Relationship Lending Model at Risk?

CSBS is concerned that a proposed CFPB rule could erode the relationship lending model that community banks use with small business. That’s the view we recently relayed through a formal comment letter to the Bureau.

To implement one part of Dodd-Frank, the CFPB would begin collecting data from lenders on small-business loans, with the acknowledgment that more kinds of data might be required down the road. The concern of state regulators: if banks responded to CFPB scrutiny by making loan decisions based on an ever-expanding checklist, then the relationship lending model community banks have long used would begin to wither. And some loans that are made today to small businesses would not be made in the future.

In many states, state regulators are responsible for promoting local economic development in addition to protecting consumers and the safety and soundness of financial institutions. Among state-chartered banks, 93 percent are community banks who are responsible for more than 45 percent of small loans to business. And long-term relationships are the core of a community bank’s lending model to small business owners, as reflected in the 2017 survey from CSBS and the Federal Reserve.

The U.S. Department of Treasury has voiced concerns about the proposed CFPB rule, and called for Congress to repeal the relevant section of Dodd-Frank. CSBS has asked the CFPB to delay implementation of its proposed rule until Congress has an opportunity to respond.