As we reported last year, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), among other things, required the Consumer Financial Protection Bureau (CFPB) to adopt regulations governing the collection of certain small business lending data. Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (ECOA), as follows: “in the case of any application to a financial institution for credit for [a] women-owned, minority-owned, or small business, the financial institution shall – (1) inquire whether the business is a women-owned, minority-owned or small business.” The amendment requires financial institutions to compile and maintain certain mandatory information related to the application for credit, as well as discretionary data points that the CFPB believes will further support the purpose of Section 1071. A “financial institution” is defined broadly under Section 1071 as “any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in financial activity.”
On September 1, 2021, the CFPB issued a proposed rule to implement the amendments to ECOA. According to the CFPB, the proposed rule (at almost 1,000 pages) addresses its “approach to privacy interests and the publication of Rule 1071 data; shielding certain demographic data from underwriters and other persons; recordkeeping requirements; enforcement provisions; and the proposed rule’s effective and compliance dates.” Comments on the proposed rule were due January 6, 2022. As of the time of this post, approximately 2,100 comments have been filed for the CFPB’s consideration. Comments from individuals, trade associations, small businesses, credit unions, financial institutions, various regulators, and other interested parties are included. The comments, suggestions, and requests are wide-ranging - from requesting exemptions from the rule based on industry type; to requesting guidance on implementation of the proposed rule; to requesting the CFPB broaden the proposed rule to require other industries to report data and to report data on additional business, not just small businesses. The current status of the process, the proposed rule, and comments can be found here.
Miles & Stockbridge is closely monitoring developments in this area and remains ready to assist clients navigate these proposed changes.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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