CFPB And Commercial Credit
Does the Consumer Financial Protection Bureau (“CFPB”) have jurisdiction over “commercial credit”?
Rep. Emanuel Cleaver II, raised certain concerns in a recent letter to the CFPB (the “Cleaver Letter”) , which can help us answer this question. As we know, fintech lending is based upon the use of algorithms to determine whether to provide commercial credit to a small business. Since the algorithms are created by individuals looking at various factors, an argument arises that these practices could create higher interest rates thus, discriminatory lending practices. The Cleaver Letter raised issues regarding collection of data which would better help us to understand the issues.
Dodd Frank Section 1071, amended the Equal Credit Opportunity Act (“ECOA”) to require financial institutions to collect and maintain certain data in connections with credit applications made by women or minority owned and small businesses. Such data includes the race, sex and ethnicity of the principal owners of the business. At this time, the rule-making by the CFPB to implement Section 1071 has not taken place.
Another question asked is whether the CFPB has engaged in supervisory activities over fintech small business lenders? The CFPB has stated that it has authority regarding small business lending and would like information about data and models for collection of information in this area. The CFPB has been accepting consumer complaints related to loans obtained from marketplace lenders.
What is the difference between institutional commercial business loans and the fintech lender?
The institutional lender has a relationship with its borrower, meets the borrower in person, analyzes the credit, etc. There is already a statute which addresses discrimination called the Community Reinvestment Act (“CRA”). CRA authorizes the federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation. To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or mergers and acquisitions.
There has been a discussion in the marketplace about access to commercial credit so the CFPB may very well create rules to enforce Section 1071.