'We don't need to be scared by sunshine': Industry backs CFPB rule
For a measure that’s languished in bureaucratic limbo for nine years, the Dodd-Frank Act’s requirement that lenders start collecting and reporting data on small-business loans actually seems to have a lot of support.
At a forum convened Wednesday by the Consumer Financial Protection Bureau, financial industry representatives said that the long-awaited rules can help protect against discrimination and shine a light on unsavory practices in the market for small-business credit.
“The business community should be behind this rule. The business community will benefit from this rule,” said Brad Blower, vice president of consumer practices at American Express. “We don’t need to be scared by some sunshine.”
Richard Neiman, head of public policy at LendingClub, argued that the rules can provide a model for a market-based, pro-innovation approach to regulation.
“We believe that the collection of data will encourage the market to address both the lack of access to affordable small-business credit and the unfortunate rise of irresponsible lending," he said.
The CFPB is charged with writing the small-business lending rules, which bear a resemblance to the long-standing requirement that consumer lenders collect and report information about the race and gender of residential mortgage applicants.
A lot of important decisions remain to be made — including how much data will be collected, about which products, and from which companies. Wednesday’s event at the bureau’s headquarters in Washington, marked a step forward in that process.
In her opening remarks, CFPB Director Kathy Kraninger alluded to negative feedback that the agency has received from some financial industry officials, including concerns about a possible curtailment of credit to small businesses.
“The bureau fully recognizes the sensitivities here, and we know that the rule needs to be done with great care and consideration,” Kraninger said.
Yet the financial industry representatives who spoke Wednesday were largely upbeat about the potential rules, even while warning that they could have certain negative effects depending on how they're written.
For instance, Noah Breslow, the CEO of OnDeck Capital, an online business lender that offers funds as soon as the same day borrowers apply, expressed concern that the CFPB rules could slow down the lending process.
“It would be sort of not a great thing,” he said, “for small-business capital access to go back in time.”
Still, the strongest opposition to the data reporting requirement came not from the lending industry, but rather from right-leaning think tanks.
“To the extent it applies to all loans, it’s going to reduce the number of loans. It’s going to increase the costs associated with small-business loans and raise the costs that small businesses have to pay,” said David Burton, a senior fellow at the Heritage Foundation.
But Glenn Christensen, a professor at Brigham Young University’s business school, spoke passionately about the problem of discrimination that the Dodd-Frank provision was meant to address. Christensen described some of his research, which he said involves sending mystery shoppers into bank branches to inquire about loans and has found statistically significant evidence of discrimination.
In one instance, a woman and a man were sent into the same bank branch, where they met with the same employee, according to Christensen. Although the woman had better credentials as a prospective borrower, the bank employee ended a meeting with the man in sales mode, while separately telling the woman, “I hope that your current bank does a really good job taking care of you.”
For their part, financial industry representatives offered mixed views about the burden that the data collection regulation is likely to place on lenders.
“I think it’s going to be a real challenge to get the data together,” said William Phelan, general manager of PayNet, a commercial lending data provider owned by Equifax.
On the other hand, Maureen Busch, vice president of compliance at the Bank of Tampa, said that banks already collect much of the data that will be necessary, under Community Reinvestment Act requirements. She argued that the CFPB’s rules should cover alternative lenders, which are not subject to the 1977 law.
“It shouldn’t just be the traditional providers,” she said.