CFPB Initially Proposed to Exclude MCAs, Factoring, and Equipment Leasing From Section 1071

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cfpbAfter ten years of debate over when and how to roll out the CFPB’s mandate to collect data from small business lenders, the Bureau has initially proposed to exclude merchant cash advance providers, factors, and equipment leasing companies from the requirement, according to a recently published report.

The decision is not final. A panel of Small Entity Representatives (SERS) that consulted with the CFPB on the proposed rollout recommended that the “Bureau continue to explore the extent to which covering MCAs or other products, such as factoring, would further the statutory purposes of Section 1071, along with the benefits and costs of covering such products.”

The SERS included individuals from:

  • AP Equipment Financing
  • Artisans’ Bank
  • Bippus State Bank
  • CDC Small Business Finance
  • City First Bank
  • Floorplan Xpress LLC
  • Fundation Group LLC
  • Funding Circle
  • Greenbox Capital
  • Hope Credit Union
  • InRoads Credit Union
  • Kore Capital Corporation
  • Lakota Funds
  • MariSol Federal Credit Union
  • Opportunity Fund
  • Reading Co-Operative bank
  • River City Federal Credit Union
  • Security First Bank of North Dakota
  • UT Federal Credit Union
  • Virginia Community Capital

The panel discussed many issues including how elements of Section 1071 could inadvertently embarrass or deter borrowers from applying for business loans. That would run counter to the spirit of the law which aims to measure if there are disparities in the small business loan market for both women-owned and minority-owned businesses.

One potential snag that could complicate this endeavor is that the concept of gender has evolved since Dodd-Frank was passed in 2010. “One SER stated that the Bureau should consider revisiting the use of male and female as categories for sex because gender is not binary,” the CFPB report says.

But in any case, there was broad support for the applicants to self-report their own sex, race, and ethnicity, rather than to force loan underwriters to try and make those determinations on their own. The ironic twist, however, according to one SER, is that when applicants are asked to self-report this information on a business loan application, a high percentage refuse to answer the questions at all.

The CFPB will eventually roll the law out in some final fashion regardless. The full report can be viewed here.

Last modified: December 18, 2020
Sean Murray


Category: Equipment Leasing, Factoring, merchant cash advance, Regulation

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