Don't blame banks for CFPB's flawed data collection rule

To the editor:

Regarding the recently published op-ed titled "The danger of kneecapping the CFPB's small-business data rule" by John Heltman:

It may be tempting to oversimplify concerns by financial institutions about the Consumer Financial Protection Bureau's final rule implementing Section 1071 of the Dodd-Frank Act by accusing the industry as being unwilling or too lazy to root out discrimination. But that's far too glib. Helping ensure Main Street job creators have the tools necessary to thrive amid ongoing economic uncertainty is at the core of our industry's mission. Further, every financial institution with over $10 billion in assets is already regularly examined by the CFPB for compliance with fair lending laws.

The Consumer Bankers Association's member banks are committed to the spirit and intent of the Section 1071 final rule and have taken significant steps to expand access to credit for minority- and women-owned businesses. At the same time, CBA has consistently raised concerns that the CFPB's implementation of the statute goes far beyond the congressional intent and will cause complex logistical issues. This complexity, coupled with an unnecessarily short implementation period, raises concerning impediments to efficient compliance with Section 1071, potentially frustrating the very purpose of the statute.

The CFPB's data collection under its final rule is uniquely complicated given the diverse and evolving nature of small-business lending. Demographic reporting under the Home Mortgage Disclosure Act involves loans sharing the same type of collateral. In contrast, small-business loans may not be secured; and when they are secured, the collateral may vary tremendously. Residential lending generally has natural persons as applicants; whereas it may be difficult to determine who the owners of the small-business applicants are, given that small businesses may have multiple owners or intricate ownership structures. In many cases, small-business applicants may raise questions or concerns about why sensitive and personal data is being collected. And perhaps most importantly, the level of granularity of the data collected (80+ data fields) extends far beyond the intent and needs of the statute to combat discrimination.

Politics and policy

House votes to nullify CFPB small-business data rule

Republicans and a handful of Democrats in the House and Senate, which already had passed an identical bill, say the data-collection rule would be too onerous for lenders and small-business borrowers. President Biden is expected to veto the legislation.

Implementation of these concepts takes time to get right, particularly because many banks work with retail partners to offer small-business credit at the point of sale. Outside commentators may not realize how much must change every time the CFPB introduces a new requirement. Technical systems and business processes will need to be modified or rebuilt. But also, procedures, customer disclosures, call scripts, employee trainings, compliance management processes and risk models will all need to be redesigned — and then tested — before implementation.

This undertaking doesn't occur in a vacuum. Rather, the CFPB alone is finalizing a wide range of regulatory proposals, like mandating the creation of free application programming interfaces that will be accessed 50-100 billion times a year; dramatically lowering the primary incentive for consumers to pay their credit card bills on time; and potentially threatening years of industry progress on overdraft programs with a one-size-fits-most approach. Further, other regulators are pursuing, for example, significant rulemakings on debit interchange. Although agency rule writers don't seem to be thinking about the risks they create with these cumulative and competing deadlines, outside observers of the market should be mindful that there are limited resources for implementing new mandates, which can lead to unintended consequences and unchecked complexity that inevitably create risk.

Through all of this, banks continue to focus on serving our customers, competing to keep and grow their trust and ensuring, on an equitable and fair basis, that small-business owners have access to the capital they need for their versions of the American dream. We just believe that these are the kinds of things that merit taking the time to get it right.