Enter to open, tab to navigate, enter to select
NYDFS Proposes Commercial Loan Data Collection Rule
Practical Law Legal Update w-037-6086 (Approx. 6 pages)
NYDFS Proposes Commercial Loan Data Collection Rule
by Practical Law Finance
| Published on 16 Nov 2022 • USA (National/Federal) |
The New York State Department of Financial Services (NYDFS) issued a proposed rule to require certain financial institutions to collect and report to NYDFS data on business credit applications and applicants. The proposed rule would amend Part 76 of Title 3 of the New York Codes, Rules and Regulations (NYCRR) to implement an amendment to New York State's Community Reinvestment Act (NYCRA).
On October 26, 2022, the New York State Department of Financial Services (NYDFS) issued a proposed rule (NYDFS proposed rule) that would:
- Amend Part 76 of Title 3 of the New York Codes, Rules and Regulations (NYCRR) by inserting a new Section 76.16. The new section would implement an amendment to New York State's Community Reinvestment Act (NYCRA) (N.Y. Banking Law § 28-b) that requires NYDFS to evaluate certain financial institutions for the extent they offer and provide credit and technical assistance to certain businesses (N.Y. Banking Law §§ 28-b(3)(a)(8) and 28-b(3)(a)(9)).
- Require any New York State-chartered commercial bank, trust company, savings bank, or savings and loan association or any branch of a foreign bank insured by the Federal Deposit Insurance Corporation (FDIC) that originates at least 25 credit transactions for businesses (business credit) in each of the two prior calendar years (covered financial institution) to:
- inquire whether an applicant for business credit (business credit applicant) is more than 50% owned or controlled by one or more minorities (that is, individuals who are American Indian, Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander, or Hispanic or Latino) (minority-owned business) or by one or more women (women-owned business);
- notify a business credit applicant that it may refuse to provide information requested by a covered financial institution in inquiring whether a business credit applicant is a minority-owned business or women-owned business (inquiry information) and that the covered financial institution may not discriminate based on any inquiry information provided;
- compile and maintain certain data about each application for business credit (business credit application) and business credit applicant (business credit data) (see Business Credit Data to be Compiled and Maintained);
- retain the business credit data for six years; and
- submit the business credit data to NYDFS on request. A covered financial institution would also be required to submit to NYDFS on request copies of reports and documents it must prepare and file with the Consumer Financial Protection Bureau (CFPB) under Section 704B of the Equal Credit Opportunity Act (ECOA Section 704B) (15 U.S.C. § 1691c-2).
The NYDFS proposed rule is similar in some respects to a proposed rule issued by the CFPB on September 1, 2021 (CFPB proposed rule) that would implement Section 1071 of the Dodd-Frank Act (which inserted ECOA Section 704B) and require certain financial institutions to collect and report data on small business credit applications to the CFPB (see Legal Update, CFPB Proposes Small Business Lending Data Collection Rule as Required by Dodd-Frank Act). However, some differences exist between the NYDFS proposed rule and the CFPB proposed rule, including:
Item | NYDFS Proposed Rule | CFPB Proposed Rule |
Type of credit covered | All business credit | Small business credit |
Subject entities | Covered financial institutions | All lenders |
Threshold number of loans | 25 or more business loans of any kind | 25 or more small business loans |
Data reporting | On request by NYDFS | Annually to the CFPB |
NYDFS requests comments to the NYDFS proposed rule by no later than December 12, 2022.
Business Credit Data to be Compiled and Maintained
The business credit data the NYDFS proposed rule would require covered financial institutions to compile and maintain includes:
- Date of receipt of the business credit application.
- How the business credit applicant submitted the business credit application.
- Type of business credit applied for, including:
- the credit product; and
- its term, in months (if applicable).
- The purpose of the business credit.
- The amount of business credit applied for.
- The action taken on the business credit application (that is, originated, approved but not accepted, denied, withdrawn by the business credit applicant, or incomplete) and the date the action was taken.
- If the business credit application is:
- approved, the approved amount of business credit; or
- denied, the principal reason or reasons for the denial.
- The census tract of the business credit applicant's principal place of business.
- The business credit applicant's gross annual revenue for the fiscal year immediately preceding the business credit application.
- The number of non-owners working for the business credit applicant.
- How long (in whole years) the business credit applicant has been in business.
- Pricing information for business credit originated, or approved but not accepted, including:
- total amount of charges payable by the business credit applicant and imposed by the covered financial institution at or before origination as a condition of the business credit (origination charges);
- total amount of origination charges payable to a broker, whether by the business credit applicant or the covered financial institution;
- total amount of non-interest charges to be imposed during the first year of the business credit;
- for merchant cash advances, the difference between the amount advanced and the amount to be repaid; and
- any charge for a prepayment of the business credit.
- Whether the business credit applicant:
- is a minority-owned business, a women-owned business, or both; or
- has refused to provide any inquiry information.
- The race and ethnicity of each principal owner of the business credit applicant (race/ethnicity data). A principal owner would be a natural person who owns at least 25% of the equity interest of a business credit applicant. In collecting race/ethnicity data, a covered financial institution could use a sample data collection form attached to the NYDFS proposed rule and would be required to:
- permit a business credit applicant to respond by using aggregate and disaggregated ethnicity and race categories and subcategories, including an option to allow the business credit applicant to self-identify;
- permit a business credit applicant to identify its principal owners as being of the same disaggregated race or ethnicity subcategories specified in Regulation C (12 C.F.R. Part 1003) and its appendices; and
- offer a business credit applicant the option of selecting more than one ethnicity and race for each of its principal owners.
A covered financial institution would be required to report race/ethnicity data for each principal owner of a business credit applicant as follows:- as provided by the business credit applicant (if it provided the race/ethnicity data, even if it also indicates that it does not wish to provide the race/ethnicity data);
- that the business credit applicant declined to provide the race/ethnicity data (only if it specifically declined to provide the race/ethnicity data);
- as not provided (if the business credit applicant did not respond to the request for the race/ethnicity data); or
- as based on previously collected information (if the covered financial institution is using this information) (see Other Provisions of the NYDFS Proposed Rule for a covered financial institution's ability to reuse previously collected information).
NYDFS would issue a sample data collection form that covered financial institutions could use to collect business credit data.
Other Provisions of the NYDFS Proposed Rule
Under the NYDFS proposed rule:
- A covered financial institution:
- may inform a business credit applicant that New York State law requires it to ask for race/ethnicity data to ensure fair treatment of all credit applicants and fulfillment of communities' credit needs;
- could not include any personally identifiable information (such as name, specific address, telephone number, or email address) about any individual connected with a minority-owned business or women-owned business in the business credit data it compiles; and
- could reuse previously collected information if the information was collected in the same calendar year as the business credit application and the covered financial institution had no reason to believe the information to be inaccurate.
- No person involved in making any determination about a business credit application (underwriter) should have access to the inquiry information provided by a business credit applicant. However, if not providing this access is not feasible, the covered financial institution would be required to provide the business credit applicant with written notice of the access given to the underwriter.
The NYDFS proposed rule would neither require nor permit a covered financial institution to either:
- Verify whether a business credit applicant is a minority-owned business or a women-owned business.
- Report any information on a business credit applicant's principal owners based on visual observation or the surname of any individual associated with the business credit applicant.
Proposed Compliance Date
The compliance date for the final version of Section 76.16 would be six months after its publication in the New York State Register. However, covered financial institutions would have an additional three months to comply with the prohibition on underwriter access to business credit data.