Consumer Protection Agency Wants To Shine Light On Access To Small Business Loans With New Rule Proposal

The United States Consumer Finance Protection Bureau (CFPB) proposed a new rule on Wednesday that would help the agency shine a light on how loans were being issued to small businesses and reveal why the financial assistance could be denied.

In a 918-page announcement, the CFPB’s proposal would require lenders to collect and report more data about credit applications from small businesses, including demographic and pricing data and reasons for why lenders deny a loan. This rule has not been adopted yet because the CFPB goes through a process of seeking public input for 90 days ahead of any new regulations.

The CFPB was set up in the aftermath of the 2008 financial crisis. It was designed to enforce regulations for financial institutes like banks, credit unions, securities firms, and payday lenders among others.

With this new proposal, CFPB would be acquiring information on a range of credit, including term loans, lines of credit, credit cards and merchant cash advances. Dave Uejio, the CFPB’s acting director, described small businesses as the “primary means by which families and communities build wealth”. Uejio described obstacles to attaining credit as the main difficulty for expanding a small business.

According to the CFPB, citing data from the Small Business Administration and U.S. Census Bureau, there are 31.7 million small businesses in the U.S. Of these, 18.3 percent are owned by minorities, 19.9% are women-owned and 5.9% are veteran-owned.

The agency also shared statistics that show entrepreneurs often end up relying more on personal savings than loans to start their businesses. A majority 64.4% of entrepreneurs relied on this method with only 16.5% using loans to get their business off the ground.

Finding out how credit could be expanded to smaller businesses or individual entrepreneurs is a component of President Joe Biden's goal of jumpstarting the U.S. economy after a year of COVID-19. Despite trillions in federal stimulus dollars being made available across two administrations, entrepreneurs and small businesses did not always succeed in accessing these funds.