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Small Business Lending Under the Equal Credit Opportunity Act (Regulation B) rule (2023)

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The Small Business Lending Under the Equal Credit Opportunity Act (Regulation B) rule is a major rule as defined by the Congressional Review Act (CRA) issued by the Consumer Financial Protection Bureau (CFPB) effective August 29, 2023. The rule included provisions requiring covered financial institutions to report credit applications for small businesses to the CFPB and addressing the CFPB's approach to data privacy. CFPB issued this rule according to its authority under the Dodd-Frank Wall Street Reform Act and the Consumer Protection Act.[1]

To learn more about major rules as they are similar to significant rules, click here.

HIGHLIGHTS
  • Name: Small Business Lending Under the Equal Credit Opportunity Act (Regulation B)
  • Action: Final rule
  • Type of rule: Major rule under the Congressional Review Act

    • Timeline

    The following timeline details key rulemaking activity:

    Background

    Section 1071 of the Dodd Frank Act commissioned the Consumer Financial Protection Bureau (CFPB) to enforce existing fair lending laws and identify business development needs across the United States. The Small Business Lending Under the Equal Credit Opportunity Act (Regulation B) rule identified women, minorities, and LGBTQI+ businesses as a key part of the small-business sector that were less likely to receive policy support during times of economic downturn.[1]

    The CFPB published a request for information on the small business market in 2017, pursuant to the Dodd-Frank Act. The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) amended the Regulatory Flexibility Act (RFA) to require the CFPB to create what the Act called a Small Business Advisory Review Panel if the CFPB considered issuing a proposed rule. The CFPB created a panel, held online listening sessions for stakeholders, and held a symposium to garner information. The CFPB published the proposed rule in October 2021, and the comment period closed in December 2021.[1]

    After the CFPB issued the final rule in May 2023, and the rule took effect in August 2023, Sen. John Kennedy (R-La.) introduced a joint resolution of disapproval against the rule. Biden vetoed the resolution after it passed both chambers of Congress. The senate failed to overturn the veto.[1]

    Summary of the rule

    The following is a summary of the rule from the rule's entry in the Federal Register:

    “

    As discussed above, in 2010, Congress enacted the Dodd-Frank Act. Section 1071 of the Dodd-Frank Act, which amended ECOA, requires financial institutions to collect and report to the CFPB data regarding applications for credit for women-owned, minority-owned, and small businesses. Section 1071 was adopted for the dual purposes of facilitating fair lending enforcement and enabling communities, governmental entities, and creditors to identify business and community development needs and opportunities of such businesses. Section 1071 complements other Federal efforts to ensure fair lending and to promote community development for small businesses, including through ECOA, the Community Reinvestment Act of 1977 (CRA), and the Community Development Financial Institutions (CDFI) Fund.

    The collection and subsequent publication of more robust and granular data regarding credit applications for small businesses will provide much-needed transparency to the small business lending market. The COVID–19 pandemic has shown that transparency is essential, particularly at a time of crisis, when small businesses are in urgent need of credit to recover from economic shocks.

    In addition to informing policymaking, data collected under the final rule can help creditors identify potentially profitable opportunities to extend credit. As a result, small business owners stand to benefit from increased credit availability. More transparency will also allow small business owners to more easily compare credit terms and evaluate credit alternatives, helping them to find the credit product that best suits their needs at the best price. In these different ways, the data will help stakeholders to enhance business and community development, boosting broad-based economic activity and growth. Furthermore, in the years and decades to come, the collection and publication of these data will be helpful in identifying potential fair lending violations and otherwise facilitating the enforcement of anti-discrimination laws.[1][4]

    		”

    Summary of provisions

    This rule implemented Section 1071 of the Dodd-Frank Act, which outlined data collection and reporting requirements for financial institutions related to small business lending. The Consumer Financial Protection Bureau (CFPB) implemented this rule to create a database on small business demographic lending practices. The rule required financial institutions to annually report demographic data points and establish a firewall to protect sensitive information. The rule included provisions for recordkeeping, enforcement, and severability. The compliance dates vary based on the volume of covered credit transactions.[1]

