The Consumer Financial Protection Bureau has issued its long-awaited final rule to implement Section 1071 of the Dodd-Frank Act. Section 1071 amended the Equal Credit Opportunity Act to require financial institutions to collect and report certain data in connection with credit applications made by small businesses, including women- or minority-owned small businesses.
On April 17, 2023 from 1:00 p.m. to 2:00 p.m. ET, Ballard Spahr’s Consumer Financial Services Group will hold a webinar, “The CFPB’s Final Section 1071 Rule on Small Business Data Collection: What You Need to Know.” To register, click here.
The final rule will be effective 90 days after it is published in the Federal Register. However, compliance with the rule will not be required as of that date. The rule contains “compliance date tiers” that differ depending on the number of covered originations a financial institution originated in 2022 and 2023. These tiers are as follows:
- A financial institution must begin collecting data and otherwise complying with the final rule on October 1, 2024 if it originated at least 2,500 covered originations in both 2022 and 2023.
- A financial institution must begin collecting data and otherwise complying with the final rule on April 1, 2025 if it:
- Originated at least 500 covered originations in both 2022 and 2023;Did not originate 2,500 or more covered originations in both 2022 and 2023; and
- Originated at least 100 covered originations in 2024.
- A financial institution must begin collecting data and otherwise complying with the final rule on January 1, 2026 if it originated at least 100 covered originations in both 2024 and 2025.
The final rule also contains a transitional provision that a financial institution can use to determine the number of covered originations it originated in 2022 and/or 2023 if it did not collect sufficient information to determine if some or all borrowers were small businesses pursuant to the final rule or if such information is not readily accessible.
In addition to the 888-page final rule and a 17-page table of contents, the CFPB also issued a Factsheet, an Executive Summary, and a “Statement on Enforcement and Supervisory Practices Relating to Small Business Lending Rule under the Equal Opportunity Act and Regulation B.”
As an initial observation, we note two significant changes from the proposed rule. They are (1) an increase in the reporting threshold from the origination of 25 covered transactions in each of the two preceding calendar years to the origination of 100 covered transactions in each of the two preceding calendar years, and (2) an exclusion for mortgage loans that must be reported under the Home Mortgage Disclosure Act. Once we have fully reviewed the lengthy rule and accompanying materials, we will share more information in additional blog posts.