Regulatory Changes for Consumer Compliance

Section 1071 – Are You Ready?

In March 2023, the Consumer Financial Protection Bureau (CFPB) issued a final rule implementing Section 1071 of the Dodd-Frank Act amending the Equal Credit Opportunity Act (ECOA), which requires the collection and reporting of credit application data for small businesses lending, including women- and minority-owned businesses. The purpose of Section 1071 is to facilitate 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.

Under the final rule, a covered financial institution is defined as a financial institution that originated at least 100 “covered credit transactions” for small businesses in each of the two preceding calendar years. In addition, a “small business” is defined as one with $5 million or less in gross annual revenue for its preceding fiscal year.

Although the final rule will be effective on August 29, 2023, it contains a tiered compliance date schedule, with an earliest compliance date of October 1, 2024, for financial institutions that originate the most covered credit transactions and later compliance dates for institutions with lower transaction volumes.

Regulatory Changes to Home Mortgage Disclosure Act Thresholds

Back in 2020, the Consumer Financial Protection Bureau (CFPB) ruled to modify the prior reporting thresholds for closed-end mortgage loans from 25 to 100. The Home Mortgage Disclosure Act reporting status was based on at least 100 loans originated in the two preceding calendar years. In September 2022, the U.S District Court for the District of Columbia vacated that portion of the rule.

As a result of the court’s order, the CFPB amended the Code of Federal Regulations to reflect a reporting threshold of 25 closed-end mortgage loans in each of the two preceding calendar years. In response, the Federal Reserve Board issued CA Letter 23-1: Changes to Home Mortgage Disclosure Act (HMDA) Loan Volume Reporting Threshold for Closed-end Mortgage Loans to address the impact on financial institutions supervised by the Federal Reserve. This letter acknowledges that financial institutions affected by the HMDA reporting change may need time to implement or adjust policies, procedures, systems and operations to meet compliance with the rule. The Board does not intend to cite HMDA violations or take enforcement action for not collecting or reporting of the closed-end loan data originated in 2020, 2021 or 2022 that meet Regulation C’s other coverage requirements.

With both of these changes anticipated in 2023, we realize that there may be questions surrounding what your institution should do. Our Richmond Fed consumer compliance points of contact are available to answer any questions your institution may have regarding these two regulatory changes.

CFPB Resources:

Key Dates for Collecting and Reporting Data: Small Business Lending Rule: Key Dates Timeline (consumerfinance.gov)

The final rule (consumerfinance.gov)

The Filing Instructions Guide (consumerfinance.gov)

The regulatory implementation resources (consumerfinance.gov)