- Key insight: The primary goal of the rule is to close the funding gap for women and minority small-business owners who have historically faced barriers to capital.
- What's at stake: Bankers must collect data in 2028, and report it to the CFPB in 2029, to track and identify potential discrimination in small-business lending.
- Forward look: The American Bankers Association and Texas Bankers Association continue to lobby Republican lawmakers to repeal the rule, claiming it creates "flawed" and "burdensome" reporting requirements.
The Consumer Financial Protection Bureau on Thursday finalized a landmark rule that is expected to expose lending gaps for women and minority-owned small businesses.
The CFPB's small-business lending rule, known simply as "1071" for its section in the Dodd-Frank Act, requires that lenders collect and report data on the sex, race and ethnicity of small-business loan applicants. The rule was unchanged from
The final rule requires small-business lenders to start collecting the data in 2028 and reporting the results to the CFPB in 2029 — 19 years after Dodd-Frank mandated the data be collected. The rule's stated goals are to increase transparency in small-business lending, identify community development needs and facilitate the enforcement of fair lending laws.
Acting CFPB Director Russell Vought dramatically scaled back the rule from an earlier version published in 2023 during the Biden administration, such that it will apply to just 280 small-business lenders, down from 2,500 lenders under the 2023 rule. The CFPB will collect the statutory minimum of 13 data fields, down from 81 data fields in the prior rule.
The rule applies only to the largest financial institutions that originate 1,000 or more small-business loans in each of two consecutive years, compared with the prior rule's threshold of 100 small-business loans in each of two consecutive years. Small banks and credit unions alleged the data collection was burdensome and would shrink the availability of small-business credit.
The rule was further scaled back by changing the definition of a small business to an enterprise with $1 million in revenue, down from $5 million in the 2023 rule.
Elena Babinecz, partner at Baker Donelson and the former CFPB manager of the Biden-era 1071 rulemaking, said the concern now is that only the largest banks are reporting the data, which creates an uneven playing field and provides less visibility into lending in rural communities and among minority and women-owned businesses.
"There will be much less information on potential fair lending issues and how lenders are serving their communities," Babinecz said. "Industry overall is happy where this landed, civil rights groups not at all."
The final rule does not include any data on loan pricing or reasons a borrower was denied a loan. In addition, a slew of loan products, from agricultural loans to merchant cash advances, were excluded from the rule at the request of lenders.
The CFPB has been sued multiple times over the
Still, it is unclear if consumer groups plan to sue the CFPB over the rule.
"We'll have to wait and see how this shakes out and whether more limited data sooner is better than years of litigation trying to get more," Babinecz said.
The CFPB was first sued over the rule in 2019 by
Bankers continue to lobby Republican lawmakers that have sought to repeal the rule
Hill and Rep. Andy Barr, R-Ky., who chairs the financial institutions subcommittee, weighed in on the final rule, stating that they support "voluntary" regulation. The lawmakers called the 2023 final rule issued under the Biden administration a "flawed regulation" that would have "risked cutting off credit to the small businesses that need it most."
Rob Nichols, the American Bankers Association's president and CEO, and the Texas Bankers Association, said they will continue to lobby Congress to gut the rule outright.
"Texas Bankers will continue to work with Congress to eventually repeal Section 1071 altogether," the trade group said in a press release. Nichols referred to bankers asking for "reporting relief."
"We applaud the CFPB for finalizing a streamlined Section 1071 rule that addresses significant legal and operational concerns from the prior rule while providing clearer, more workable requirements for banks," Nichols said in a press release. "This final 1071 rule appropriately refocuses on core lenders, products and data points without imposing undue compliance costs that would make it harder for America's banks to serve their customers and communities."
The Texas Bankers Association said the prior 2023 rule would have "suffocated small business lending and burdened community banks with more unnecessary reporting requirements."
"From day one of our original lawsuit, we argued that taking three pages of legislation and turning it into 888 pages of regulation was an administrative power grab by the Biden CFPB and constituted gross government overreach," the trade group said. "We are grateful to the Trump Administration and Acting Director Vought for issuing a new Section 1071 final rule that prioritizes the law and common-sense over political agendas."
Lindsey Johnson, president and CEO of the Consumer Bankers Association, said the trade group appreciated the willingness of regulators to make changes.
"Today's final rule reflects meaningful progress to adhering to the statutory requirements and intent," Johnson said in a statement. "The bureau's original Section 1071 proposal under the prior Administration raised serious concerns about operational complexity and its potential to constrain lending."
CBA represents retail banks that extend nearly $300 billion a year in credit to small businesses.
"Getting this right matters — because overly burdensome requirements risk limiting the very lending small businesses depend on," she said.
The rule was
Scott Simpson, president and CEO of America's Credit Unions, reiterated the concerns of bankers.
"The original rulemaking was significantly burdensome and would have had an adverse effect on small business lending," Simpson said in a press release. "We appreciate the bureau reconsidering this rule, listening to credit unions, and providing meaningful relief."
Babinecz said no one should be surprised by the changes.
"The only reason the CFPB under this leadership didn't get rid of 1071 altogether is that it's required by the Dodd-Frank Act and the risks are too high that a court would have forced them to do it," she said. "Since they really couldn't rescind it completely, they revised it significantly given new priorities."
