CFPB Releases Small Business Lender Compliance Cost Survey to Aid in Dodd-Frank 1071 RulemakingRecently, the CFPB released an online survey designed to collect information from “institutions engaged in small business financing” regarding one-time costs of compliance with Dodd-Frank 1071. Section 1071 of the Dodd-Frank Act, which we have discussed in detail on this blog, creates robust reporting requirements for lenders engaged in lending to women-owned, minority-owned, and small businesses that are similar to requirements created by the Home Mortgage Disclosure Act (HMDA). The CFPB has made several recent statements that shed light on its rulemaking timeline. This survey, which expires on October 1, 2020, provides yet another indication that the CFPB is pressing ahead with its implementation of Rule 1071, and any institution engaged in financing small businesses should consider submitting a survey response.

The CFPB’s survey “is part of an overall effort in the consideration of costs and benefits in the implementation of Section 1071 of the Dodd-Frank Act.” Importantly, the CFPB notes that this will be the main opportunity for industry stakeholders to give the CFPB information about cost-of-compliance with Section 1071 as it engages in policy decisions related to enforcement of 1071.

Interestingly, the CFPB’s survey collects information related to several issues that have already proven to be controversial. For instance, how the CFPB will define “small business” for the purpose of Rule 1071 compliance is an open question, and the issue received considerable time during the November 2019 Dodd-Frank 1071 Symposium. The survey delves into this issue by asking respondents how their institutions define “small business” – either by using the Community Reinvestment Acts or the Small Business Administration’s definitions, or through an in-house definition based on the borrower’s revenue, loan amount, number of employees, NAICS code, or some other metric.

Another interesting aspect of the survey appears at the very beginning, where the CFPB asks respondents to self-identify. Specifically, the survey contains an option for “[i]nstitution[s] focused on offering Merchant Cash Advances.” However, a merchant cash advance is, by its very nature, not a loan. As such, it is doubtful whether merchant cash advance companies would be subject to the requirements of Dodd-Frank 1071. Nevertheless, this has not prevented commenters from urging the CFPB to extend the reach of Section 1071 to merchant cash advance and factoring companies.

In general, the survey asks a broad range of questions in an apparent effort to understand (1) what types of data potential Section 1071 reporters are currently collecting, and (2) how much money it will cost potential reporters to come into compliance with the final version of the rule. While all interested parties will have an opportunity to provide commentary to the CFPB during the formal notice and comment period in the coming months, this survey gives stakeholders an early opportunity to let the CFPB know how costly Section 1071 compliance will be for their respective institutions. Moreover, this should also serve as an important prompt for institutions to begin having internal discussions about developing data collection policies and procedures for business lending. We will continue to monitor the CFPB for developments on the implementation of Dodd-Frank 1071.

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Photo of Christopher K. Friedman Christopher K. Friedman

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated…

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated sector. Chris focuses on both small business lenders and alternative business finance products and has helped non-bank small business lenders, banks who make small business loans, commercial credit counselors, lead generators, and others in the industry. He helps clients launch new products, conduct due diligence, engage in compliance reviews, evaluate litigation risk, and solve some of the unique legal problems faced by companies who work with small businesses. In that vein, Chris has written extensively about the upcoming rulemaking related to Dodd-Frank 1071, which will require data collection and reporting by companies making loans to certain small businesses.

Photo of Judea S. Davis Judea S. Davis

Judea Davis is an associate in Bradley’s Litigation Practice Group. Prior to joining the firm, Judea clerked for the Hon. Michelle Childs of the U.S. District Court for the District of South Carolina and the Hon. Garrison Hill of the South Carolina Court…

Judea Davis is an associate in Bradley’s Litigation Practice Group. Prior to joining the firm, Judea clerked for the Hon. Michelle Childs of the U.S. District Court for the District of South Carolina and the Hon. Garrison Hill of the South Carolina Court of Appeals.

She also served as a law fellow and law clerk for the Equal Justice Initiative, where she researched constitutional and criminal law issues and represented clients before the Alabama Board of Pardons and Paroles.