On September 1, 2021, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule to implement Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal seeks to implement 1071’s requirement that “in the case of any application to a financial institution for credit for women-owned, minority-owned, or small business, the financial institution” collect certain information related to the applicant. Specifically, the provision states that a financial institution compile and maintain information sufficient to “clearly and conspicuously disclose” to the CFPB:
- ‘‘(A) the number of the application and the date on
which the application was received;
- ‘‘(B) the type and purpose of the loan or other credit
being applied for;
- ‘‘(C) the amount of the credit or credit limit applied
for, and the amount of the credit transaction or the credit
limit approved for such applicant;
- ‘‘(D) the type of action taken with respect to such
application, and the date of such action;
- ‘‘(E) the census tract in which is located the principal
place of business of the women-owned, minority-owned,
or small business loan applicant;
- ‘‘(F) the gross annual revenue of the business in the
last fiscal year of the women-owned, minority-owned, or
small business loan applicant preceding the date of the
- ‘‘(G) the race, sex, and ethnicity of the principal owners
of the business; and
- ‘‘(H) any additional data that the Bureau determines
would aid in fulfilling the purposes of this section.”
To implement these requirements the CFPB is proposing to amend Regulation B under the Equal Credit Opportunity Act. Notably, the CFPB “is proposing to require financial institutions to collect and report 1071 data regarding applications for credit for small businesses, including those that are owned by women and minorities.” This means that the new data collection requirements will apply to all small business-covered applications, not just those from women- or minority-owned businesses. Under the proposal, a “covered application” is defined as “an oral or written request for a covered credit transaction that is made in accordance with procedures used by a financial institution for the type of credit requested.”
For purposes of the proposal, a “financial institution” is “any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in any financial activity.” The proposal notes that the new regulation “would apply to a variety of entities that engage in small business lending, including depository institutions (i.e., banks, savings associations, and credit unions), online lenders, platform lenders, CDFIs, lenders involved in equipment and vehicle financing (captive financing companies and independent financing companies), commercial finance companies, governmental lending entities, and nonprofit nondepository lenders.” An exemption from certain reporting requirements would apply to financial institutions that originated fewer than 25 credit transactions in each of the two preceding calendar years.
What constitutes a “small business” is slightly more complicated; under the proposed rule, the term is to be defined by looking to the Small Business Administration’s definitions of “business” and “small business” as set out in the Small Business Act and related regulations; however, the proposed rule would exclude from the definition of a “small business” any entity with gross annual revenues in the preceding year of greater than $5 million.
The proposed rule would also require a financial institution to collect information that includes minority-owned business status, women-owned business status, and the ethnicity, race, and sex of the applicant’s principal owners. The proposal would require a financial institution to obtain this information if an applicant refuses to voluntarily provide it: “If an applicant does not provide any ethnicity, race, or sex information for any principal owners, the Bureau is proposing that the financial institution must collect at least one principal owner’s race and ethnicity (but not sex) via visual observation or surname, but only if the financial institution meets with any principal owners in person or via electronic media with an enabled video component.”
The new data collection requirements will significantly increase the information collection and maintenance requirements for any institution engaged in anything more than a de minimis amount of small business lending. The CFPB has set a 90-day comment period for the proposed rule; any financial institution that is concerned about the proposal is urged to provide comment.
Jordan Ramis attorneys stand ready to help financial institutions navigate this proposal, as well as any other laws and regulations impacting their businesses.
Gregory P.J. Zerzan is a Jordan Ramis PC attorney with legislative, regulatory, and cabinet agency experience who advises clients through their interactions with Congress and federal agencies. Contact him at firstname.lastname@example.org or (503)-598-7070.