Section 1071 proposal could bring unintended consequences, substantial costs

January 6, 2022

CUNA supports efforts for increased financial equity but believes the Consumer Financial Protection Bureau’s (CFPB) proposed data collection under Section 1071 of Dodd-Frank could present unintended consequences. Section 1071 of the Dodd-Frank Act requires financial institutions collect and report certain data regarding applications for credit for women-owned, minority-owned, and small businesses.

The CFPB released its proposal in October and CUNA issued an action alert last month calling on credit unions to submit comments on the proposal, resulting in more than 900 comments.

“Credit unions support the goals of section 1071 and seek to provide all members with fair and equitable financial opportunities,” the letter reads. “That said, we are concerned about the potential for unintended consequences and substantial costs of compliance associated with the creation of a broad data collection where one does not currently exist.”

The letter adds that credit unions—as entities bound to serve a specific field of membership—would likely collect data incomparable to other lenders that serve anyone that can access its facilities or website.

CUNA calls on the CFPB to consider the following revisions to ensure a balance of consumer protections and the availability of credit for small businesses:

  • Increase the covered financial institution threshold to at least 500 covered credit transactions in each of the two preceding calendar years and create a size-based exemption for entities of $600 million assets or less.
  • Reduce the gross annual revenue threshold for the rule’s definition of “small businesses” to no more than $1 million in gross annual revenue in the preceding fiscal year.
  • Exempt several types of credit transactions from the definition of covered credit transactions, including agriculture-purpose credit, Home Mortgage Disclosure Act-reportable transactions, consumer-designated credit, loans under $50,000, and government guaranteed loans.
  • Exclude credit line increases from the definition of covered application for purposes of the rule.
  • Consider that the requirement to shield certain data from underwriters and others has potential for negative impacts on smaller lenders serving business borrowers.
  • Reduce the Section 1071 data set to only data points that are statutorily required and avoid unnecessary discretionary data points.
  • Rescind the requirement for covered financial institutions to conduct a visual observation and surname analysis on applicants declining to provide responses to demographic questions.
  • Consider the privacy and concerns in finalizing the rule and conduct a notice and comment period on the Bureau’s “balancing test” for publication of 1071 data.
  • Adopt a phased mandatory compliance schedule that begins no sooner than three years following the issuance of a final rule. 

CUNA also submitted a separate joint letter with the National Association of Federally-Insured Credit Unions highlighting the need for common sense definitions, appropriate coverage thresholds, and a reasonable, phased mandatory compliance schedule.