Gov’t to start looking for bias in small business lending

Banks will need to start reporting the demographics and income of small business loan applicants under new rules published by the Consumer Financial Protection Bureau last Thursday, according to an Associated Press report.

It’s a move that policymakers hope will lead to less discrimination and more transparency in the small business lending market, similar to how other laws have regulated the residential mortgage market for decades.

Under the Dodd-Frank Act, Congress mandated the bureau to start collecting data on small business lending decisions to look for patterns of discrimination. Implementation of the rule has taken more than a decade, and the bureau was sued by the California Reinvestment Coalition for its failure to start collecting this data.

The size of the small business lending market is roughly $1.4 trillion, according to the CFPB. But there’s not much data on how banks and non-banks decide who to approve or deny for loans, and there’s no way of seeing — outside anecdotal reports — whether banks have discriminated against black and Latino small businesses.