[Federal Register Volume 88, Number 104 (Wednesday, May 31, 2023)]
[Notices]
[Pages 34833-34834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-07231]


=======================================================================
-----------------------------------------------------------------------

CONSUMER FINANCIAL PROTECTION BUREAU


Statement on Enforcement and Supervisory Practices Relating to 
the Small Business Lending Rule Under the Equal Credit Opportunity Act 
and Regulation B

AGENCY: Consumer Financial Protection Bureau.

[[Page 34834]]


ACTION: Policy guidance.

-----------------------------------------------------------------------

SUMMARY: The Consumer Financial Protection Bureau (CFPB) is publishing 
a statutorily mandated small business lending rule concurrently with 
this Policy Guidance. The rule amends Regulation B to implement changes 
to the Equal Credit Opportunity Act (ECOA) made by section 1071 of the 
Consumer Financial Protection Act of 2010 (CFPA). This policy guidance 
informs covered financial institutions that the CFPB intends to focus 
its supervisory and enforcement activities in connection with the new 
rule in particular on ensuring that covered lenders do not discourage 
small business loan applicants from providing responsive data, 
including responses to lenders' ECOA-mandated demographic data 
requests.

DATES: This Policy Guidance is applicable August 29, 2023.

FOR FURTHER INFORMATION CONTACT: Vincent Herman, Senior Counsel, Office 
of Enforcement, at (202) 435-7700. If you require this document in an 
alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    In 2010, Congress passed the CFPA. Section 1071 of the CFPA \1\ 
amended ECOA \2\ to require that financial institutions collect and 
report certain data regarding applications for credit for small 
businesses. The CFPB has now implemented section 1071 by means of a new 
rule that requires covered lenders to collect, and annually report to 
the CFPB, certain information from small businesses applying for 
credit.\3\
---------------------------------------------------------------------------

    \1\ Public Law 111-203, tit. X, section 1071, 124 Stat. 1376, 
2056 (2010), codified at ECOA section 704B, 15 U.S.C. 1691c-2. 
Section 1071's statutory purposes are to: (1) facilitate enforcement 
of fair lending laws; and (2) enable communities, governmental 
entities, and creditors to identify business and community 
development needs and opportunities of women-owned, minority-owned, 
and small businesses.
    \2\ 15 U.S.C. 1691 et seq.
    \3\ The rule requires lenders to seek some data from the 
applicant, some data from the applicant or appropriate third-party 
sources at the lender's discretion, and some data internally. This 
Policy Statement pertains to the collection of data from applicants.
---------------------------------------------------------------------------

    Part II.A below outlines core regulatory requirements relating to 
the rule's prohibition against discouraging applicants from providing 
responsive information. Lenders covered by the rule violate ECOA if 
they fail to observe these requirements. Part II.B explains that the 
Bureau intends for its enforcement and supervisory work in connection 
with the new rule to focus on covered lenders' compliance with the 
rule's prohibition against discouraging applicants from providing 
responsive information.

II. Policy Guidance

A. Relevant Regulatory Requirements

    Although the new rule provides a covered lender with considerable 
discretion in designing its data collection procedures, it requires 
that collection methods be designed not to have the effect of 
discouraging applicants from submitting responsive information.\4\ The 
rule also requires that requests for data be prominent to applicants, 
that applicants can easily respond to such requests, that such requests 
initially be made prior to notifying an applicant of the lender's 
decision on the application, and that the time and manner of a lender's 
collection procedures otherwise serve to obtain responsive 
information.\5\ In general, compliant lenders will seek to maximize the 
collection of responses from applicants and minimize missing or 
erroneous data.\6\
---------------------------------------------------------------------------

    \4\ 12 CFR 1002.107(c)(1) and (2)(iii); see also generally Sec.  
1002.107(c)(2).
    \5\ 12 CFR 1002.107(c)(1), (2)(i), (ii), and (iv).
    \6\ Comment 107(c)(2)-1.
---------------------------------------------------------------------------

    Covered lenders must also work to identify and respond to potential 
indicia of discouragement in their practices, policies, and procedures, 
including low response rates from applicants to lenders' requests.\7\ 
In general, this includes promptly investigating any indicia of 
potential discouragement; taking prompt remedial action if 
discouragement or other improper conduct is identified; monitoring for 
low response rates and for significant irregularities in any particular 
response that may indicate steering, improper interference, or other 
potential discouragement or obstruction of applicants' preferred 
responses; monitoring response rates and responses by division, 
location, loan officer, or other factors to ensure that no 
discouragement or improper conduct is occurring in some parts of a 
financial institution, even if the financial institution maintains 
adequate response rates and responses overall; and providing adequate 
training to loan officers and other persons involved in collecting data 
from loan applicants.
---------------------------------------------------------------------------

    \7\ 12 CFR 1002.107(c)(3) and (4). Response rates may 
appropriately be measured as the percentage of covered applications 
for which the lender obtains some type of response to data requests 
submitted to applicants. For demographic data subject to the 
statutory right to refuse, this includes responses of ``I do not 
wish to provide this information'' or similar, or if an applicant 
responds that there are no principal owners.
---------------------------------------------------------------------------

B. Enforcement and Supervisory Action

    The CFPB intends to use its enforcement and supervisory authorities 
to focus on covered lenders' compliance with these requirements 
relating to the rule's prohibition against discouraging applicants from 
submitting responsive information. The CFPB intends to pay particular 
attention to covered lenders' response rates for data requested from 
applicants.\8\ As appropriate, the CFPB intends to consider how a 
lender's response rates compare to financial institutions of a similar 
size, type, geographic reach, or other relevant factors, because, as 
noted in the rule, low response rates may indicate discouragement or 
other failure by that lender to maintain proper collection procedures 
consistent with the rule.\9\ Similarly, the CFPB intends to consider, 
among other things, irregularities in a particular response (for 
example, very high rates, relative to similar lenders, of an applicant 
response of ``I do not wish to provide this information'' or similar) 
because that may indicate steering, improper interference, or other 
potential discouragement or obstruction of applicants' preferred 
responses.
---------------------------------------------------------------------------

    \8\ Response rates may be relevant across all applicant-provided 
data, though they are particularly relevant for the collection of 
the protected demographic data pursuant to Sec.  1002.107(a)(18) and 
(19). These inquiries are particularly sensitive and responsive data 
are especially important for the purposes of the rule.
    \9\ 12 CFR 1002.107(c)(4).
---------------------------------------------------------------------------

III. Regulatory Requirements

    This Policy Guidance is a non-binding general statement of policy 
articulating considerations relevant to the CFPB's exercise of its 
supervisory and enforcement authority. It is therefore exempt from 
notice and comment rulemaking requirements under the Administrative 
Procedure Act pursuant to 5 U.S.C. 553(b). Because no notice of 
proposed rulemaking is required, the Regulatory Flexibility Act does 
not require an initial or final regulatory flexibility analysis. 5 
U.S.C. 603(a), 604(a). The CFPB has determined that this Policy 
Guidance does not impose any new or revise any existing recordkeeping, 
reporting, or disclosure requirements on covered entities or members of 
the public that would be collections of information requiring Office of 
Management and Budget approval under the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-07231 Filed 5-30-23; 8:45 am]
BILLING CODE 4810-AM-P