On March 30, the CFPB issued a final rule requiring financial institutions to collect and report owner demographic information as well as other data regarding applications for credit by small businesses to identify those that are owned by women and minorities. Unlike the CFPB’s proposed rule, financial institutions will also be required to collect and report whether applicants are owned by LGBTQI+ individuals. The final rule imposes a new extensive compliance regime and will result in the first largely comprehensive database of small business credit applications in the United States. As this data will likely be used to enforce fair lending laws, covered financial institutions should consider whether they will need to undertake their own fair lending assessments with respect to the demographics of the owners of their small business lending customers. Some elements of the final rule have already created some controversy, with efforts underway in Congress to void the rule through the Congressional Review Act or otherwise mandate meaningful modifications. The outcome of those efforts or of any future court challenge is likely months, if not years, away. In the meantime, financial institutions that originate more than 100 small business loans annually should prepare for a compliance date that may be as little as 18 months away.
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