The Consumer Financial Protection Bureau has recently come up with a rule that should help enhance transparency around loans for small businesses.
The proposed rule would require lenders to collect and report all the relevant information about credit applications, such as pricing and demographic data, as well as the reasons for loan denial.
During the COVID-19 pandemic, many entrepreneurs struggled to access relief funds, which is one of the reasons this rule was proposed. The bureau has also announced it would create a web portal where small businesses can share their experiences with the regulator related to applying for credit.
This rule would apply to a wide range of credit services, including lines of credit, credit cards, term loans, and merchant cash advances. It should help regulators see how entrepreneurs fare when trying to get financing and what barriers might prevent them from doing so. The rule was proposed on September 1, and the public has 90 days to submit comments on it.
“After homeownership, small business ownership is the primary means by which families and communities build wealth,” said CFPB’s acting director Dave Uejio, and added, “Yet too often, small business development is starved for want of access to responsible, fairly priced credit.”
The CFPB is a US government agency that ensures lenders, banks, and other financial institutions treat consumers fairly. It is committed to producing innovative tools and resources to help customers develop financial skills and make smart financial decisions.
The CFPB learns about customer’s needs through research and analyzing data and publishes the information collected about the consumer financial marketplace. It also implements and enforces federal consumer financial laws to preserve choices for consumers and ensure fairness and transparency for consumer financial products and services. Once a new regulation is in place, the CFPB provides support and resources to assist stakeholders in understanding and following the rule.