Section 1071
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In March 2023 the Consumer Financial Protection Bureau (CFPB) finalized rules to implement Section 1071 of the Dodd-Frank Act. This will bring much needed transparency to how lenders are serving businesses owned by people of color, women and the LGBTQI+ community. This is an important milestone towards eliminating discrimination in small business lending. It is fitting that CFPB Director Rohit Chopra announced it to a packed room of economic justice advocates during the National Community Reinvestment Coalition’s (NCRC) annual Just Economy Conference. The many NCRC members who shaped the final rule through submitted comments, lawsuits and conversations with elected officials should be proud.
Implementation of the 1071 rule is likely to result in increased lending to underserved businesses as lenders will now have to annually report on their lending broken down by race, ethnicity, gender and sexual orientation of the business owners.
UPDATE
March 2023: CFPB Director Rohit Chopra announced the final Section 1071 rule at NCRC’s Just Economy Conference.
See NCRC’s initial analysis of the final rule.
FaQ
What is Section 1071?
Section 1071 of the Dodd-Frank Act is intended to facilitate the enforcement of fair lending laws and enable communities, government entities, and creditors to identify business and community development needs and opportunities for small businesses, including women-owned and minority-owned businesses.[1] The Consumer Financial Protection Bureau (CFPB) originally finalized its rules to implement Section 1071 of the Dodd-Frank Act on March 30, 2023.[2]
[1] Section 1071 – Small Business Loan Data Collection, Public Law 111–203—July 21, 2010, Dodd-Frank Wall Street Reform and Consumer Protection Act. Page 682. Available online at https://www.govinfo.gov/content/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf
[2] Small Business Lending Under the Equal Credit Opportunity Act (Regulation B). CFPB. Final Rule. Federal Register / Vol. 88, No. 104. Available online at https://www.govinfo.gov/content/pkg/FR-2023-05-31/pdf/2023-07230.pdf
Who does Section 1071 apply to?
The rule applies to covered financial institutions as an institution that originated at least 100 small business loans in each of the two preceding calendar years.[1]
[1] Ibid. p. 1
What are the compliance dates for covered financial institutions?
[1] Small Business Lending Under the Equal Credit Opportunity Act (Regulation B); Extension of Compliance Dates. / Vol.89, No.128. Page 1. Available online at https://www.govinfo.gov/content/pkg/FR-2024-07-03/pdf/2024-14396.pdf
Who benefits from having Section 1071 data?
The rule benefits both consumers and markets. As envisioned by Congress in Section 1071 of the Dodd-Frank Act, the small business lending rule will create the nation’s first consistent and comprehensive database on lending to small businesses, including small farms.
Over time, the rule will provide information to regulators, businesses, banks, and advocates, establishing clear information about the small business lending market. The database will also be critical in assessing fair lending enforcement, and allow a range of stakeholders to identify business and community development needs and opportunities for small businesses.
How about small farmers?
Section 1071 data will support both new and small farmers. Currently the public has minimal information regarding which farmers are currently being served by the lending institutions that hold a majority of agricultural debt. For example, lenders within the Farm Credit System (FCS), have held as much as 44% of all agricultural debt by the end of 2021, however it is currently unclear which demographics have actually received a majority of those loans. This is despite the fact that FCS lenders already collect demographic information for home loan borrowers.[1]
[1] HEAL, Support for CFPB Section 1071 Rule and Opposition to Congressional Review Act to Overturn 1071 Rule, November 2023, https://healfoodalliance.org/healresources/#:~:text=RE%3A%20Support%20for%20CFPB%20Section%201071%20Rule%20and%20Opposition%20to%20Congressional%20Review%20Act%20to%20Overturn%201071%20Rule%C2%A0(November%202023)
Do lenders already collect similar data?
Many lenders already collect and purchase detailed demographic data about applicants in order to effectively target their credit products to different categories of borrowers. The transparency offered by Section 1071 data empowers the public to compare the lending patterns against the activity of different financial institutions, thereby identifying opportunities and gaps.
What are the arguments to weaken Section 1071?
The attacks on Section 1071 have been recycled and are ineffective. Current congressional efforts to repeal or weaken Section 1071 are based on arguments that have been previously discredited.
Some opposition proposals to weaken Section 1071 include raising the origination threshold from 100 to 500 annual loans in the two preceding years, this would undermine the purpose of Section 1071. The CFPB’s proposed threshold of 100 loans would already cover approximately 90-95% of lenders[1].
Other arguments assert that publicly shared Section 1071 data would put small business owners personal data at unique risk, despite the fact that similar datasets such as HMDA already exist and pose no such risks.
[1] Section 1071 Final Rule. Page 231, https://files.consumerfinance.gov/f/documents/cfpb_1071-final-rule.pdf
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