Regulatory attentions on small businesses at both the federal and state levels put forth “consumer protection-like” requirements/expectations. The release of the long-anticipated Dodd-Frank-required “1071 data” collection rule serves to reinforce the focus on small businesses in addition to the significant data collection, data quality, and regulatory reporting requirements and associated analytics (similar to mortgage lending reporting under the Home Mortgage Disclosure Act (HMDA)). This final rule will subject small business lending to additional supervision under other historically “consumer” laws and regulations. Heightened risk and compliance areas requiring business and risk management include: data (accuracy, privacy, security); fair lending; community development; UDAAP; KYC/AML; operational procedures/training, disclosures; models; and technology (systems upgrades, constraints, reporting).
April 2023
The Consumer Financial Protection Bureau (CFPB) has issued itsfinal small business lending rule, which amends Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) made by Section 1071 of the Dodd-Frank Act. Consistent with Section 1071, the rule requires covered financial institutions to collect and report to CFPB data on applications for credit for small businesses, including those that are owned by women or minorities.
The final rule is substantially similar to the proposal with some modifications including:
- An increase to the qualifying origination threshold for “covered financial institutions” from 25 to 100 “covered credit transactions.”
- Adoption of a phased implementation schedule, with compliance for the largest covered financial institutions to begin October 2024.
- A requirement that applicant’s “protected demographic information” is to be provided by the applicant; the proposed requirement for loan officers was not adopted.
- Exclusion of loans reportable under HMDA from the data collection and reporting requirements.
The final rule will become effective ninety (90) days after publication in the Federal Register.
Highlights from the final rule are outlined below.
