Compliance Journal April 2023
Special Focus It’s Here . . . Final Section 1071 Rule As expected, the Bureau of Consumer Financial Protection (CFPB) hit its end-of-March target date with the release of its final small business loan data collection and reporting rule. The final rule revises Regulation B, which implements the Equal Credit Opportunity Act (ECOA), to require the collection and reporting to CFPB of certain data on applications for credit by small businesses. Compliance officers across Wisconsin are now shifting their efforts to more fully understand the requirements of the new rule and to creating implementation and training plans. To assist with beginning to understand the scope and general concepts of the final rule, below is a summary of the final rule. Who Must Comply with the Rule Covered Financial Institutions Coverage of the rule is based upon the level of certain loan origination activity, not upon the asset size of a financial institution. The final rule applies to “covered financial institutions.” A covered financial institution is one that originated at least 100 “covered credit transactions” for small businesses in each of the two preceding calendar years. Covered Credit Transactions Generally, a covered credit transaction is one that meets the definition of business credit under existing Regulation B section 1002.2(g), unless the credit is specifically excluded by the final rule. Business credit includes loans, lines of credit, credit cards, merchant cash advances, and agricultural-purpose credit. The final rule excluded from the definition of covered credit transactions: • • • • • •
Trade Credit HMDA-Reportable Transactions Insurance Premium Financing Public Utilities Credit Securities Credit Incidental Credit
The final rule also excludes factoring, leases, and consumer-purpose credit. A transaction qualifies as consumer-purpose credit if the financial institution offers or extends the credit primarily for personal, family, or household purposes. For example, an open-end credit account used for both personal and business/agricultural purposes is not business credit under Section 1071 unless the financial institution designated or intended for the primary purpose of the account to be business/agricultural-related. For purposes of counting originations to determine whether the bank is a covered financial institution, transactions that extend, renew, or otherwise amend an existing transaction are not counted as originations even if they increase the credit line or credit amount of the existing transaction. A refinancing can be a counted as a covered origination. A refinancing occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower.