Section 1071 of the Dodd-Frank Act requires the Consumer Financial Protection Bureau (CFPB) to collect and report data from banks regarding the demographics of small business borrowers and loan applicants. This includes the race and gender of the business owner, the size of the business, and the loan amount, type and interest rate.
One of the goals of this provision is to determine if disparate impact practices are suppressing small business lending among minority-owned and women-owned businesses. But nearly seven years after Dodd-Frank was passed, the CFPB still has not established guidelines for banks to follow in gathering, storing and reporting this data.
In early June, the CFPB extended the comment deadline on its request for information (RFI) from financial institutions to September 12, 2017. The RFI will represent the first step in the implementation of Section 1071. And in late July, the ABA met with the CFPB to discuss a wide range of issues related to the implementation.
Among the issues discussed were the costs and burdens banks will face in collecting and reporting the data, as well as concerns about customer privacy and financial institution confidentiality. They also discussed the potential for misinterpretation of the data and the possibility that incorrect conclusions could be made about the data once it is collected and released.
In the past, the ABA has spoken out against Section 1071, calling the provision misguided. And the Consumer Bankers Association has stated that the provision, “would place considerable and unnecessary burdens on small businesses and lenders, producing a negative effect.”
The timing of Section 1071 finalization may be uncertain, but this isn’t an excuse to sweep it under the rug. Start thinking now about how your bank will gather, store and report demographic data once the RFI is finalized.
Call us if you have any questions about Dodd-Frank Section 1071, 417-881-0145.