In January, we discussed the upcoming implementation of Section 1071 of the Dodd-Frank Act, which amends the Equal Credit Opportunity Act to require certain reporting requirements for specific categories of business loans. The implementation of Section 1071, which contains reporting and disclosure requirements that are comparable to the Home Mortgage Disclosure Act (HMDA), through an anticipated Consumer Financial Protection Bureau (CFPB) rulemaking will require that business lenders implement new policies and procedures to ensure compliance.

Recently, the CFPB has made several statements that shed additional light on the rulemaking timeline. Specifically, in March, the CFPB settled a case in California in which the plaintiffs sought a declaration that the CFPB had violated the Administrative Procedure Act by failing to timely issue regulations implementing Section 1071 of the Dodd-Frank Act. The lawsuit, California Reinvestment Coalition et al. v. Kraninger et al., was filed in May 2019 in the United States District Court for the Northern District of California. The plaintiffs in the lawsuit were the California Reinvestment Coalition, the National Association for Latino Community Asset Builders, and two female small business owners, one of whom is black and one of whom had failed to obtain adequate capital from financial institutions for their businesses.

Under the terms of the settlement agreement, the CFPB agreed to court-ordered deadlines for implementation of Section 1071. Specifically, the CFPB is required to:

• Outline its proposals for collecting the required Section 1071 data and publicly release those proposals for consideration of their effect on small businesses by September 15, 2020;
• Establish a Small Business Advocacy Review panel to provide input on the CFPB’s proposal by October 15, 2020 (the plaintiffs were permitted to recommend entities for inclusion on the panel up until May 31, 2020);
• Negotiate deadlines with the plaintiffs for each stage of the rulemaking process to facilitate the data collection, including the deadline to issue the final data collection rule, and accept court-ordered deadlines if the parties cannot agree; and
• Submit status reports every 90 days detailing the CFPB’s progress toward implementing this data collection rule.

The CFPB’s agreement to this settlement, specifically the district court’s oversight of its compliance, further confirms that Section 1071 is coming soon. But the settlement’s terms, particularly the quarterly status reports and public release of the CFPB’s proposals, should aid lenders in working with their counsel to develop policies and procedures, as well as a compliance program, to ensure compliance with the new reporting and disclosure requirements.

More recently, the CFPB filed its first status report with the district court. The CFPB reported that:

• It is continuing to work on the significant legal and policy issues that must be resolved to implement Section 1071” and “briefing the Bureau’s director on these issues;”
• It is drafting the outline of proposals and alternatives under consideration “consistent with the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. § 609;”
• It has started “the preliminary internal work on the selection of the small entity representatives who will consult with the SBREFA panel;”
• Due to COVID-19, it has temporarily postponed its survey of lenders to obtain estimates of the one-time costs that lenders would incur to prepare and collect data required by Section 1071, meaning that the survey results may not be available for inclusion in the bureau’s SBREFA outline, but “the Bureau believes that, if necessary, it can conduct the SBREFA process without these results;” and
• The ongoing pandemic may effect the CFPB’s future ability to meet the deadlines in the settlement.

In other words, the CFPB continues to press on with its rule-making timeline, while leaving some wiggle room to account for the possible delays caused by the COVID-19 crisis. Business lenders should continue to use this time to start considering strategies for compliance with Dodd-Frank 1071. In addition, we will continue to monitor future status reports in the California Reinvestment Coalition matter, as well as other CFPB statements, for news about the upcoming implementation of Section 1071.