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OFN has issued a statement in response to a recent district court ruling preventing CFPB rule from going into effect
A July 31 decision by a federal judge prevents the Consumer Financial Protection Bureau (CFPB) from implementing a rule requiring small business lenders to report on the demographic characteristics of small business applicants who are approved or denied loans.
“This is a huge setback for accountability and transparency. This long-delayed data collection rule promised to shine a light on which lenders are doing a poor job meeting the capital needs of Black and Hispanic-owned small businesses,” said Dafina Williams, OFN executive vice president of external affairs. “This court decision is a step in the wrong direction.”
Mortgage lenders have been required to report similar data for decades. The CFPB’s 1071 rule would have required small business lenders, including community development financial institutions, to report data on a wide range of credit products as well as the number of applicants approved or denied small business loans.
OFN is a strong supporter of the 1071 rule and other measures to expand credit to small businesses underestimated by mainstream financial institutions. Many entrepreneurs of color turn to CDFIs after being turned down by mainstream financial institutions that perceive these borrowers as too small, too risky, or not profitable enough. Operating with a community development mission, CDFIs do a better job of serving these businesses. This was especially true during the pandemic-related economic crisis. CDFIs and other mission lenders outperformed larger banks as Paycheck Protection Program lenders.
“Without demographic data collection, small business owners, policymakers, and American taxpayers will not have the information they need to identify and address discriminatory practices in small business lending,” Williams said.
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