CFPB’s Newest Order: How it Affects HMDA Reporting

Mortgage News April 13, 2023

The Consumer Financial Protection Bureau (CFPB) has recently implemented a new rule aimed at increasing transparency in small business lending. This new rule is designed to promote economic development, combat unlawful discrimination, and provide a more comprehensive view of small business lending. As per the new rule, lenders are obligated to gather and disclose a wide range of information pertaining to small business credit applications, encompassing demographic and geographic data, lending verdicts, and credit costs.

Small businesses and family farms are the backbone of the American economy, accounting for nearly half of all private sector workers and the majority of new job creation. These businesses typically finance their operations through loans from banks, credit unions, and nonbank finance companies. Access to credit for small business entrepreneurs has been poorly documented, with limited data available, and no comprehensive information has been gathered on small business lending. This new rule will change that.

The CFPB’s new rule will cover diverse forms of credit from all types of lenders, and use straightforward definitions and streamlined forms. It will work in concert with the Community Reinvestment Act (CRA), which requires certain financial institutions to meet the needs of the communities they serve. Small businesses, family farms, financial institutions, and the wider economy will all reap the benefits of increased transparency.

The CFPB has worked to simplify the implementation of this new rule and prepare for the submission of data from thousands of lenders. It will phase in implementation for the largest lenders first, streamline and improve demographic and financial data collection, and allow for the use of new digital tools developed by industry and technology partners. Lenders with strong records of service will be given extra time to meet the needs of the communities they serve.

For many years, the government has been gathering information on residential mortgages as mandated by Congress. With the new rule, data on small business lending will be collected for the first time, providing investors and lenders with more comprehensive insights to recognize new opportunities that promote economic growth, assist policymakers in gauging the efficiency of any government programs, and deliver a data-driven method for identifying potential discrimination.

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