The Consumer Financial Protection Bureau (CFPB) has proposed a new rule designed to help small businesses gain access to credit by increasing transparency in the lending marketplace.
The rule has yet to be finalized, but it will have vast implications on the lending industry if and when it does. The proposed CFPB requirements for lenders would have them disclose comprehensive information about their data collection for small businesses, and these requirements go far beyond what they are currently doing.
So, what should lenders be doing now to prepare for the future? Let’s dive into all the details about this new CFPB rule.
What is the new CFPB rule?
Congress mandated the new rule in Section 1071 of the Dodd-Frank Act. The rule requires the CFPB to collect data about small business lending to facilitate the enforcement of fair lending laws and to help identify business and community development needs and opportunities.
Under the proposal, lenders will be required to report the amount and type of small business credit applied for as well as demographic information about small business credit applicants and key elements of the price of the credit offered.
Why is the new rule important?
Small businesses are an essential part of the U.S. economy and a significant portion of lending and credit markets. According to the Small Business Administration, small businesses employ more than 60 million Americans, or over 1-in-3 working adults.
Because small business ownership is typically a path to wealth creation for individuals, families, and communities, small business lending can foster greater equity, and its absence can exacerbate existing inequalities. Failing to make small business lending accessible to all who qualify stifles innovation and competitiveness.
The COVID-19 pandemic highlighted the negative economic impact that occurs when policymakers lack the data to best target financial relief. The pandemic hit small businesses hard, and over 33% closed at the height of the pandemic. Yet many small businesses struggled to access the relief funds Congress appropriated during the COVID-19 emergency.
The data collected under the proposed rule would help the CFPB address the difficulties small businesses experience in trying to access credit and provide greater insight into improving current lending practices. Hopefully, the data will lead to more effective small business and community development programs and aid government agencies in their ongoing fair lending, supervisory, and enforcement efforts.
How are lenders expected to abide by the new rule?
The CFPB is proposing that lenders be required to collect and report data about credit applications from small businesses, including women-owned and minority-owned small businesses. The proposed requirements would apply to credit products, including term loans, lines of credit, credit cards, and merchant cash advances.
Lenders would be required to report information about:
- The credit small businesses seek and obtain: This may include the purpose, type, and amount of credit being applied for, the amount approved or originated, census tract, gross annual revenue, industry code, number of workers, time in business, number of principal owners, and key elements of the cost of the credit (the interest rate and certain fees).
- The demographics of small business owners: This may include whether the business is minority-owned or women-owned, and the ethnicity, race, and sex of the applicant’s principal owners.
- How applications are received and their outcomes: This may include the application date, method the application was received (in-person, telephone, online, or mail), recipient of the application (the lender or its affiliate, or submitted via a third party), action taken by the lender on the application (originated, approved but not accepted, denied, withdrawn by the applicant, or incomplete), date of action taken, and denial reasons when applicable.
How can Silverline help lenders comply with the new CFPB rule?
Adapting to regulatory changes is nothing new to lenders. But the new CFPB rule will require lenders to adapt like never before. They will be expected to collect, sort, and generate a tremendous amount of data.
Silverline has developed an approach with Salesforce Community or Lightning External Application to collect information and process workflows within Salesforce. This cloud-based lending solution supports high volumes of applications and is architected for quick deployment. Rapid enhancements to the system are possible if CFPB requirements and legislation guidelines change based on the new rule.
Silverline can integrate your Salesforce system with nCino’s Bank Operating System. nCino is built on the Salesforce platform, and when you combine it with Salesforce Financial Services Cloud, you can gain a unified view of each customer’s entire journey through the CFPB’s data requirements. You’ll be able to provide a streamlined and connected customer experience while enhancing your team’s productivity and operational efficiency with the required data.
Why choose Silverline?
As a Salesforce consulting partner, Silverline has over a decade of experience working with Salesforce and proven expertise in the lending industry. In addition, Silverline is a certified nCino partner and has the capabilities needed to guide you through the CFPB’s new rule and ensure your system is appropriately configured to meet all data collection needs. Find out how our experts can help your organization prepare.