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Dodd-Frank 1071 small business lending rule is finalized; will your financial institution be ready?
LEGAL UPDATE: On May 16, 2024, the Supreme Court of the United States issued its long-awaited decision in the CFSA v. CFPB case, challenging the constitutionality of the CFPB’s funding. The Court found in favor of the CFPB (finding its funding constitutional). Preliminary injunctions issued by the Texas and Kentucky Federal district courts were framed to last until the constitutionality of CFPB funding was confirmed. With this question resolved, on May 17th the CFPB issued a notice of its intent to issue an interim final rule extending the small business data collection rule compliance deadlines. The CFPB’s interim final rule will require small business data collection under ECOA as of July 18, 2025 (Tier 1 financial institutions), January 16, 2026 (Tier 2 financial institutions), and October 18, 2026 (Tier 3 financial institutions). Voluntary data collection of all small business data is expected to be permitted 12 months prior to these required effective dates.
What the 1071 small business lending rule means
The Consumer Financial Protection Bureau (CFPB) has published the rule addressing Section 1071 of the 2010 Dodd-Frank Act (DFA), which places extensive disclosure, data collection, data reporting, and data firewall requirements on financial institutions for certain transactions made to small businesses. The 1071 small business lending rule is designed to assist the CFPB in bringing fair lending to small business lending, and to enable the identification of business and community development needs and opportunities for women-owned, LGBTQI+-owned, and minority-owned small businesses.
This long-awaited final rule amending the Equal Credit Opportunity Act’s (ECOA) implementing Regulation B will have wide-ranging impacts on commercial small business lenders and the time to start preparing for it is now.
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The aims of 1071
Fair Lending Practice
By requiring financial institutions to collect and report demographic data on small business borrowers, the 1071 small business lending rule will address lending disparities and ensure that all businesses have equal access to credit.
Regulatory Compliance
Financial institutions must comply with the 1071 small business lending rule to avoid potential regulatory penalties, which could include fines or other enforcement actions.
Transparency and Accountability
The collected data will help regulators and policymakers better understand the lending landscape, identify patterns of discrimination, and develop strategies to promote financial inclusion.
Why is 1071 data important?
Equitable accommodations to credit are critical to small business owners and to the future of the US economy. The scale of need is significant.
1071 data will provide the CFPB information about lending to small businesses in order to assist in enforcing fair lending laws, and to enable creditors to identify and support the business needs of small businesses owned by women, LGBTQI+, and other minorities within the community.
Finastra’s 1071 and Originate solutions are integrated to intuitively automate the process of identifying applicants who are subject to 1071 and begin the data collection process. The solution leverages Originate’s best-in-class digital application experience and provides firewall protection between applicants’ sensitive data and loan decision-makers.
22%
of all US employer businesses are owned by women, employing nearly 11 million people1
1.4 million
US businesses are LGBTQ+ owned2
21%
of all US employer businesses are owned by minority populations1
41%
of all US non-employer businesses are owned by women3
$1.7 trillion
in revenue is generated annually by LGBTQ-owned businesses4
37%
of all US non-employer businesses are owned by minority populations3
Whom does the 1071 small business rule apply to?
The 1071 small business lending rule broadly impacts financial institutions (including depository institutions, online lenders, platform lenders, CDFIs, vehicle financing companies and commercial finance companies) that originate at least 100 covered credit transactions for small businesses in each of the two previous calendar years. Our new module helps institutions identify transactions where the small business lending rule applies. Find out how Finastra is addressing the legislative challenges by viewing this informative factsheet.
Types of small businesses to be identified by the 1071 small business lending rule will include:
Women-owned businesses
A business for which more than 50% of its ownership or control is held by one or more women, and more than 50% of its net profits or losses accrue to one or more women.
LGBTQI+-owned businesses
A business for which one or more LGBTQI+ individuals hold more than 50% of its ownership or control, and for which more than 50% of the net profits or losses accrue to one or more such individuals.
Minority-owned businesses
A business for which one or more American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander, or Hispanic or Latino individuals hold more than 50% of its ownership or control, and for which more than 50% of the net profits or losses accrue to one or more such individuals.
Definitions
Principal owner
Any individual who owns 25% or more of the equity interest of a business. A business might not have any principal owners if, for example, it is not directly owned by any individuals (i.e., if it is owned by another entity or entities) or if no individual directly owns at least 25% of the business.
Small business
For purposes of the 1071 small business lending rule a small business has the same meaning as “small business concern” under existing SBA regulations, with one unique twist. Rather than using existing SBA size standards, here, any small business with $5 million or less in gross annual revenue qualifies. Check out our FAQ document for more details.
FAQs
More than a decade since the 2010 Dodd-Frank Act required the CFPB to issue small business lending rules, the final rule amending Regulation B is finally here and there are several key elements that must be understood. Download our FAQ document resource for a closer look.
Finastra is simplifying 1071 compliance: Available now!
Finastra’s retail lending products are integrated with a single cloud-native solution that provides a uniform user experience across all impacted services. Compliance Reporter’s Small Business Data Collection module supports the real-time features including data collection workflow and required 1071 reporting for:
- LaserPro
- CreditQuest
- DecisionPro
- Originate
Finastra is committed to helping financial institutions stay compliant and control costs amid evolving regulations. To assist you in managing the new small business lending rule, we have developed an effective new solution to support a compliant and efficient data collection workflow, which includes:
- Checklist of eligibility guidelines
- Data validation to the CFPB Filing Instructions Guide (FIG) requirements
- Assistance in firewalling of select data
- Automatic search for reusable data as outlined by the CFPB's data reuse requirements
- The ability to email requests for demographic information to the applicant for online completion
- Aggregated annual reporting
Resources
Finastra guarantees LaserPro’s loan documents will be compliant with regulatory requirements in all 50 states and the District of Columbia.
Solutions
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Learn more about 1071 and sign up to receive notifications and publications to assist your compliance journey. We can also share how Finastra's compliance-guaranteed LaserPro product suite can ensure your loan documents meet both state and federal requirements.