Concerns over a new Consumer Financial Protection Bureau (CFPB) rule were recently aired by PA Congressman Dan Meuser during a full hearing of the House Committee on Small Business Subcommittee on Economic Growth, Tax, and Capital Access.
Meuser, who is the Chairman of the subcommittee, read out a statement during a hearing held prior to the finalization of the new Small Business Lending Data Collection Rule. As reported on Small Business Trends last week, the rule requires lenders to collect and report information about the small business credit applications they process.
‘Burdensome New Reporting Requirements’
Attempting to dissuade the CFPB from finalizing the rule, Meuser explained that the rule will actually harm small businesses by altering the behavior of small financial institutions, making them hesitant to continue lending to small businesses. Meuser also pointed out that the ‘burdensome new reporting requirements’ will impose a larger regulatory cost burden on smaller lenders.
Other problematic issues highlighted by Congressman Meuser include the new rule’s potential for racial profiling, privacy concerns and an unrealistic implementation window.
Huge Costs of New Rule
In his statement to the House Committee on Small Business. Meuser explained his opposition to the new rule, saying: “This rule was born out of an obscure provision in Dodd-Frank almost 13 years ago. Most members of Congress were too busy debating too-big-to-fail to even realize it was in there.
“Making matters worse, this rule will add an even larger regulatory cost burden to these small financial institutions that are already struggling to keep up with the Biden Administration’s costly regulatory agenda. According to the SBA’s Office of Advocacy this rule ‘may be unnecessarily burdensome to small entities, may impact the cost of credit for small businesses and may lead to a decrease in lending to small, minority-and women-owned businesses’.”
Meuser also outlined the costs involved, adding: “The Office of Advocacy estimates that the rule will have an initial $126 million impact on small financial institutions, and then going forward, an annual impact of $153 million. Unlike mega-banks that can absorb such costs, these will crush smaller institutions that don’t have the budget to absorb such new regulatory burdens.
“The Office of Advocacy also expressed concern that this rule failed to properly consider alternative less burdensome alternatives to the rule. These alternatives should have included exempting the smallest lenders but were never seriously considered.”
Preserving ‘Relationship Banking’ in Main Street America
One of the main themes of Congressman Meuser’s statement revolved around the benefits of relationship banking, where smaller financial institutions such as community lenders build relationships with customers over several years. Meuser considers such smaller lenders to be ‘the ones best suited to determine the structure of the loans’ they provide to customers.
Meuser believes relationship banking provides a personal touch that is impossible for a large national institution to replicate.
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