Additional reporting requirements for small business lenders are expected to be a priority for the incoming Biden Administration. We explain what to expect and when, and how to prepare.
Change is coming to the way small business lenders must collect and report on borrower data. Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act, directing the Consumer Financial Protection Bureau (CFPB) to adopt regulations governing the collection of small business lending data. The driving force behind these requirements was the government’s desire to provide regulators and community groups with better information to conduct fair lending and Community Reinvestment Act (CRA) analysis.
After more than a decade of delay, it’s expected that finalizing and implementing Section 1071 will be a focus for the CFPB under the Biden Administration. In fact, there’s been significant progress recently to make these requirements a reality.
Section 1071 requires that lenders identify women-owned, minority-owned, and small businesses and collect data related to the race, gender, and ethnicity of the business owners.
It also seeks to identify:
There have been signals that Section 1071 will be a priority in 2021 for the CFPB, and recent preparations have been underway — especially after a lawsuit by The California Reinvestment Coalition in 2019 against CFPB.
Before finalizing Section 1071, the CFPB was required to consult with representatives of smaller entities likely to be most impacted by the regulation. In September 2020, CFPB released an “Outline of Proposals Under Consideration and Alternatives Considered” describing the requirements within Section 1071 as well as its implementation proposals. Feedback related to those plans was due on December 14, 2020. The following day, the CFPB released the Final Report of the Small Business Review Panel. The regulations are expected to be finalized by the end of 2021 and lenders will have two years to comply with the new rules once they are enacted.
Financial institutions both large and small will need to comply with these enhanced data collection and reporting requirements. Although compliance will not be required for two years after the regulations are finalized, compliance is expected to be onerous — especially for community and midsize banks who may lack the resources to dedicate to the effort. Processes and systems will need to be established, tested, and become routine to achieve compliance. Given the work ahead, the time to prepare is now.
Risk Management Solutions Group (RMSG) offers a comprehensive suite of regulatory and compliance services for community and midsize banks, customized to your unique business, delivered by experienced subject matter professionals — all at an accessible price.
We founded RMSG because:
When it comes to Section 1071 data collection and reporting requirements, it’s important to lay the groundwork now to prepare for the road ahead. We can assist you with: