New "Small LENDER Act" Gives Banks a Break on Small Business Lending Data Rules: 3-Year Grace Period, Then 2-Year Safe Harbor

The "Small LENDER Act" (or, officially, the "Small Lenders Exempt from New Data and Excessive Reporting Act") is changing the game for how banks and other financial institutions report data on loans to small businesses. This bill amends the Equal Credit Opportunity Act, basically hitting the pause button on some new reporting requirements that were supposed to make things more transparent.

Slowing Down the Data Train

The core of this bill is about giving financial institutions more time to comply with a "covered rule" (most likely from the Consumer Financial Protection Bureau) about collecting and reporting data on small business lending. Here's the breakdown:

• 3-Year Grace Period: Banks get a full three years before they have to fully comply with the new data collection rules.
• 2-Year Safe Harbor: After that, there's another two years where they're supposed to be complying, but they won't get penalized if they mess up. Think of it as training wheels for the new rules.

Who's a "Small Business," Anyway?

The bill is pretty specific about who these new rules (and the delays) apply to:

• "Financial Institution": This isn't just your corner bank. It's any entity that's involved in financial activities and that made at least 500 small business loans in each of the last two years. (Section 2)
• "Small Business": For the purposes of this bill, it's a business with gross annual revenue of $1,000,000 or less. (Section 2)

Real-World Ripple Effects

Let's say you run a local bakery and need a loan to expand. This bill could make it easier for you to get that loan, at least in the short term. Smaller banks, which might have been overwhelmed by the new reporting requirements, get a breather. That could mean they're more willing to lend to small businesses.

On the flip side, the whole point of the data collection rules was to make sure banks are lending fairly to everyone, regardless of race, gender, or other factors. Delaying those rules could mean less transparency for a while longer. It's a trade-off: potentially easier access to credit now, versus potentially slower progress on fair lending.

The Bottom Line

The "Small LENDER Act" is a classic example of how regulations can have unintended consequences. It's trying to help smaller financial institutions, and by extension, the small businesses they serve. But it's also delaying rules designed to ensure fairness. Whether that trade-off is worth it is the big question.