The CFPB’s New 1071 Rule
In the United States, financial institutions (FIs) are preparing to comply with new rule introduced by the Consumer Financial Protection Bureau (CFPB) has introduced a new rule, 12 C.F.R. Part 1002, implementing Section 1071 of the Dodd-Frank Act.
On March 30th, 2023, the CFPB issued a final rule under section 1071 of the Dodd-Frank Act. For some context, Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA), requiring FIs to collect data on their small business loans.
The primary purpose of the Section 1071 rule is to enhance fair lending practices for small businesses, particularly those owned by women and minorities. The rule requires FIs to collect and report on their lending activities, including information about the race, sex, and ethnicity of the small business owners they’re lending to.
The CFPB is tasked with implementing and enforcing Section 1071. The data collected under this new rule is intended to help identify and address any disparities in lending to small businesses owned, ultimately ensuring that all eligible businesses can enjoy fair and equal access to credit.
The publication of the final rule on March 30th enacted this requirement, in an 888 page-long document. We explain some of the key aspects of the rule below but, for a more detailed explanation of its impacts and compliance considerations, you can download our eBook: Navigating the CFPB’s Section 1071 Rule.
Who Does the Section 1071 Rule Apply to?
The rule brings forth data collection and reporting requirements for lenders involved in small business lending and, if implemented, this rule will cover a wide variety of financial institutions, including:
- Traditional banks
- Credit unions
- Online lenders
- and any other financial institutions that engage in small business lending activities
When do Financial Institutions Need to be Compliant with Section 1071?
Rule 1071 will become effective 90 days after its publication in the Federal Register, though compliance with the final rule is not required at that time. The CFPB is adopting a tiered schedule for compliance deadlines, based on the assumption that smaller and mid-sized lenders would have difficulties meeting the single 18-month compliance period the notice of proposed rulemaking (NPRM) proposes.
Compliance with the rule from October the 1st, 2024 is required for FIs originating the most covered credit transactions for small businesses. Institutions with a moderate transaction volume will have until April the 1st, 2025, however, and those with the lowest have until January the 1st, 2026.
However, due to ongoing litigation, the deadlines for compliance with the Section 1071 Rule are stayed for all covered financial institutions, though small business lenders are advised to prepare for future compliance obligations related to the rule.
FIs can begin collecting protected demographic information twelve months prior to the deadline to help prepare for coming into compliance with the final rule. The CFPB is also adopting a new provision for FIs that don’t have ready access to relevant information to determine their compliance “tier” (or whether they are covered by the rule at all) to estimate their transaction volume of loans to small businesses.
To learn more about the CFPB's 1071 Rule, check out our guide 2024 Global Regulatory Outlook report.
*The eBook contains general, condensed summaries of actual legal matters, regulations, and opinions for informational purposes. It is not meant to be and should not be construed as legal advice.