CFPB Poised to Expand Regulation to Small Business Lending: Expect the Unexpected

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Recent initiatives by the Consumer Financial Protection Bureau (“CFPB” or Bureau) to dramatically expand its regulation of small business lending present a confluence of concerns to industry participants. These initiatives include the CFPB’s extension of fair lending rules to types of credit not ordinarily considered to be subject to the agency’s jurisdiction. The CFPB’s focus on business lending likely will have a particular impact on non-bank lenders making loans to small businesses, a product line that today is increasingly being served by FinTech and other online marketplace lenders. For example, recent articles in the trade press have covered issues arising out of the intersection of FinTech and fair lending.

THE SCOPE OF FEDERAL CONSUMER FINANCIAL PROTECTION LAWS -

Generally, federal consumer financial protection laws, such as the Truth in Lending Act, do not apply to businesspurpose credit. One significant exception, however, is the Equal Credit Opportunity Act (“ECOA” or the “Act”).2 The Act and Regulation B promulgated thereunder generally apply to both consumer-purpose and businesspurpose credit transactions. Requirements of ECOA and Regulation B that are of greatest significance to business-purpose credit transactions include: (1) the general bar against discrimination on a prohibited basis in any aspect of a credit decision, 12 C.F.R. § 1002.4; (2) the requirement that creditors notify applicants of adverse actions (although Regulation B gives creditors greater flexibility in notifying business applicants that recorded more than $1 million in gross revenue in the past fiscal year), 12 C.F.R. § 1002.9(a)(3); (3) the spousal signature rule, 12 C.F.R. § 1002.7(d)(1); and (4) record retention requirements, 12 C.F.R. § 1002.12(b).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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