Regulation B - 1071 Small Business Data Collection, What
it Means to Your Financial Institution
February 1, 2023
Member Fee (Live or Recording): $165 per connection
Non-Member Fee (Live or Recording): $265 per connection
On August 31, 2021, the Consumer Financial Protection Bureau (CFPB) published a 918-page notice of proposed rulemaking (NPRM) to implement Section 1071 of the Dodd-Frank Act. That section amends the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.
- Compliance with a final rule will be mandatory 18 months after publication, which is expected by March 2023.
- While final compliance is delayed, there are steps that need attention now.
Key aspects of the proposal include, but are not limited to:
- Who is covered - The rule applies to financial institutions, however a proposed activity-based exemption would exempt financial institutions that originate less than 25 “covered credit transactions” to “small businesses” in each of the two preceding calendar years. It is estimated that the rule will apply to approximately 3,600 to 3,800 (70% to 73% of the total) banks and Savings Associations.
- What is a “Small Business” - The CFPB is proposing to define a “small business” as one that had $5 million or less in gross annual revenue for its preceding fiscal year.
- What is an “Application” – The NPRM proposes to adopt the Regulation B definition of an “application” but exclude:
- Reevaluation requests, extension requests, or renewal requests on an existing business account, unless the request seeks additional credit; and
- Inquiries and prequalification requests.
- What is a “covered credit transaction” - The CFPB is proposing to define a “covered credit transaction” as one that meets the definition of business credit under Regulation B. The term:
- Includes loans, lines of credit, credit cards, and merchant cash advances.
- Does not include trade credit, public utilities credit, securities credit, and incidental credit as defined in Regulation B.
- What information is collected and reported – Financial institutions must collect 21 fields of data including the race, sex, and ethnicity of the principal owners of the business, the credit type, the amount applied for, action taken, pricing, census tract, gross annual income, the NAICS code, and much more. The sex of the applicant includes, “male”, “female”, “I do not wish to provide this information”, and “I prefer to self-identify as_____”.
The proposed revisions to Regulation B represent one of the most significant new regulatory events in recent history. All financial institutions, except those that originate less than 25 “covered credit transactions” to “small businesses” in each of the two preceding calendar years, must implement a full compliance management system, including policies, procedures, training, and audit. Actions needed now include budgeting for 2023/24, initial staff training, commercial and agricultural customer orientation, and selection of a system to collect and report data.
- Who is covered by the new regulation
- The definition of “small business”
- The definition of “application”
- Which transactions are reportable and which are exempt from reporting
- The 21 data fields to be collected
- The data collection form
- The tolerances applied to the collected data
- The “firewall” concept
- The rules for reporting data to the CFPB
- What data gets published, when it gets published, and how it gets published
- The recordkeeping requirements
- The enforcement provisions
- The likely effective date of the rule
- The five critical steps that need attention now
The webinar is designed for the board of directors, senior management, loan officers, loan operations staff, compliance officers and staff, training staff, and auditors.
Kimberly Boatwright is EVP and Director of Risk and Compliance at Compliance Resource, LLC and has more than a two decades of experience working in the financial services industry. Ms. Boatwright is a well-regarded financial industry risk and compliance professional with a strong background in program development and implementation. She is a thought leader who specializes in Fair Lending, Anti-Money Laundering, OFAC and consumer compliance. During her career she has worked for and consulted with all types of financial institutions helping to establish and evolve compliance and risk programs. She is a frequent public speaker, trainer, and author on compliance and risk management topics. Kimberly is a Certified Regulatory Compliance Manager and a Certified Anti-Money Laundering Specialist.
Jack Holzknecht is the Founder of and Senior Consultant at Compliance Resource, LLC. He has been delivering the word on lending compliance for 46 years. In 41 years as a trainer over 155,000 bankers (and many examiners) have participated in Jack’s live seminars and webinars. Jack’s career began in 1976 as a federal bank examiner. He later headed the product and education divisions of a regional consulting company. There he developed loan and deposit form systems and software. He also developed and presented training programs to bankers in 43 states. Jack has been an instructor at compliance schools presented by a number of state bankers associations. As a contractor he developed and delivered compliance training for the FDIC for ten years. He is a Certified Regulatory Compliance Manager and a member of the National Speakers Association.