FAQs: CFPB small business data collection info for lenders

What will be considered a small business under the CFPB rule?

The CFPB has defined small businesses as those with $5 million or less in gross annual revenue the preceding fiscal year.

What is a “covered" credit transaction?

Loans, lines of credit, credit cards, and merchant cash advances (MCAs) are the types of credit transactions that new data collection requirements will cover. MCAs include transactions for agricultural purposes and those that are HMDA-reportable transactions. The proposed rule defines a “covered credit transaction” as an extension of business credit that is not an excluded transaction under the rule.

Which credit transactions are excluded?

The types of transactions excluded from the rule are trade credit, public utilities credit, securities credit, and incidental credit. Factoring, leases, consumer-designated credit used for business purposes, and credit secured by certain investment properties are also excluded transactions included in the proposed rule.

What data must be collected?

For each small business application for credit covered by the rule, more than 20 data points will be required to be collected. As a result, the CFPB’s final iteration of the rule could substantially increase small business lending data collection and reporting requirements for some financial institutions. Just a few of the data points for each application are:

• the purpose of the credit
• action taken
• denial reasons
• Census tract
• number of workers
• ethnicity of principal owners

What’s the deadline for institutions to comply with the CFPB 1071 requirements?

Compliance would be required 18 months after the final rule is published. The final rule is expected by March 31, 2023. That timeline would put the compliance deadline around October 2024.

How often must lenders report data to the CFPB?

Data for the 1071 rule must be collected on a calendar year basis and reported to the CFPB before June 1 of the following year.

How should lenders prepare for CFPB 1071 compliance?

Paula King, Senior Advisor with Abrigo Advisory Services, recently provided a CFPB 1071 rule checklist to help financial institutions understand the proposed requirements. It also includes actions financial institutions can take to prepare for and successfully comply with the final 1071 rule.

What help is available for complying with the requirements to collect small business loan application data?

In addition to automation, which is vital for efficiently using staff and reducing errors, financial institutions should consider whether a third-party resource, such as dedicated risk management consultants or advisors, would benefit them. Consultants can alleviate staff bandwidth issues and help to create or adapt current collection and loan pricing systems.