Garnet Capital Advisors Blog

More than 80 members of the House are urging the Consumer Financial Protection Bureau to put into effect new business loan reporting requirements that became law under the Dodd-Frank Act.

In an August letter to the head of the CFPB, 84 U.S. representatives - all Democrats - said "now is the time to initiate rule-making" on new pieces of data banks must provide about small-business loans, according to American Banker.

The reporting requirements roughly mirror ones already in place for home loans. The Home Mortgage Disclosure Act, passed in 1975, brings a gout of government-mandated real estate loan data into the public realm each September. While the data does not drill down to specific addresses or individual loan applicants, it does specify the Census tract of the property in question and the race, ethnicity and sex of the applicant.

The new small-business loan reporting requirements include:

• Type of loan.
• Loan amount requested.
• Race, sex and ethnicity of the business' primary owners.
• Date loan sought.
• Census tract where business is located
• Annual revenues of the business

What is a small business, anyway?
Among the key items the new reporting requirements must define is which businesses are subject to them. Will it be ones with revenues less than $1 million? Will regulators draw their definition from the Small Business Administration?

Those questions and more were on the mind of Carl Pry, a managing director at Treliant Risk Advisors interviewed by American Banker.Among Pry's worries is that a new set of lenders will be subject to examination of whether their practices are fair to all applicants.

"It's a huge concern," Pry told American Banker, "because traditionally commercial lending has not been the focus of any sort of fair-lending scrutiny. You'll find instances of it, but it's not a major deal. Now it's going to be a major deal because there will be yet another set of publicly available data out there."

For proponents of the new rules, however, the close looks small-business loans are set to receive are a boon. A trio of affordable housing executives wrote an op-ed that transparency could narrow a widening wealth gap between the country as a whole and Latino and black neighborhoods.

"Putting a spotlight on banks' business lending practices can help diminish redlining and prod them to market to a relatively untapped business sector," wrote John Gamboa, George Dean and Al Piña this summer in American Banker.

HMDA change also on the horizon
The head of the CFPB, Richard Cordray, has made it clear his agency is prioritizing an update of mortgage lending reporting requirements before tackling the ones for small business. So while bankers will want to keep tabs on the small-business loan rule, specifics on home loan reporting requirements will hit bank compliance offices long before. American Banker reports that the CFPB is expected to issue the new HMDA rules by the end of the fall.

Bankers can spot important lending trends using HMDA data. For instance, reports from 2009-2013 showed California as the epicenter of loan applications for home improvements, according to Bankrate.com. Four of the nation's 10 remodeling hot spots were Golden State counties: Los Angeles, Orange, San Diego and Alameda. Banks in and outside California could make such data points an important part of their business analysis.

A new tool for close analysis
The regulations will result in a new trove of public information on a bank's loan holdings. While some bankers, especially ones at resource-strapped smaller institutions, may not be excited about the red tape, the data may come to be invaluable for bankers who are researching possible mergers and acquisitions. Learning as much as possible about a target bank's loan pool is a primary responsibility during the due diligence phase of a potential deal. Banks often benefit from bringing in third parties to evaluate complex loan portfolios. Any questions or concerns can be discussed with loan sale advisory firm Garnet Capital Advisors.