The U.S. District Court for the Northern District of California recently issued an order setting September 30 as the deadline for the CFPB to issue a notice of proposed rulemaking (NPRM) on small business lending data based on Section 1071 of the Dodd-Frank Act. Section 1071 amended the Equal Credit Opportunity Act to require financial institutions to collect, maintain, and report to the CFPB data on credit applications made by women-owned, minority-owned, and small businesses. Such data includes the race, sex, and ethnicity of the principal owners of the business, and would be used to facilitate enforcement of fair lending laws and to help better identify the business and community development needs of these types of entities. The order follows a complaint that was filed in 2019 alleging the wrongful delay by the CFPB in adopting regulations to implement Section 1071. The deadline comes as a result of a stipulated settlement agreement reached in 2020, which established a timetable for the CFPB to engage in Section 1071 rulemaking.
Putting It Into Practice: Given the CFPB’s top priority to address racial inequities in consumer finance, the potential implications of collecting and maintaining data on race, sex, and ethnicity hold even larger importance for companies financing small businesses. The CFPB is likely to use 1071 data to launch supervisory exams and enforcement actions against such financial institutions where the CFPB believes there to be discriminatory decision-making on the basis of this data. Although the effective date of the final rule will likely be some time in 2023, impacted companies may wish to consider proactive fair lending reviews.