The New CFPB Small Business Lending Rule Moves Forward – Financial Services

The new small business finance rule passed by the Consumer
Financial Protection Bureau (CFPB) requires “Covered”
financial institutions to collect and report data on applications
for credit for small businesses. This rule, known as the
“Small Business Lending Rule Under the Equal Opportunity Act
(Regulation B),” mandates that financial institutions gather
and submit information about the geographic distribution of small
business lending applications, loan approvals and denials, and
demographic details about the principal owners of small business
applicants (the “SBLR”)¹. The SBLR was
initially enjoined nationally by a Federal Court in the Southern
District of Texas which determined that the CFPB’s funding
structure violated the Constitution’s appropriation’s
clause². But the United States Supreme Court upheld the
CFPB’s funding structure as being constitutional³.
Thereafter, the CFBP extended the compliance deadlines by 290
days.

The SBLR was designed to implement changes to the Equal Credit
Opportunity Act (ECOA) made by section 1071 of the Consumer
Financial Protection Act of 2010. It aims to ensure that lenders do
not discourage small business loan applicants from providing
necessary data, including demographic information. The CFPB
articulates the SBLR’s purpose as two-fold – “to…
(1) facilitate enforcement of fair lending laws, and (2) enable
communities, governmental entities, and creditors to identify
business and community development needs and opportunities of
women-owned, minority-owned, and small
businesses⁴.” The SBLR applies to “Covered
Financial Institutions” which “means a financial
institution that originated at least 100 covered credit
transactions for small businesses in each of the two preceding
calendar years⁵“, includes but is not limited to,
banks, credit unions, certain nonbank lenders, commercial finance
companies and nonprofit lenders. There are exceptions to the SBLR,
for instance – car dealerships. The SBLR phases in compliance
and implementation based on the size of the financial institution,
with the largest lenders required to comply first.

The SBLR breaks up the reporting requirements into
“Tiers” as follows –

1. Tier 1 – 2,500 covered originations (in the last 2
   years)




2. 1. July 18, 2025 (Compliance Deadline), with a June 1, 2026 (First
      Filing Deadline)




3. Tier 2 – 500-2,499 covered originations




4. 1. July 16, 2026 (Compliance Deadline), with a June 1, 2027 (First
      Filing Deadline)




5. Tier 3 – 100-499 covered originations




6. 1. October 18, 2026 (Compliance Deadline) with a June 1, 2027
      (First Filing Deadline)

Additionally, the SBLR allows small businesses to self-identify
as women-, minority-, or LGBTQI+-owned, and it streamlines data
collection by permitting lenders to rely on the information
provided by the small business without requiring loan officers to
make their own determinations of demographic information.

The SBLR also permits Covered financial institutions to begin
collecting protected demographic data 12 months before their new
compliance date, to test their procedures and systems. This
“grace period” is designed to “give institutions
time to diagnose and address unintentional errors without the
prospect of penalties for inadvertent compliance
issues⁶“.

While covered financial institutions have time to begin
compliance, given the breadth and scope of the SBLR, we recommend a
proactive approach to ensure that validation, confirmation and
testing of reports prior to submission to the CFPB. Our team at
TALG would be happy to guide you through the process.

Footnotes

1

2 See Tex. Bankers Ass’n v. Consumer Fin. Prot.
Bureau, 685 F. Supp. 3d 445 (2023)

3 See Consumer Fin. Prot. Bureau v. Cmty. Fin. Servs.
Ass’n of Am., Ltd., 601 U.S. 416 (2024)

4

5 See CFR Section 1002.105(a)-(b)

6

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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.