Yesterday, the Consumer Financial Protection Bureau (CFPB) issued its long-awaited Notice of Proposed Rulemaking (NPRM) related to Dodd-Frank 1071. As we have discussed in this space, Section 1071 amends the Equal Credit Opportunity Act to mandate certain reporting requirements for financial services companies making business loans. The act aims to “facilitate enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.” There is a 90-day period in which stakeholders can submit comments to the CFPB regarding the proposed rule.
In particular, the Bureau is proposing to add a new Subpart B to Regulation B that will implement 1071’s requirements. Although many provisions of the proposed rule are consistent with the SBREFA outline that was issued last September – for instance, the scope of data collection remains limited to “small businesses” and does not include women-owned and minority-owned businesses that are not small – the Bureau did elect to increase the scope of the rule in some areas. Also, the Bureau limited the number of exempt entities and products, electing to not implement an asset-based exemption for depository institutions and also elected to include Merchant Cash Advances. The limited exemptions are a departure from the anticipated scope of 1071 discussed in the SBREFA outline. The proposed rule also answers some important lingering questions, including the definition of “small business,” which is defined by the rule as a business whose gross annual revenue is $5 million or less for its preceding fiscal year.
In sum, Dodd-Frank 1071 will pose substantial compliance and regulatory burdens on financial services companies offering credit to small businesses. Accordingly, it is critical that institutions understand the contours of the new rule as part of the compliance process. Bradley is currently reviewing the proposed rule and plans to discuss various aspects of the rule in a series of upcoming blog posts and webinars. Christopher Friedman and Brian Epling will host the first of these webinars titled “Dodd-Frank 1071 – Initial Reactions to the CFPB’s NPRM” on Wednesday, September 8, 2021, from 3-4 p.m. EST.