CFPB's Biz Lending Data Collection Should Exceed HMDA: Report
That was the overall recommendation made in a National Community Reinvestment Coalition report Thursday that advised the CFPB on how it should implement Dodd-Frank Act mandates that require collection of the data to prevent discrimination.
“In order for regulators and the public to fully understand lending patterns, a comprehensive picture of the lending marketplace is needed,” said the report, Small Business Loan Data: Recommendations to the CFPB.
“HMDA covers about 80% of loan transactions, which is a percentage that should be matched or exceeded by comprehensive coverage of small business lenders," the report said.
The report also recommended the CFPB collect the data not just from large lenders, but also from smaller banks, credit unions, and non-depository lenders in order to generate an accurate reflection of lending patterns.
The report further recommended the CFPB collect more than just origination data, suggesting the bureau also collect information on denied applications, pricing and creditworthiness.
“The current (Community Reinvestment Act) data has information only on originations, not applications or denials. Adding information on which borrowers applied and which were denied will provide much-needed information on demand for credit and the responsiveness of lenders to loan demand,” said the report.
The NCRC also suggested an expansion of currently tracked racial and ethnic groups.
“The disclosures regarding race and ethnicity need to be implemented carefully to reflect the variety of racial and ethnic groups in this country. For example, it is probably not enough to require disclosures of whether the business is Asian or Hispanic (owned),” said the report
“The CFPB should consider sub-categories to fully capture the experiences of Asians and Hispanics of various nationalities in the marketplace. The Affordable Care Act provides a refined model for this type of disclosure that is not onerous,” the report also said.
The CFPB should also gather additional information about the small businesses applying for credit, including the number of employees, revenue, collateral pledged by borrowers, start-up status of the business and loan performance, the report said.
“The required disclosures regarding revenue size of the small business must be sufficiently detailed so that policymakers and the general public can track loans to microbusinesses which are disproportionately owned by women and minorities,” the NCRC said.
According to the report, the CRA database provides insufficient information on lending. The database only contains two revenue categories – more than and less than $1 million in revenue.
The report also addresses the Dodd-Frank mandate that the CFPB make the collected information publicly available.
“This is important because under HMDA, financial institutions abused their leeway to provide members of the public with unusable formats like PDF documents totaling hundreds of pages. The CFPB must mandate data submission in easy-to-use formats for data analysis as well as summary tables,” the report said.
The report also cited non-traditional business lending sources like peer-to-peer lending, factoring and merchant cash advances as major concerns.
“While factoring has been around for decades, other lending types are more recent. Concerns have arisen about the high cost of some of this lending and the potential for abuses,” the report said.
The report also recommended the CFPB collect information on personal loans entrepreneurs use for business purposes, and not just business loans.