The Consumer Financial Protection Bureau (CFPB or Bureau) published in the Federal Register an interim final rule extending compliance dates for its 2023 small business lending rule under the Equal Credit Opportunity Act (Regulation B) (Final Rule) This extension comes in response to court orders in ongoing litigation, affecting the timeline for financial institutions to comply with data collection requirements for women-owned, minority-owned, and small businesses.
Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 introduced Section 1071, amending the Equal Credit Opportunity Act to mandate financial institutions to collect and report specific data on small business lending. As discussed here, the CFPB’s Final Rule requires a covered financial institution to collect and annually report to the CFPB data on covered applications from small businesses. The data that must be reported and collected includes: (i) the application date, the application method, the application recipient, the action taken by the financial institution, and the date the action was taken; (ii) the credit type, credit purpose, and amount of credit for which the applicant applied; (iii) the census tract of the applicant, North American Industry Classification System code, applicant’s number of workers, applicant’s time in business, and number of principal owners; and (iv) the minority-owned, women-owned and LGBTQI-owned business statuses and the ethnicity, race, and sex of principal owners.
There are currently legal challenges to the Final Rule on the basis that the CFPB violated the Administrative Procedures Act.
New Compliance Dates
Yesterday’s interim final rule extends the compliance dates (previously extended in June 2024 as discussed here) by approximately one year, allowing covered financial institutions additional time to prepare. The revised compliance schedule is as follows:
Financial institutions can choose to use their small business originations from 2022 and 2023 or from subsequent years to determine their compliance tier.
Legal and Legislative Context
The extension follows stays issued by courts in Texas, Kentucky, and Florida, impacting compliance deadlines for certain plaintiffs. The CFPB plans to initiate a new rulemaking process for Section 1071, aiming to issue a notice of proposed rulemaking soon.
Parallel to the litigation, legislative efforts are underway to repeal Section 1071. As discussed here, bills have been introduced in Congress seek to eliminate the requirement for data collection, citing increased compliance costs and potential impacts on small business credit access.
Grace Period and Public Comment
The CFPB has updated its grace period policy, providing a 12-month window for financial institutions to address compliance issues without penalties, contingent on good faith efforts. The Bureau is soliciting public comments on the interim final rule.
