The Section 1071 Small Business Lending Data Collection Rule has been a significant topic in the financial industry, and recent developments indicate a dynamic and evolving situation. As of April 8, 2025, the landscape surrounding this rule is far from settled.
What is Section 1071?
For those unfamiliar, the Consumer Financial Protection Bureau (CFPB) issued the final rule for Section 1071 of the Dodd-Frank Act on March 30, 2023. This rule mandates that financial institutions collect and report data on small business credit applications, including demographic details like HMDA reporting. The aim is to enhance transparency in small business lending and enforce fair lending laws.
Initial Implementation Plans:
The original plan involved tiered compliance deadlines, with the largest lenders (Tier 1) initially set to begin compliance on July 18, 2025. This followed a Supreme Court ruling in May 2024 that affirmed the CFPB’s authority and lifted a previous stay from a Texas federal court.
The Winds of Change:
However, the situation has taken a turn. In early April, the CFPB, an agency under new leadership and facing uncertainty, has directed staff to reopen rulemaking for Section 1071. This development follows a February 2025 decision by the U.S. Court of Appeals for the Fifth Circuit, which stayed enforcement of the rule for specific plaintiffs and intervenors involved in ongoing litigation, effectively pausing compliance deadlines for those parties.
What’s Next? Expect a New Rulemaking Process:
The CFPB’s anticipated next move is to issue a Notice of Proposed Rulemaking (NPRM) “as expeditiously as reasonably possible”. This signals that the agency is likely considering a revision or even a replacement of the current rule rather than immediate implementation for all.
Reactions and Potential Outcomes:
This move has elicited varied responses. Some view it as a delay tactic after years of rulemaking, while others, particularly community bankers, see it as an opportunity to lessen the regulatory burden. It’s worth noting that the current rule remains in effect for institutions not covered by the Fifth Circuit’s stay, meaning compliance efforts are still underway for many.
The future of Section 1071 hinges on several factors:
- The Reopened Rulemaking: The NPRM will be crucial in clarifying the CFPB’s revised direction and timeline. The outcome could be a scaled-back version of the current rule, addressing criticisms about the complexity and costs of data collection, which are estimated to be significant for lenders.
- Ongoing Litigation: Further legal challenges questioning the CFPB’s scope could also impact the rule’s implementation.
- Legislative Efforts: Attempts to entirely dismantle the rule, such as the “1071 Repeal to Protect Small Business Lending Act” introduced in early 2025, are also in play.
Looking Ahead:
While the specifics remain uncertain, it appears likely that some form of data collection on small business lending will persist given the political pressure and the CFPB’s responsiveness to industry feedback. However, the final form of this data collection—whether it will be the current rule or a revised iteration—is still up in the air. The next significant development to watch for is the release of the CFPB’s Notice of Proposed Rulemaking, which may provide a clearer picture of the path forward.
