On May 12, 2023, the CFPB issued “The Small Entity Compliance Guide,” offering guidance for the implementation of their Small Business Lending Rule, which was finalized on March 30, 2023. The Small Business Lending Rule is designed to improve access to credit for small businesses and to help identify potential discrimination in lending practices. This new Small Entity Compliance Guide is intended for small entities that have less than $10 billion in assets and originate fewer than 100,000 small business loans per year. The guide provides a helpful overview of the rule and its requirements, along with a step-by-step process for compliance with a helpful checklist to ensure small banks and credit unions are meeting all of the requirements. We have summarized the step-by-step process for you below:
Step 1: Determine if your institution is subject to the Small Business Lending Rule by meeting the asset and loan volume thresholds.
Step 2: Collect data on your small business lending practices, including the race, ethnicity, and gender of the principal owners of the small businesses that you lend to.
Step 3: Ensure that you are using the correct definitions for small businesses and small business loans, as outlined in the rule.
Step 4: Evaluate your lending practices to identify any potential discrimination and take steps to address any issues that are identified.
Step 5: Develop and implement policies and procedures to ensure compliance with the Small Business Lending Rule.
Step 6: Train your staff on the requirements of the Small Business Lending Rule and the policies and procedures that you have developed.
Step 7: Monitor your compliance with the Small Business Lending Rule on an ongoing basis and make any necessary adjustments to your policies and procedures.
The Small Entity Compliance Guide for the Small Business Lending Rule can be a valuable resource for small banks and credit unions to ensure compliance. By requiring financial institutions to collect and report data on their lending practices for small businesses, the CFPB aims to increase transparency and accountability in lending, but institutions will need to make changes to policies and procedures and train employees prior to the implementation dates. By following the step-by-step process outlined in the guide, small entities can ensure that they are collecting and reporting the necessary data in a timely and accurate manner. This can help smaller lenders to avoid potential penalties and reputational damage. Here are some additional resources found on the CFPB website:
Get in touch today to learn how SRA can help or see how SRA Watchtower streamlines the process of navigating these regulatory requirements.