It took an act of Congress, at least one lawsuit and a very long wait.
But today — decades after lenders were required to disclose mortgage-application information that brings hidden patterns of discrimination to light — the federal government enacted a rule to mandate that type of reporting about small-business lending, too.
“Many local businesses were shuttered during the COVID-19 pandemic after they struggled to obtain credit under the Paycheck Protection Program,” Rohit Chopra, director of the Consumer Financial Protection Bureau, 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.”
The CFPB’s rule covers a wide range of lending and lenders: loans, credit lines, business credit cards, online credit products and merchant cash advances from banks and non-banks alike, as long as they make more than 100 such loans a year to businesses with gross revenue below $5 million.
Detailed data is likely still several years off from reaching the public eye. Large lenders will have to begin collecting first, starting October 2024, with other lenders phased in through January 2026.
But the CFPB said it intends to get the data out as quickly as possible because it sees the long-delayed information as urgently needed. Officials there think such details would have made a difference in the disparity-plagued Paycheck Protection Program.
The new small-business lending data will offer the first comprehensive picture of small-business credit applications nationwide. It’s designed to shed light on cost variations, availability by location and whether business owners are getting equal access regardless of their self-reported race, ethnicity, gender or sexual orientation.
That information could fuel lending competition, improve the design of government programs and trigger more enforcement of fair-lending laws.
“We’re very excited that it’s now in effect,” said Paulina Gonzalez-Brito, chief executive of the California Reinvestment Coalition. “We really think it will help us detect and deter discrimination.”
When Congress ordered the creation of the CFPB in 2010, in the aftermath of a financial meltdown, it also directed the new agency to collect this lending data. Step one was enacting a rule, no quick matter.
The agency hadn’t gotten very far when it put the work into deep freeze in 2018 under the Trump administration.
Fair-lending advocates were determined to get the gears of government turning again. Data, they knew, could be powerful: The demographic information about borrowers approved and denied home loans — from the Home Mortgage Disclosure Act, created by Congress in 1975 and later amended to require more detail — shows sharp racial disparities and modern-day redlining.
So in 2019, the California Reinvestment Coalition and several other plaintiffs sued.
Among them: ReShonda Young, a small business owner in Iowa whose effort to open a Black-owned bank was the focus of the second season of the Center for Public Integrity’s Heist podcast. By not collecting the data, she and the other plaintiffs argued, the government was standing by as discrimination went unchecked.
“There are laws on the books, but people just don’t follow them,” Young said in an interview for the podcast.
The CFPB settled in 2020. Its announcement of the now-final rule squeaked in one day before its court-ordered deadline.
“There’s no good answer for the delays, but given what we saw during the pandemic, the cost to small business owners and local communities of not acting has been high,” Chopra, the agency’s director, said in prepared comments he planned to deliver at the National Community Reinvestment Coalition’s Just Economy Conference today.
The fair-lending Community Reinvestment Act, he added, “cannot work without good data.”
There’s the potential for further delays on data collection, if lenders or industry groups sue. But the CFPB made changes between its proposed and final rule that took some lender complaints into account, including raising the number of loans before reporting requirements kick in.
The CFPB pointed to the racial wealth gap, which The Heist podcast investigated, as a key reason equal lending is critical. Many small business owners of all races don’t have enough savings to self-finance their operations, the agency said, but it’s particularly difficult for owners of color.
“In 2019, median Black and Hispanic net worth was 13% and 19%, respectively, of median white household net worth,” the agency noted.
The California Reinvestment Coalition’s Gonzalez-Brito sees in the new rule an opportunity to hold not only lenders but also regulators accountable for their responsibilities on fair lending.
“This kind of accountability, especially for people of color to be able to access the same as others, is always slow in coming — if it comes at all,” they said. “Today is really a day to celebrate. … We’re going to be able to see some real change.”
This article was updated March 30, 2023 with an interview from Paulina Gonzalez-Brito at the California Reinvestment Coalition.