How much will it cost to implement Section 1071 of the Dodd-Frank Act? It depends on whom you ask.
The Consumer Financial Protection Bureau (CFPB) estimates small business lenders will spend anywhere from $45,000 to $78,000 in upfront costs and between $8,000 and $278,000 annually.
Small business lenders see things differently. A recent survey by the American Bankers Association shows that small business bankers anticipate an upfront cost of $113,000 to $7.5 million. That’s anywhere from double to almost 10 times more than the CFPB’s largest estimate. On top of upfront costs, bankers believe annual compliance costs will run anywhere from $72,000 to $2 million – once again substantially more than the CFPB.
Bankers say that much of the discrepancy stems from the CFPB expanding 1071 data collection requirements from 13 data points (as required in the Dodd-Frank Act) to 81.
Regardless of where the final figure lands, complying with 1071 will be expensive for small business lenders to set up and maintain.
A closer look at 1071 compliance costs
The ABA breaks down 1071 compliance costs by category. Let’s examine a few upfront and ongoing costs. The first compliance cost range is the CFPB’s estimate, and the second comes from the ABA.
Upfront costs
- Developing policies and procedures: $2,500 - $4,200 vs $4,600 - $234,000
- Training staff and third parties: $3,500 - $5,300 vs $13,000 - $594,000
Ongoing costs
- Exam Prep: $14 - $26,500 vs $6,200 - $151,000
- Geocoding Data: $139 - $300 vs $3,500 - $207,000
- Transferring to 1071 Data Management Software: $0 - $1,000 vs $10,000 - $260,000
Costs vary by lender size. For example, ABA estimates that lenders with $500 million to $999 million in assets will spend about $43,000 on policies and procedures, training, exam prep, geocoding data, and transferring to 1071 data management software.
Controlling 1071 compliance costs
Complying with 1071 will undoubtedly cost small business lenders money, but there are ways to manage these costs. Many of the costs come in the form of staff hours, making outsourcing elements of 1071 compliance to a service provider a cost-effective move.
For example, Ncontracts’ 1071 solution (N1071) helps reduce upfront 1071 compliance costs by giving lenders a head start drafting policies with a template. It also saves lenders the cost of developing their own training programs for both the compliance department and the frontline staff members actually responsible for collecting the data. These training programs are online and trackable and save the cost of a salaried staff member developing a program from scratch.
When it comes to ongoing costs, products like N1071 have tremendous value. N1071 is a 1071 data management solution that connects to a lender’s loan origination system (LOS), where data is collected. N1071 automates accuracy checks, transmits the data, and ensures transmittals are accurate.
Analysis tools enable geocoding to analyze fair lending compliance risk, a task that is nearly impossible without software. The result is clean, analyzed data that helps ensure lenders are prepared for exams.
As small business lenders prepare for 1071, cost efficiency will be top of mind. Make sure you’re considering staffing costs and consider tools that will help you lighten that load.
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Section 1071 Data Collection: What Is “Reasonably Designed?”
