4 Steps to Prepare Your Financial Institution for Dodd-Frank 1071
The rule mandates that financial institutions report certain lending data points for small business lending, including demographic data on women-owned, minority-owned and LGBTQI+-owned small businesses. This data will be used by the Consumer Financial Protection Bureau (CFPB) to enforce fair lending laws and to identify community needs and access to credit. The data collected under the rule will also be used to develop new programs and initiatives to support small businesses.
When a financial institution (FI) is required to collect and report the required data is dependent upon the number of small business loans originated during 2022 and 2023. The earliest date an FI is required to begin collecting data is October, 1, 2024 (2,500 originations) with time extensions to April 1, 2025 (100 or 500 to 2,500 originations) or January 1, 2026 (at least 100 originations), depending on circumstances.
The rule is a complex one, and FIs will need to take steps to comply with it. As your FI prepares to conform to the new requirements, here are some actions to consider.
All FIs that originated at least 100 covered credit transactions in the past two calendar years (i.e., 2022, 2023) will need to comply with Dodd-Frank 1071. The loan types covered by the new rule include loans, lines of credit, credit cards, merchant cash advances and credit products used for agricultural purposes. As always, there are exceptions to the definitions on the types of loans to be reported.
An FI’s frontline staff are the first line of defense for financial institutions when it comes to complying with Dodd-Frank 1071. They’re the ones who will be interacting with customers and collecting the data that is required under the rule. They’re also the ones who will be making lending decisions that could impact whether a customer is approved for a loan or not.
By properly training your frontline staff on the Dodd-Frank 1071 rule changes, the scope of change based on your FI’s systems and how to collect and validate the required data, FIs can help to ensure that they are in compliance with the law. This can help to protect the financial institution from potential penalties from the Consumer Financial Protection Bureau (CFPB) and improve risk management. It can also help create a better experience for your FI’s clients, as your employees will be able to provide accurate and helpful information and build trust and loyalty among borrowers, which can lead to repeat business and referrals.
Dodd-Frank 1071 requires FIs to collect and report certain data on applications for credit for small businesses, including those small businesses owned by women or minorities. It’s important to note that the rule limits who should have access to the demographic information about the business and individuals. If an employee of the FI is involved in making a decision concerning the application, the data should have a firewall preventing access. However, there is also an option to provide a notice to some or all applicants advising certain information may need to view or access to make a loan decision.
The data that must be collected and reported includes, but is not limited to:
A loan-level unique identifier
Application date and how it was received
Action taken and when taken
Loan purpose
Loan type
Amount applied for or amount of the loan
Key elements of loan pricing (interest rate, total origination costs, prepayment penalites) of the credit, interest and all fees
Census tract (address of the business)
Gross annual revenue
NAICS code
Number of workers
Time in business
Number of principal owners
Minority-owned
Women-owned
LGBTQIA+-owned
Race, Ethnicity, Sex of the principal owners
The data collection and reporting required by Dodd-Frank 1071 can be costly, and FIs need to make sure that they have the resources in place to comply with the rule. The first step is to identify the costs that will be associated with compliance, including the costs of data collection and reporting, the costs of updating lending policies and procedures, the costs of technology associated with the change, costs of staff and audits, and the costs of providing additional disclosures. Once the costs of compliance have been identified, the financial institution needs to allocate resources. This may include hiring new staff, training existing staff and purchasing new software.
As a pioneer in cloud banking, nCino has a clear viewpoint about what it takes to move to a new banking future. Our deep domain expertise and industry knowledge make us an ideal partner to help financial institutions navigate and adapt to changing laws and regulatory shifts.
If you have additional questions about Dodd-Frank 1071 final rule, please reach out to your nCino representative or visit our resources page to learn more.
As we look towards 2025, many analysts and industry experts are sharing observations on the current state of artificial intelligence (AI) and their predictions for the future. As AI use cases continue to evolve across industries, it’s critical for financial institutions (FIs) to evaluate their own AI journeys. Are they ahead of, in step with, or falling behind their competitors?
The consumer lending market has seen monumental shifts over the last decade. From the rise of fintechs to new regulatory measures, these changes have reshaped how we borrow and lend. Understanding and responding to trends in the market is crucial for financial institutions of all sizes.
Artificial intelligence (AI) and machine learning (ML) are transforming how financial institutions approach credit decisions and traditional banking processes. By incorporating AI into the credit decisioning process, financial institutions can help create a more inclusive, intuitive, and impactful financial services landscape.
As we continue to witness the exponential rise of Artificial Intelligence (AI) in the financial services industry, it's crucial to understand the inner workings of the models driving these intelligent systems.
Like many businesses across the US, community and regional banks face challenges stemming from economic fluctuations, regulatory reforms, and shifting consumer preferences. To navigate these headwinds, they’re leveraging their unique strengths, such as personalized customer interactions and local market insights.
