Purpose

A planning tool for covered institutions to support and assess compliance with the Consumer Financial Protection Bureau’s Small Business Lending Rules for Section 1071 of the Dodd-Frank Act (“Section 1071”).

Background

On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act. Financial institutions covered by this requirement must collect and report to the CFPB data on applications for credit to small businesses, including those that are owned by women or minorities. The rule also addresses privacy interests in connection with the publication of the data; the shielding of certain demographic data; record keeping requirements; enforcement provisions; and effective dates.

The compliance date tiers in the final rule differ depending on the number of covered originations by the covered financial institution in 2022 and 2023. The CFPB issued an interim final rule1 to extend the original effective dates as follows:

Originations

Original collection date

New collection date

Submission Date

Tier 1

Greater than 2,500 small business originations

October 1, 2024

July 18, 2025

June 1, 2026

Tier 2

Between 500 and 2,499 small business originations

April 1, 2025

January  16, 2026

June 1, 2027

Tier 3

Between 100 and 499 small business originations

January 1, 2026

October  18, 2026

June 1, 2027

The data collection requirements are extensive, creating significant regulatory and IT challenges for lenders. Consequently, many institutions are closely evaluating the impact of this rule across their operation. This planning tool is designed to assist institutions at any stage of their evaluation process.

The Planning Tool

Recommended approach: Use the grid below to evaluate the impact of the final rule on every part of your organization and identify strengths, gaps, and weaknesses. Consider each point and score your organization’s readiness to comply with the new requirements. The tool can be used in whole or part to better understand where your organization sits today to prepare for compliance. The tool can be completed by anyone in your organization, however, it may be best suited for completion by an individual or group with familiarity on Section 1071 and knowledge of related procedures enterprise-wide.

Next steps: While assessing your data collection capabilities, identifying gaps, and making necessary investments for compliance, consider consulting Wolters Kluwer. Our experts can assist covered institutions in preparing by:

  • Evaluating technology infrastructure
  • Reviewing policies and procedures
  • Conducting staff and Board of Directors training
  • Conducting risk assessments
  • Helping with examination preparation

Most importantly, Wolters Kluwer consultants can assist covered institutions in interpreting what your small business and farm lending reveals about your fair lending practices before submitting data to the CFPB. For more information on the Advisory Services related to the final rule, please contact Jason Keller at [email protected] or Thomas Grundy at [email protected].

1On June 25, 2024, the CFPB issued an interim final rule to extend compliance dates. Under the interim final rule, covered financial institutions are also permitted to use their originations from 2023 and 2024 (instead of 2022 and 2023) to determine their compliance tier. See https://www.consumerfinance.gov/1071-rule/.

Category 1: Change Notification

1. Have we analyzed whether we are a covered institution under Section 10712, and if so, do we know what reporting tier we fall under?
2. Do we have a centralized plan for implementing Section 1071 that minimizes duplicative efforts in the company?
3. Have we assigned clear responsibility to business unit representatives who are impacted by the change?
4. Do the responsible parties include individuals with knowledge of the systems, procedures, processes, training, and documentation needed for Section 1071 and fair lending compliance?
2 A covered financial institution is any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in any financial activity, and that originated at least 100 covered originations in each of the two preceding calendar years.

Category 2: Impact analysis

5. Do we know which lines of business and processes in the organization will be affected by Section 1071?
6. Do we have processes to identify small businesses (and small farms) that had $5 million or less in gross annual revenues for its preceding fiscal year?
7. Are we prepared to provide and identify those lines of business that are being impacted by Section 1071?
8. Do we have resources to quickly respond to requests for clarification/regulatory interpretation from the business units3?
9. Do we understand our prudential regulator’s view of Section 1071 (as applicable)?
10. Do we understand how Section 1071 will impact our relations with community advocacy groups, specifically those that work with small businesses and/or small farms?
3 Clarifications on what transactions are covered, whether an application is reportable/non-reportable, as well as the nuances of the required information to be collected may be numerous, especially within an institution’s first year of reporting.

Category 3: Compliance Management Systems (CMS) enhancements

11. Do we have staff to update procedures, risk assessments, testing, monitoring, and reporting templates?
12. Do we have the expertise to train and inform Senior Executives and/or the Board of Directors about the business impact of Section 1071?
13. Have we identified stakeholders, including the ones held accountable for the accurate and timely collection and reporting of data?
14. Do we know our ability to collect the data fields required under Section 1071, and have we determined when collection will begin?
15. Do we have the expertise necessary to analyze and understand the impact of Section 1071 on our fair lending program?
16. Do we know when our next data quality examination is and how we will incorporate our readiness for Section 1071 into that examination?

Category 4: Process enhancements

17. Do we have the process in place to revise existing procedures to adhere to the new data collection and reporting requirements under Section 1071?
18. Do we have a process to ensure training materials are updated and provided timely to the appropriate staff including commercial and agricultural loan officers/underwriters?
19. Do we have a common approach across the lines of business for managing data issues?
20. Do we have a process today for effectively collecting and small reporting small business and small farm non-originations (denied, withdrawn, and file closed for incompleteness)?
21. Are we prepared to capture and report the applicant’s minority-owned business (or farm) status, women-owned status, and LGBTQI++ status as well as the principal owner’s ethnicity, race, and sex?
22. Are we prepared to limit access to demographic   information to only those employees and/or officers who need access (e.g. the “firewall”)?
23. Do we have procedures in place to identify and respond to evidence of discouragement including low response rates to the required demographic disclosures?

Category 5: Technology enhancements

24. Do we know our IT change management process timeline (or backlog) and how it will affect the implementation of the required changes under Section 1071?
25. Will Section 1071 require an enhancement to our loan origination system? If yes, do we know how many systems will be impacted?
26. Now that covered applications will include oral or written requests for a covered transaction as well as those requests that are denied, approved, not accepted, or withdrawn, are our systems capable of this additional tracking?

Category 6: Verification

27. Do we have strong cross-departmental collaboration groups that can promote effective regulatory change management throughout this multi-year implementation process?
28. Do we have adequate staff to work collaboratively within the business units during implementation and to test changes throughout the implementation for accuracy to plan?
29. Do we have a plan to test third-party enhancements (loan origination systems, data management systems) prior to our go-live date?
30. Does compliance have full visibility into all aspects of the implementation so that the completed implementation can be monitored for sustainability?
31. Will internal audit review the change management process and/or updated business processes?

Category 7: Reporting & analysis

32. Do we have a well-documented regulatory change management process that ensures transparency and allows us to produce evidence of implementation on-demand?
33. Will our regulator be satisfied with the timeliness of our implementation plan related to Section 1071?
34. Do we have a well-documented process for reporting our implementation of the new rule to management?
35. Do we have a plan to communicate and track compliance with the updated changes for affected third-party vendors?

Thank you for assessing your readiness

Please complete the form below and your overall readiness results will be emailed to you.

These assessment results are not to be used as a substitute for legal or other professional advice or services, and there can be no guarantee of the relevant level of risk or of any particular outcome based on these results. Wolters Kluwer makes no representation or warranty with respect to this assessment and the results provided, and further, Wolters Kluwer does not make any representation or warranty about any of its product offerings or services pursuant to this assessment and results provided.

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