Executive Letter: New Section 1071 Proposed Rule Expected Soon
By Rose Oswald Poels
In court filings last week involving the Bureau of Consumer Financial Protection’s (CFPB) Section 1071 rule, the CFPB stated that staff have been instructed to initiate new rulemaking to possibly replace or change the current rule. While I do not know yet what specific changes CFPB has planned for its new rulemaking, I am very pleased to have learned of this news as WBA has been vocal in our objections and concerns of Section 1071 since it was first proposed in the fall of 2021. In addition, last week the House Financial Services Committee voted on April 2 to approve H.R. 976, which would repeal Section 1071 in its entirety.
The Dodd-Frank Act directed CFPB to adopt a regulation to require banks to collect certain lending data from small businesses. This provision of the Act, Section 1071, was first implemented in March 2023 through amendments to Regulation B which implements the Equal Credit Opportunity Act (ECOA). The original effective date of the 2023 final rule was August 29, 2023, with rolling mandatory compliance dates ranging from October 1, 2024, to January 1, 2026, based upon loan origination activity.
Due to litigation by lenders challenging the rule, the mandatory compliance dates for the Section 1071 rule were extended by CFPB on June 25, 2024, through the issuance of an interim final rule. In February, the Fifth Circuit granted a stay in the ongoing litigation which further tolled the compliance dates for financial institutions that are also members of the trade associations involved in the lawsuit.
In the past, when I have been asked by members whether the bank should work to implement the requirements of Section 1071 despite the ongoing litigation and our industry efforts to rollback or eliminate the rule, my recommendation has been for banks to continue their efforts to meet the revised mandatory compliance dates for the rule. However, given the change in the Administration, the litigation status, last week’s movement of repeal legislation and news of a new proposed Section 1071 rule, I believe banks should take a temporary pause pending the outcome in one or more of these actions.
The industry has challenged the Section 1071 rule on all fronts over the years – through legislation, regulation, and judicial action. While a new proposed rule is not yet published, WBA will advocate for the elimination of a requirement to collect any data beyond that expressly provided for under the Dodd-Frant Act. WBA will also advocate for CFPB to revise the definitions of “covered financial institutions” and “small business” to raise both thresholds within. WBA is also continuing its legislative advocacy this week while we are in Washington D.C. with a banker delegation as part of ABA’s Washington Summit for the full repeal of Section 1071, encouraging continued support of H.R. 976.
WBA will continue to keep members apprised of these various changes regarding Section 1071 as they occur. If you have any questions regarding Section 1071, be sure to reach out to WBA Legal at wbalegal@wisbank.com
