What will the CFPB consider a small business under the CFPB data collection 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 cover. MCAs include transactions for agricultural purposes and those that are HMDA-reportable transactions. The rule defines a “covered credit transaction” as one that meets the definition of business credit under existing Regulation B, with certain exceptions.
Which credit transactions are excluded from data collection requirements?
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 or agricultural purposes, credit secured by certain investment properties, transactions that are reportable under the Home Mortgage Disclosure Act of 1975 (HMDA), and insurance premium financing. are also excluded transactions, according to the final rule.
What triggers the CFPB's requirement to report business loan data?
A “covered application”—which triggers data collection, reporting, and related requirements when submitted by a small business—is an oral or written request for a covered credit transaction that is made in accordance with procedures used by a financial institution for the type of credit requested. The rule says this definition of covered application is largely consistent with the existing Regulation B definition of that term. However, covered applications for purposes of this rule do not include (1) reevaluation, extension, or renewal requests on existing business credit accounts, unless the request seeks additional credit amounts; or (2) inquiries and requalification requests.
What data must be collected under the 1071 rule?
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 rule substantially increases 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?
The final rule requires the largest lenders to collect and report data earlier than smaller lenders. Specifically, lenders that originate at least 2,500 small business loans annually must collect data starting Oct. 1, 2024. Lenders that originate at least 500 loans annually must collect data starting April 1, 2025. Lenders that originate at least 100 loans annually must collect data starting Jan. 1, 2026.
How often must lenders report small business loan 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 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.
The CFPB has numerous detailed instructions for complying with the data collection rule related to small business credit applications. Find links to the bureau's resources and additional help aids on this site with CFPB section 1071 resources for lenders. The page has free training webinar information, preparation checklists, and additional aids for financial institutions providing small business loans.