    Significant impact

    See also: Major rule, Congressional Review Act

    The 1996 Congressional Review Act created a way for Congress and the President to review and repeal final rules promulgated by federal agencies. Congress can pass a joint resolution disapproving of the rule within 60 days of the rule's publication to the Federal Register and congressional notification of the final rule. CRA resolutions need a simple majority to pass each house. If the resolution is signed by the president the rule is repealed, and the issuing agency is barred from reissuing the rule or creating new rules that are what the CRA calls "substantially the same" without authorization.[5][6][7]

    According to the Congressional Research Service, regulations meeting the CRA's definition of a major rule face two additional requirements under the act: a review by the Government Accountability Office of the issuing agency's compliance with rulemaking procedures, and a possible delay of the rule's effective date in order to provide Congress with "additional time to consider whether to overturn a major rule before it goes into effect."[7]

    The Congressional Review Act defines major rules as "likely to result in (1) an annual effect on the economy of $100 million or more; (2) a major increase in costs or prices for consumers, individual industries, federal, state, or local government agencies, or geographic regions; or (3) significant adverse effects on competition, employment, investment, productivity, or innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets," according to the U.S. Government Accountability Office.[8]

    The text of the Small Business Lending Under the Equal Credit Opportunity Act (Regulation B) rule states that Office of Information and Regulatory Affairs deemed this a major rule:

    “

    Pursuant to the Congressional Review Act, the Bureau will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States at least 60 days prior to the rule's published effective date. The Office of Information and Regulatory Affairs has designated this rule as a 'major rule' as defined by 5 U.S.C. 804(2).[4]

    		”

    Major rule vs. section 3(f)(1) significant rule

    See also: Significant rule

    Though there is overlap between the classifications of major rules and section 3(f)(1) significant rules— previously called economically significant rules— they are not the same. Major rules, pursuant to the CRA, are classified as such if they create an annual effect of $100 million or more on the economy, whereas section 3(f)(1) significant rules create an annual effect of $200 million or more, per E.O. 12866 as amended by E.O. 14094. Major rules can also be classified as section 3(f)(1) significant rules but section 3(f)(1) significant rules are not major rules.

    Noteworthy Events

    • Congress failed to override presidential veto of CRA resolution (2024): Congress failed on January 10, 2023, to overturn President Joe Biden’s veto of S.J. Res. 32, titled "A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to "Small Business Lending Under the Equal Credit Opportunity Act (Regulation B)."[1][2][9][10]

    Text of the rule

    The full text of the rule is available below:[1]

    See also

    External links

    Footnotes

    1. ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 Federal Register, "Small Business Lending Under the Equal Credit Opportunity Act (Regulation B)," January 23, 2024.
    2. ↑ 2.0 2.1 2.2 2.3 Congress.gov, "S.J.Res.32 - A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Bureau of Consumer Financial Protection relating to "Small Business Lending Under the Equal Credit Opportunity Act (Regulation B)," January 24, 2024.
    3. ↑ Congress.gov, H.J.Res.66 - Disapproving the rule submitted by the Consumer Financial Protection Bureau relating to "Small Business Lending Under the Equal Credit Opportunity Act (Regulation B)," January 24, 2024.
    4. ↑ 4.0 4.1 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    5. ↑ U.S. News, "Democrats Push to Repeal Congressional Review Act," June 1, 2017
    6. ↑ The Hill, "The Congressional Review Act and a deregulatory agenda for Trump's second year," March 31, 2017
    7. ↑ 7.0 7.1 Congressional Research Service, "The Congressional Review Act: Frequently Asked Questions," November 17, 2016
    8. ↑ U.S. Government Accountability Office, "Congressional Review Act FAQs," accessed July 15, 2017
    9. ↑ The White House, "Message to the Senate on the President’s Veto of S.J.Res. 32," January 24, 2024.
    10. ↑ John Kennedy, Senator for Louisiana, Senate passes Kennedy resolution to reverse Biden CFPB rule requiring banks to collect race, ethnicity, sex data," January 24, 2024
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