Additional Contributors
Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires and standardizes the data institutions now must collect for small business loan applicants as part of fair lending laws.
Compliance with the new regulations begins as early as July 18, 2025, for some institutions. This article helps financial institutions understand the new requirements and ensure compliance.
What is section 1071?
Section 1071 is a new regulation that amends the Equal Credit Opportunity Act. The goal of section 1071 is to provide regulators and the public with more transparent information regarding small business lending practices, particularly to assess whether small businesses, including those owned by women, minorities, and veterans, face discrimination in the credit market. Banks, credit unions, and other financial institutions that extend credit to small businesses are required to collect and report certain data according to section 1071. Small businesses, for purposes of data collection, are those with $1 million or less in revenue per year.
How does this affect a financial institution?
Like fair lending, section 1071 requires due diligence from financial institutions to record applicant data such as race, ethnicity, and gender. Lending personnel must be trained on the importance of the sensitivity of this data and how to ensure data integrity through the recordkeeping process. Small business data will be reported annually to the Consumer Financial Protection Bureau (CFPB). To enhance transparency, the CFPB will publish the aggregated data for public access each year, and non-compliance can result in fines, reputation damage, and corrective measures enforced by the CFPB.
When do the new regulations go into effect?
Filing deadlines are organized by lending volume. The higher the volume of lending at the institution, the earlier the compliance date and filing deadline. Deadlines begin as early as July 18, 2025, for compliance by Tier 1 institutions, the highest volume lenders, who have a filing deadline of June 1, 2026. Tier 2 and 3 institutions have different deadlines, as noted in the CFPB chart.
How can a financial institution ensure compliance?
To ensure compliance with the required small business lending regulations in section 1071 and beyond, financial institutions should scrutinize their current policies and procedures, especially those related to small businesses that are women- or minority-owned, and conduct interactive analyses of the data.
Institution leaders should develop a detailed and comprehensive risk assessment that:
- Is based on quantitative and qualitative methodologies
- Establishes an inherent level of risk
- Considers comprehensive mitigating controls
- Presents residual levels of risk
As a professional services firm offering audit and assurance assistance to financial institutions, PYA helps clients with lending compliance by incorporating the latest technology to identify lending gaps, assisting clients with developing risk assessments and compliance programs, and examining the institution’s policies and internal controls to ensure adherence to regulations.
If you need assistance with section 1071 practice compliance, preparing for an examination, or any other area related to regulatory compliance, our executives are happy to assist.
