In response to the 2008 financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010, focused on addressing sectors of the financial services industry. Dodd-Frank was to be implemented over time: Section 1071 (15 U.S. Code § 1691c-2(a)) has been pushed back on the implementation timeline, as it does not become effective until the Consumer Financial Protection Bureau (“CFPB”) implements regulations – which it has not.
Section 1071 amends the Equal Credit Opportunity Act. It requires financial institutions and governmental entities to compile, maintain, and submit data to the CFPB regarding credit applications submitted by women-owned, minority-owned, and small businesses.
Specifically, banks will be obligated to collect data from these types of business regarding the race, sex, and ethnicity of business owners, the purpose of the loan, the action taken with regards to the loan, the business’s gross annual revenue, and other information. Currently, this type of data is collected from multiple different agencies. Under Section 1071, the CFPB will have a comprehensive list of all the data and make it available to the public.
In November of 2019, the CFPB held a symposium regarding the implementation of Section 1071, identifying it as a priority but admitting that implementation may take several years. Thereafter, the CFPB disclosed a brief filed in a legal action against the Bureau styled as California Reinvestment Coalition, et al. v. Kathleen Kraninger, et al. No. 4:19-cv-02572-JSW, United States District Court for the Northern District of California. The brief indicated that the CFPB intends to complete its internal policymaking process in six months and release an implementation outline in November 2020.
Advocates believe Section 1071 will “facilitate the enforcement of fair lending laws and enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.” (15 U.S. Code § 1691c-2(a)). Others express concerns that implementation may stymie loans and capital efforts of minority/women owned and small businesses. For example, Diego Zuluaga of the CATO Institute opines that compliance will be costly for smaller banks which will freeze their ability to extend credit to small businesses. While smaller banks often have more flexibility to timely and efficiently meet the capital needs of small businesses, the implementation of Dodd-Frank could have deleterious effects on their ability to do so.
Although Section 1071 was crafted to address certain discriminatory practices by financial institutions, the CFPB has to carefully and strategically implement this Act in order for it to fulfill its intended purpose and not deter lenders, especially smaller institutions, from being able to properly service women-owned, minority-owned, or small businesses. The Bureau’s implementation rules have been long-awaited and, despite the passage of time and change in political climate since the passage of Section 1071, the CFPB should be guided by the Section’s stated purpose and balance the need for data against the risk of onerous collection and reporting requirements.
Jacklyn Fetbroyt is a founding member of Kang Haggerty LLC and is currently the co-chair of the NAMWOLF Financial Services Litigation Practice Area Committee. Among other things, Jackie focuses on counseling companies and business owners through all stages of their ventures from conception to dissolution, assisting her business clients in all of their needs for maintenance and growth.