On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) issued the final rule to implement Section 1071 of the Dodd-Frank Act. This provision amends the Equal Credit Opportunity Act to bolster fair lending protections for minority owned small businesses including women, veterans and others. Financial institutions will be required to collect certain information about credit applicants and report the same to the CFPB annually.
The rule requires determination in the first place as to whether an entity is a covered financial institution. A covered financial institution is one that engages in financial activity and includes both depository and non-depository institutions such as online lenders, platform lenders, independent and captive equipment and vehicle financing companies and commercial finance companies. Motor vehicle dealers are exempt from compliance under the rule.
Covered credit transactions are extensions of credit for business, commercial or agricultural purposes such as lines of credit and loans and include sales-based financing and merchant cash advance. Leases as defined under Article 2A of the Uniform Commercial Code are among the transactions exempt from coverage.
A covered small business is one that had $5 million or less in gross annual revenue for the preceding fiscal year. Non-profits and governmental agencies are not considered small business under the final rule.
While the rule is effective 90 days after publication in the Federal Register, compliance is staggered based upon the number of transactions a financial institution originates. Financial institutions that originated at least 100 covered transactions in each of 2024 and 2025 are required to comply by January 1, 2026. Financial institutions with 2,500 or more originations annually must comply by October 1, 2024, while those that originated less will have compliance deadlines by April 1, 2025.
Data to be collected will include among other things, information about the application and the applicant, the credit product applied for, amount approved or originated, action taken, denial reasons, pricing, including interest rate, origination charges, broker fees and prepayment penalties, the number of workers in the business, number of principal owners of the business, minority-owned, women-owned and LGBTQI-owned status as well as ethnicity, race and sex of the principals. The applicant is not required to report its minority or ethnic status and if the applicant does not do so, the financial institution is required to report this to the CFPB.
The foregoing is a summary of the highlights of the rule. If you think the rule might cover your financing transactions, be sure to consult your legal advisor.
Sloan Schickler is a partner in the commercial finance law firm, Schickler & Schickler PLLC. Schickler, a veteran vehicle leasing, finance and bank attorney and her firm have decades of experience representing and protecting lessors, banks, captive and independent finance companies in all facets of the vehicle leasing and financing business. She has served as the NVLA Legal and Legislative counsel since 2017 and is currently the only woman on the board of directors. She can be reached at sloan.schickler@schicklerlaw.