine what the bank’s
commercial lenders actually do, and to dig deep into processes to
determine an application date for reportable commercial loans.
Compliance officers must be sure to cast a wide net to catch all
reportable instances of credit requests for covered loan types.
Loan. The definition of a covered “loan” includes both closed-
end loans and open-end lines of credit, whether secured or not.
The statute is broad, although the Bureau may narrow it down.
“Minority” includes “any Black American, Native American,
Hispanic American, or Asian American.” 5
Minority-owned business and women-owned business. These
terms have the same basic requirement: more than 50% of the
ownership of control of the business is held by one or more minority
individuals or women, or more than 50% of the net profit or loss
accrues to one or more minority individuals or women. (Note
the Bureau will have to delineate how to report an application
made to a business owned or controlled by minority women—is
it reported as both, for example?)
Note that the definition of a covered minority-owned or women-owned business loan is not dependent on the size of the business.
A loan can be to a minority- or women-owned business even
though the business isn’t a “small business.” In other words, loans
to minority- or women-owned large businesses will be covered.
Small business loan. This is defined simply as “a loan made to
a small business.” 6 Well, that doesn’t really help—tell me what a
“small business” is then. According to the statute, a “small business” means the same as the term “small business concern” in
the Small Business Act.
Ask anyone who deals with Small Business Association (SBA)
Like other rulemaking initiatives in the Dodd-Frank Act, the Bureau has discretion to craft the
regulation, including exceptions, as it generally
sees fit. But we can look to the statutory language
to get a general idea of what is coming.