CFPB Small Business Lending Rule Guidance

Lenders need to review their lending practices, particularly with regard to loans to small businesses.  The Equal Credit Opportunity Act applies to such loans and lenders need not only comply with it, but also compile statistics to prove their compliance.

The Consumer Financial Protection Bureau (“CFPB”) issued its small-business-lending rule on March 30, 2023.  It has not issued guidance to aid lenders making such loans.  A link to the guidance is below:

Why should you care?

The Rule covers any lender that originated at least 100 small business loans in each of the last two calendar years.  (Any extension, renewal, or amendment of an existing loan does not count toward the 100 loans.)  If that is your institution, then you are covered and almost certainly do not want to be subject to greater scrutiny from the CFPB.

What can I do?

Many things!

  1. Read the Small Business Lending Rule Small Entity Compliance Guide and implement it. (Even if you are not a covered entity today, you may be next year; it would be better to have a history of compliance than have to start up such a regime after you are already covered.)
  2. Determine which of your applications for credit are covered. The CFPB designed the Guide to help you do so.  (They’re from the government and they’re here to help.)
  3. Start collecting the demographic information covered by the Rule, including whether the applicant is a minority-owned, an LGBTQI+-owned business, a women-owned business, and the ethnicity, race, and sex of the principal owners of the applicant. If you had a good-faith belief that the transaction was covered, but it later turns out that you were incorrect, the Rule provides you a “safe harbor” from prosecution for having collected that data.
  4. If you are a covered entity, start reporting the results of your data collection.

When does it take effect?

That depends.  (Admit it—you knew we would say that!)

If you are already a covered institution (i.e., you have or will have over 100 covered transactions in 2022 and 2023), then you should start complying immediately.  If you are not yet a covered institution, then you should be getting ready to comply so that you can begin reporting once the Rule covers your institution.

Where can I get more information?

In addition to the Guide, you can review the Rule itself, as well as additional compliance guidance at the CFPB’s website:

If you still have questions after reviewing those resources, you can ask the CFPB.

As we all know, the CFPB takes its mission very seriously.  Your compliance with this rule should be equally serious.  But if you comply per the guidelines, you should be in good shape if the CFPB comes calling.