1071 & What that means to your Financial Institution
Most financial institutions (FI) are aware of the current regulatory requirements to collect demographic information for applicants on certain covered transactions and soon similar demographic requirements will soon apply to small business applications. On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) issued the small business lending rule as final, which implements the small business lending data collection requirements. Keep reading to determine your implementation timeframe.
What is 1071?
Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to compile, maintain, and submit to the Bureau certain data on applications for credit for women-owned, minority-owned, and small businesses. Small business lending rulemaking | Consumer Financial Protection Bureau (consumerfinance.gov)
Congress enacted section 1071 for the purpose of:
- Facilitating enforcement of fair lending laws
- Enabling communities, governmental entities, and creditors to identify business and community development needs and opportunities for women-owned, minority-owned, and small businesses
What does this mean to you?
- Begin work with systems experts, core/software vendors, and experienced professionals to build out compliance programs to include the Section 1071 Rule.
- Check out the Info Sheet to determine your coverage and compliance Dates: cfpb_sbl_info-sheet-regarding-compliance-dates.pdf (consumerfinance.gov)
- Determine the number of covered originations in 2023; the first compliance date is October 1, 2024; check out the snip below from the CFPB.
- Consider what training is needed for staff members on both the branch side and the back office.
- Test systems, processes implemented and oversight for the collection points. Data Point Chart: Small Business Lending Rule: Data Points Chart (consumerfinance.gov)
- How will data be collected at your FI? Will you need to update homemade applications? Will you need to HAVE an application? Small business lending sample form | Consumer Financial Protection Bureau (consumerfinance.gov)
The data has been collected … now what?
After the FI has determined how to collect the data, where the data is stored, and has started to successfully collect the data the task is not complete. The FI needs to then analyze the data to see what story the data tells and how that aligns with the purposes noted above for 1071.
There has been criticism by many, including industry trade groups, related to this new legislation with hopes it will go away. However, with the size of this regulation change we recommend financial institutions do not delay efforts for implementation planning.
Thank you to my associate Casimere (Casey) Yaceczko, Jr., CRCM for his assistance writing this blog. Casey joined CLA in 2022 after working in leadership positions in financial institutions since 1999. He has spent most of that time leading teams of professionals focused on Federal regulatory compliance, mortgage and loan servicing, and bank operation effectiveness. Casey serves as a CLA peer advisor for newly hired family members and actively participates as a Diversity, Equity, and Inclusion (DEI) ambassador.
Karen focuses on regulatory compliance, BSA, compliance management systems and special projects, such as compliance risk assessments and BSA assessments.
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