The proposed rules for collecting small business loan data required by Section 1071 of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (Section 1071 rules) have been one of Woodstock Institute’s top policy priorities for several years. In September, the Consumer Financial Protection Bureau (CFPB) published proposed rules for collecting this crucial data, and Woodstock Institute submitted a comment letter to provide feedback and input on the proposal. Our main suggestions include:
- Collect and reporting credit score data: The CFPB already collects this data in the mortgage context and has found that: “Black and Hispanic White applicants are on average denied at a higher rate than non-Hispanic White applicants, even if they are within the same credit score range.” Failing to collect credit score data will enable small business lenders, as they do now, to hide behind the fact that we don’t know the credit scores.
- Stop collecting race, ethnicity, and gender data based on the lender’s visual observation: This is unreliable and raises equity concerns. If an applicant selects “do not wish to answer” for a race/ethnicity/gender question, but then the lender makes an assumption and essentially answers for the applicant, that is taking away the agency of the applicant and overriding their reasons for declining to answer.
- Present the data to enable researchers to identity discriminatory lending patterns by predatory lenders: Our working hypothesis is that predatory small business lenders, who charge triple-digit interest rates, are targeting communities of color. The data should be presented to the public to enable Woodstock and others to test this hypothesis – just as Woodstock recently did in the payday loan context: “High-interest loans in Chicago target Black neighborhoods.”
Read our full comment letter below.