CFPB Needs to Begin Rulemaking on Data-Gathering for Credit Applications

By Pamela J. Bethel

This is the third blog post in our series about new federal regulatory initiatives in the first half of 2014.

Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, one of the lesser-known sections of that broad and extensive statute, requires financial institutions to report information concerning credit applications made to them by women- or minority-owned businesses and small businesses.

Specifically, a financial institution, under that section, must “inquire whether the business [applying for credit] is a women-owned, minority-owned, or small business” and must also “maintain a record of the responses to such inquiry, separate from the application and accompanying information.”

The financial institution needs to keep on hand information including the “type and purpose of loan or credit applied for; the amount of credit applied for and approved; the type of action taken with regard to each application and the date of such action; the census tract of the principal place of business; the gross annual revenue; and the race, sex, and ethnicity of the principal owners of the business.”

The reason for this collection of data is to ensure that banks and other financial institutions are not denying credit on the basis of the size of the business applying or on the basis of race, sex, or ethnicity.

However, none of these requirements is in effect at the present time. They will not go into effect until the Consumer Financial Protection Bureau (CFPB) sets forth formal rules on the matter. And the CFPB hasn’t begun the rulemaking process yet.

In an April 11, 2011 letter, the CFPB indicated that the purpose of Section 1071 is “to facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.”

Now, if the CFPB plans to prioritize this rulemaking, it hasn’t done so yet.

In its most recent semiannual regulatory agenda, published on January 7, 2014, the CFPB says that it “expects to begin developing proposed regulations concerning the data to be collected and appropriate procedures, information safeguards, and privacy protections for information-gathering under this section.”

So it hasn’t started yet, and it has placed it in a list of “long-term actions.” In our view, because of the importance of putting into place the data gathering that Congress has mandated, the agency should take action soon.

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