As discussed here, on March 30, the Consumer Financial Protection Bureau (CFPB) issued its final rule under Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Final Rule). Section 1071 amended the Equal Credit Opportunity Act (ECOA) to impose significant data collection and reporting requirements on small business creditors. Concurrently, the CFPB published materials and tools to help small businesses navigate the 888-page Final Rule.
On April 5, the CFPB announced that it was launching a dedicated regulatory and technical support program called SBL Help. SBL Help is designed to provide oral and written assistance to financial institutions about their data collection and reporting obligations under the Final Rule. On the same date, the CFPB also issued a key compliance dates chart containing the dates for phased data collection and reporting requirements for small business lenders, depending upon the number of covered credit transactions the institution originates annually.
Additional resources available through the CFPB include:
- A table of contents.
- A 12-page executive summary of the Final Rule, including key definitions such as:
- A “covered financial institution” is any partnership, company, corporation, association, trust, estate, cooperative organization, or other entity that engages in any financial activity, and that originated at least 100 covered small business credit originations in each of the two preceding calendar years.
- A “small business” is a small business concern that had $5 million or less in gross annual revenue for its preceding fiscal year.
- A “covered credit transaction” is an extension of business credit under Regulation B. Covered credit transactions can include loans, lines of credit, credit cards, merchant cash advances, and credit products used for agricultural purposes, but do not include trade credit, transactions reportable under the Home Mortgage Disclosure Act (HMDA), insurance premium financing, public utilities credit, securities credit, and incidental credit, among other things.
- “Data points.” The Final Rule requires a covered financial institution to collect and annually report to the CFPB data on covered applications from small businesses. The data that must be reported and collected includes:
- A unique identifier, the application date, the application method, the application recipient, the action taken by the financial institution, and the date the action was taken.
- The credit type, credit purpose, and amount of credit for which the applicant applied.
- The census tract of the applicant, North American Industry Classification System code, applicant’s number of workers, applicant’s time in business, and number of principal owners.
- The minority-owned, women-owned and LGBTQI-owned business statuses and the ethnicity, race, and sex of principal owners.
- A financial institution cannot require an applicant to provide demographic information. If the applicant fails or declines to provide the information, the financial institution must report the failure or refusal to provide the information and is not required or permitted to report these data points based on visual observation, surname, or any other basis. The CFPB eliminated its requirement in the proposed rule that lenders, for in-person applications, make a “guess” as to principal owners’ race/ethnicity based on visual appearance and last name.
- The Final Rule expressly prohibits a financial institution from discouraging an applicant from responding to requests for applicant-provided data.
- A compliance date info sheet.
- This sheet explains the CFPB’s phased approach to compliance. The Final Rule requires lenders that originate at least 2,500 small business loans annually to collect data starting October 1, 2024. Lenders that originate at least 500 loans annually must collect data starting April 1, 2025. Lenders that originate at least 100 loans annually must collect data starting January 1, 2026.
- A data points chart.
- According to the CFPB, this chart is intended to be used as a reference for data points required to be collected and reported under the Final Rule.
- A filing instructions guide.
- An instructions guide describing the filing process, the data fields to be reported, the validation requirements for filing, and a summary of resources for filers.
- A methodology for institutional coverage.
- In this report, the CFPB describes its methodology for estimating how many banks will be required to report under the Final Rule and estimated costs associated with implementing the Final Rule.
Troutman Pepper’s Consumer Financial Services team will be issuing further analysis of the Final Rule and guidance for compliance through its blog and podcast over the coming weeks.