ECOA and Small Business Lending: Where Are We?
During Richard Cordray’s tenure as CFPB director, it began to look like we were heading toward an era of much more aggressive application of the Equal Credit Opportunity Act to small business lending. The biggest potential development was the anticipated small-business lending data collection rule, which would have imposed HMDA-like reporting requirements for small business lending, which in turn would have generated the statistical information that could have been used in fair lending examinations and enforcement with respect to small business lending.
The data collection rule was not completed by the time Richard Cordray resigned last November, but it still appears as an active matter on the CFPB’s regulatory agenda. However, last week, Politico published a story, suggesting that the rule is not likely to be pursued by the CFPB in the near future.
Around the same time, the CFPB released an edition of Supervisory Highlights that included a section on small business fair lending considerations. My read of the discussion is that the CFPB was encouraging measures taken by small business lenders to drive consistency in underwriting decisions, but there was no suggestion of any sort of proxy-based statistical analysis or other more difficult compliance steps recommended in the recent Highlights discussion.
So where does this leave us with respect to potential regulatory application of the Equal Credit Opportunity Act to small business lending? It appears to me that the CFPB is likely to push small business lenders to adopt consistency measures similar to those described in Supervisory Highlights, but there does not appear to be any move toward bringing disparate impact cases in this area, either based on a proxy methodology or based on a data collection rule that doesn’t seem to be forthcoming in the near future. So, the concern that had developed during Richard Cordray’s tenure about aggressive disparate impact cases in the small business lending world appears to be retreating, if not disappearing entirely, for the time being. Small business lenders should still do their best to make their underwriting decisions as objective and consistent as possible, but we believe the regulatory input to this process will be encouraging measures of this nature, rather than anything more forceful.