The Impact of Dodd-Frank Act 1071 on Community Banks & How to Prepare

The Consumer Financial Protection Bureau (CFPB) released their last ruling concerning Section 1071 of the Dodd-Frank Act on March 30, 2023. This final rule will have a significant impact on financial institutions covered by Section 1071. Community banks are already preparing for the changes they will need to make to stay compliant and meet the demands of this new regulation. 

In this blog, we will review Section 1071 of the Dodd-Frank Act, how it affects community banks, and how banks can prepare their organizations to stay compliant.

What Is the Dodd-Frank Act 1071 Rule?

Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. This rule provides a comprehensive view of small business lending. Like with mortgages, Section 1071 of the Act requires covered financial institutions to collect specific data points and then effectively report the information to the CFPB. 

These include data points that the bank generates, such as:

  • A unique identifier.
  • Application date.
  • Application method.
  • Application recipient.
  • Action taken on the application.
  • Date of the action taken.

The 1071 rule also requires covered financial institutions to report data points about the credit applied for and the applicant’s business, which includes:

  • Credit type.
  • Credit purpose.
  • Credit amount.
  • Census-based address or location provided by the applicant.
  • Gross annual revenue from the applicant’s previous fiscal year.
  • The three-digit NAICS code.
  • Number of employees for the applicant.
  • Applicant’s time in business.
  • Applicant’s number of principal owners.

Financial institutions can obtain these data points via the applicant or a third-party data provider.

Additionally, the rule requires covered financial entities to obtain specific data points that can only come from the applicant. Those include:

  1. The applicant’s status as a minority-owned, women-owned, and LGBTQI+-owned business; and
  2. The ethnicity, race, and sex of the applicant’s principal owners. 

According to the CFPB press release, the 1071 rule covers a diverse range of credit provided by all types of lenders, from closed-end loans to business credit cards to merchant cash advances. Besides traditional lending institutions, non-depository financial institutions are required to collect and report data under this finalized Section 1071.

Other resources provided by the CFPB to understand the Dodd-Frank Act Section 1071 final rule include: 

  • Final Rule for Section 1071 of the Dodd-Frank Act.
  • Table of Contents.
  • Executive Summary.
  • Compliance Data Sheet.
  • Data Points Chart.
  • Filing Instructions Guides.
  • Fact Sheet.

The 1071 Rule’s Impact on Community Banks

The CFPB has issued this rule to cover financial institutions that originate at least 100 small business loans annually, which accounts for more than 95% of small business loans provided by banks and credit unions. They define a small business as having less than $5 million gross revenue in its previous fiscal year. 

This ruling will expand the scope of work for community banks, specifically in terms of diligently recording, filing and reporting all the information collected for every application that comes through their doors. 

2 Critical Steps to Help Community Banks Prepare

1. Identify loan volume to determine your bank’s implementation deadline. The CFPB plans to implement the ruling in phases, starting with the largest lenders. 

Here are the key dates community banks need to know for 1071 implementation:

  • Oct. 1, 2024: Financial institutions originating at least 2,500 small business loans annually begin collecting data.
  • April 1, 2025: Financial institutions originating at least 500 small business loans annually begin collecting data.
  • Jan. 1, 2026: Financial institutions originating at least 100 small business loans annually being collecting data.

2. Determine and execute updated business processes to stay fully compliant before the deadline approaches. In order to properly protect consumer information and gather all the compliant data points, community banks will need to identify areas of concern and address those prior to implementing data collection.

Utilizing Accrue to Stay Compliant with Dodd-Frank Act, Section 1071

Implementing new processes is a daunting task, but Accrue can help make the transition easy and painless for your community bank and customers. With Accrue, community banks can take the burden off their internal processes and employees through streamlined data collection and reporting.

  • Accrue collects data seamlessly. Accrue is designed to natively collect necessary information for Section 1071 reporting. We can require applicants to fill out specific fields and avoid a hunting spree for missing data or eliminate the need to rely on a third-party provider. Besides, some of the data points can only be provided by the applicant. 
  • Reporting data points to the CFPB is easy. Accrue has pre-built reports that allow community banks to export the collected data. Submitting the data is as easy as selecting the pre-built report to export and sending it directly to the CFPB from the Accrue platform. 
  • Solve data collection and reporting through plug-and-play features. If you’re already using Accrue in your community bank, data collection is as simple as turning on this feature. Once on, you’re automatically within compliance and meeting data collection needs without having to overthink the process internally. 

Data collection and reporting is just another task to add to the list of items community banks need to do to stay compliant with federal regulations. Know there is help to make this transition as seamless as possible with little disruption to your internal workflow. Stay ahead of the 1071 rule and take the burden off your bank team with Accrue. Book some time with us today.