Small Business Lending Under the Equal Credit Opportunity Act (Regulation B)

The Bureau of Consumer Financial Protection has published in the Federal Register (FR) its final rule amendments to Statutory Instrument 12 CFR Part 1002 regarding the reporting under the Equal Credit Opportunity Act. The final rules are accompanied by the feedback the Bureau has received from commenters on the Bureau’s corresponding consultation that was launched in October 2021.
According to the finalized document, the Bureau will extend the reporting requirements of institutions to additionally collect and report data on loan applications made by small businesses as defined as having „$5 million or less in gross annual revenue for the preceding fiscal year“. This information will include typical loan data (i.e. the type of loan, loan size) and data on the principal owners of the business and on beneficial ownership (if different), the owners ethnics, race, and sex, an indication as to the status of the application (approved yes/no), and various others. The collection and reporting requirements will apply pursuant to the above noted tiered timeline.
Unlike proposed in the draft version, even though institutions will still be required to ask for certain „protected demographic information“ (i.e. information on race, ethnics), but – if rejected by the loan applicant – they will NOT have to assess the information on their own via „visual“ inspection.
The reports along with the identifying information on the owners (race, sex, ethnics, etc.) will have to be submitted to the Bureau once a year on or before June 1 the year following the data collection in accordance with the instructions that the Bureau plans to distribute in due course. Sample forms are included in the final rule that shall serve institutions to determine which data they need to collect.
Furthermore, the Bureau will require financial institutions to implement a so-called „Firewall“ (so titled by the Bureau itself) to retain information on ethnics, race, and sex of applicants from persons involved in the credit approval process. On top, the Bureau will publish the information provided by the institutions (in aggregate and suppressing certain details in order not to violate data protection policies) and will require financial institutions to refer to this publication on their website.
Please note: The data collection will apply to ALL businesses providing credit to small businesses, not only to licensed institutions. However, there will be a collection threshold: only firms originating at least 100 credit transactions in each of the previous two business years would have to collect and report this data. (The threshold was changed from the proposed 25 credit transactions).