On November 6, the Consumer Financial Protection Bureau (“CFPB”) held a symposium on the prospective implementation of Section 1071 of the Dodd-Frank Act, codified as 15 U.S.C. § 1691c-2, which requires financial institutions to inquire about and report to the CFPB whether a business credit applicant is a women-owned, minority-owned, or small business. The CFPB may make such information available to the public. Section 1071 is often viewed as HMDA for small business, a reference to the Home Mortgage Disclosure Act, which requires financial institutions to collect and report information about mortgage applicants to the CFPB, some of which is made public.
Section 1071 amended the Equal Credit Opportunity Act of 1974 in 2010 to “facilitate enforcement of fair lending laws” and to “enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.” In 2011, the CFPB announced that financial institutions’ obligations to collect information under the law would not go into effect until it issued implementing regulations. To date, however, the CFPB has not issued proposed or final regulations to implement Section 1071.
In her prepared remarks, CFPB Director Kathy Kraninger reassured symposium participants that Section 1071 rulemaking will be done with “care and consideration,” and with the goal of maintaining access to credit for small businesses, suggesting that the CFPB will exercise caution as it seeks to implement the law. Earlier this year, Director Kraninger and the CFPB were named as defendants in a lawsuit alleging a violation of the Administrative Procedures Act because the CFPB has not yet issued Section 1071 implementing regulations.
The symposium panelists expressed concerns about the consequences of Section 1071 data collection. Diego Zuluaga, a Cato Institute policy analyst, warned that complying with Section 1071 will be costly for smaller financial institutions and that the increased cost will degrade the ability of community banks to offer small businesses the type of credit they need in a timely and efficient manner. He also warned that privacy remains a major concern because Section 1071 will require financial institutions to report granular information about small businesses to the CFPB.
Some panelists highlighted the potential gains of implementing Section 1071 regulations. John Taylor of the National Community Reinvestment Coalition pointed to the existing gap in available data regarding the small business financing market. Richard Neiman, a former New York banking regulator, pointed out that minority, women-owned, and small businesses continue to struggle to access capital and that the last decade has seen a rise in irresponsible small business lending practices. Both panelists suggested that the proposed data collection could begin to address these issues. Taylor also added that compliance costs may not rise drastically because many banks already collect much of the information that will be required under the law.