[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]
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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.
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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\
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\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.
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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\
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\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.
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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.
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\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.
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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.
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\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).
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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