On August 31, 2021, the Consumer Financial Protection Bureau (CFPB) published a 918-page notice of proposed rulemaking (NPRM) to implement Section 1071 of the Dodd-Frank Act. That section amends the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.
Comments on the NPRM were due by January 6, 2022. Compliance with a final rule will be mandatory 18 months after publication, which is expected by March 2023.
Key aspects of the proposal include, but are not limited to:
- Who is covered – The rule applies to financial institutions, however a proposed activity-based exemption would exempt financial institutions that originate less than 25 “covered credit transactions” to “small businesses” in each of the two preceding calendar years. It is estimated that the rule will apply to approximately 3,600 to 3,800 (70% to 73% of the total) banks and Savings Associations.
- What is a “Small Business” – The CFPB is proposing to define a “small business” as one that had $5 million or less in gross annual revenue for its preceding fiscal year.
- What is an “Application” – The NPRM proposes to adopt the Regulation B definition of an “application” but exclude:
Reevaluation requests, extension requests, or renewal requests on an existing business account, unless the request seeks additional credit, and
Inquiries and prequalification requests.
- What is a “covered credit transaction” – The CFPB is proposing to define a “covered credit transaction” as one that meets the definition of business credit under Regulation B. The term:
- Includes loans, lines of credit, credit cards, and merchant cash advances.
- Does not include trade credit, public utilities credit, securities credit, and incidental credit as defined in Regulation B.
- What information is collected and reported – Financial institutions must collect 21 fields of data including the race, sex, and ethnicity of the principal owners of the business, the credit type, the amount applied for, action taken, pricing, census tract, gross annual income, the NAICS code, and much more. The sex of the applicant includes, “male”, “female”, “I do not wish to provide this information”, and “I prefer to self-identify as_____”.
What You’ll Learn
- Who is covered by the new regulation,
- The definition of “small business,”
- The definition of “application,”
- Which transactions are reportable and which are exempt from reporting,
- The 21 data fields to be collected,
- The data collection form,
- The tolerances applied to the collected data,
- The “firewall” concept,
- The rules for reporting data to the CFPB,
- What data gets published, when it gets published, and how it gets published,
- The recordkeeping requirements,
- The enforcement provisions,
- The likely effective date of the rule, and
- The five steps that need to be addressed before the final rules are published.
Who Should Attend
The program is designed for the board of directors, senior management, loan officers, compliance officers, training staff, and auditors.
Jack Holzknecht is the CEO of Compliance Resource, LLC. He has been delivering the word on lending compliance for 44 years. In 39 years as a trainer over 147,000 bankers (and many examiners) have participated in Holzknecht’s live seminars and webinars. Holzknecht’s career began in 1976 as a federal bank examiner. He later headed the product and education divisions of a regional consulting company. There he developed loan and deposit form systems and software. He also developed and presented training programs to bankers in 43 states. Holzknecht has been an instructor at compliance schools presented by a number of state bankers associations. As a contractor, he developed and delivered compliance training for the FDIC for ten years. He is a Certified Regulatory Compliance Manager and a member of the National Speakers Association.
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