More than a decade after the passage of the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) is moving towards a rulemaking process to implement Section 1071 of the financial reform legislation that governs small business lending data collection and reporting.
Section 1071, which amended the Equal Credit Opportunity Act, requires financial institutions to collect certain data regarding applications for credit for women-owned, minority-owned, and small businesses, and to report that data annually to the CFPB. It is a key component in helping policymakers, researchers, and lenders develop a full understanding of the small business lending market, including what gaps might exist in access to capital as well as identify discriminatory lending practices.
However, efforts to implement the rule have been delayed for years with limited action since 2010. The CFPB took initial steps to begin the rulemaking process in 2017 with the release of a Request for Information on the small business lending market but efforts to implement the rule stalled. In November 2019, the CFPB held a symposium to seek expert and practitioner feedback on Section 1071 including OFN member Opportunity Fund and Responsible Business Lending Coalition member Lending Club.
The delay in the issuance of Section 1071 regulations prompted a lawsuit brought by OFN member National Association for Latino Community Asset Builders (NALCAB), the California Reinvestment Coalition, and two small business owners, citing the delay as a violation of the Administrative Procedure Act. In February 2020, the CFPB entered into a settlement to resolve the lawsuit and agreed to a rulemaking timetable.
Last month, the CFPB released an Outline of Proposals Under Consideration and Alternatives Considered seeking feedback on proposals to implement Section 1071. The outline asks for input on which lenders should be covered, the types of financial products that should be reported, definitions of a small business and a small business loan, the cost and potential regulatory burden of the new data collection, and various other issues.
In addition, under the terms of the settlement, the CFPB is required to convene a Small Business Advocacy Review panel to consult small entities regarding the potential impact of the proposals. The panel, which started convening this month, must submit a report that examines the impact of the potential rule on small businesses that the CFPB will consider in the rulemaking process.
The release of the outline and the Small Business Regulatory Enforcement Fairness Act (SBREFA) panels are important steps forward but there are still many more steps before there is a final rule in place. The CDFI industry must continue to advocate for the CFPB to move forward with this critical data collection.
The CFPB is currently accepting written feedback on the proposals. Comments should be emailed to 2020-SBREFAemail@example.com no later than December 14, 2020. OFN plans to submit comments and is interested in how the data collection will impact CDFIs. If you would like to weigh in, contact Dafina Williams, SVP, Public Policy.