With regard to coverage of the CFPB’s Section 1071 rule on small business lending, the CFPB indicates that entities providing credit to franchisees, whether or not affiliated with the franchisor, would generally be “financial institutions” subject to the rule’s data collection and reporting requirements to the same extent as any other provider of business credit. The CFPB indicates that franchise financing would also constitute “business credit” subject to the ECOA and Regulation B, which is defined as “extensions of credit primarily for business or commercial (including agricultural) purposes.” As a result, the CFPB will treat creditors, including franchisors, providing financing to franchisees as subject to the ECOA and Regulation B prohibitions against discrimination. It then states that because in either scenario the franchisee is being granted the right to defer payment for debts they incur, the financing would be “credit” under the ECOA and Regulation B. With regard to ECOA and Regulation B coverage, the CFPB first observes that franchisees generally obtain credit either directly from the franchisor or from third party finance companies that are either independent of the franchisor or brokered by or affiliated with the franchisor. The CFPB has published a document on its website that “communicates the extent to which the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B apply with respect to franchises seeking credit to finance their businesses.” The document also addresses the application of the CFPB’s Section 1071 rule on small business lending to franchise financing.
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