1071 Compliance Software for Small Business Lending

1071, also known as the small business data collection rule, refers to Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law amended the Equal Credit Opportunity Act (ECOA) and requires covered small business lenders to compile, maintain, and submit certain data on applications for credit for women-owned, minority-owned, and small businesses.  

The Consumer Financial Protection Bureau (CFPB) is responsible for rulemaking that implements the law. 

Covered financial institutions must comply with the final rule. A covered institution meets two requirements:  

1. Any partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity that engages in any financial activity 

AND  

2. that originated at least 100 covered originations in each of the two preceding calendar years. 

This includes depository institutions (i.e., banks, savings associations, and credit unions), online lenders, platform lenders, community development financial institutions, lenders involved in equipment and vehicle financing, farm credit system lenders, commercial finance companies, merchant cash advance providers, governmental lending entities, and nonprofit lenders. Motor vehicle dealers are exempt. 

Credit transactions (i.e. loans and other forms of credit) originated in a small business are covered. This includes closed-end loans, lines of credit, business credit cards, online credit products, and merchant cash advances by banks, credit unions, and other lenders. Refinancings can be covered originations.  

Extensions, renewals, and other amendments of existing transactions are not covered unless additional credit amounts are requested (i.e. line increases or new money on an existing loan). For more details and information on exclusions, download our 1017 FAQ. 

Very few lenders discriminate on purpose, but sometimes a policy or procedure has unintended consequences that can have a disproportionately adverse impact on protected classes of borrowers. This is called disparate impact. 

For example, a lender might have a $150,000 minimum for all small business loans, which might inadvertently exclude some classes of protected borrowers. Loan officers may have a lot of discretion over loan pricing and terms and often give better terms to their friends, which may lead to borrowers who share a background or social circle enjoying better conditions than similarly situated borrowers who aren’t in that circle. The marketing department might target certain zip codes due to the large number of business owners there but potentially excluding other neighborhoods where protected classes of borrowers might live. 

While these practices aren’t intended to promote discrimination, it’s possible that they can have a negative impact on minority-owned, women-owned and other small businesses. Analyzing your data can help you identify potential disparities and understand if there is a “business necessity” for the practice or if something needs to change.  

This prepares you for conversations with examiners and regulators. Regulators don’t care if discrimination is intentional. If they identify it before you do, they will say something.