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More Labor for Banks
It’s Labor Day weekend, a three-day weekend for Americans to enjoy freedom from labor. But banks may have more work in the years ahead.
The American Bankers Association and the Texas Bankers Association lost a legal challenge this week involving a new rule that will expand data reporting requirements for nearly all small business lenders in the country. The rule, known as Section 1071 for the part of the Dodd-Frank Act that authorized it, requires lenders to begin reporting to the Consumer Financial Protection Bureau the race, ethnicity, sex and geography of small business borrowers, as well the outcome of loan applications and credit pricing.
A judge in the U.S. District Court for the Southern District of Texas denied the plaintiffs’ motions for summary judgement, saying the rule may be ill advised, but that possibility doesn’t make it unlawful. The ABA issued a statement saying the plaintiffs plan to appeal to the Fifth Circuit Court of Appeals.
Legal action had delayed the dates of compliance with the new rule. Large lenders, which originated at least 2,500 covered loans in 2022 and 2023, now must comply starting July 18, 2025. The smallest lenders covered by the rule, who issued at least 100 covered loans, must comply by Oct. 18, 2026.
The rule will no doubt be a beast for the industry. Even the CFPB says the final rule “will be the largest and most comprehensive dataset in the United States on credit availability for small businesses,” according to the court order. Some attorneys think the information could be used against banks in fair lending cases.
Banks also must figure out how to comply. Unlike home mortgages, which are heavily regulated and fairly standardized, credit for small business isn’t uniform. Although borrowers won’t be required to give the demographic information to their lenders, the CFPB has indicated that it will consider how effective lenders are at collecting the required information.
“I’d like to think the CFPB will give small business lenders some latitude, particularly lenders that might be developing this framework for the first time,” Tori Shinohara, a partner with Mayer Brown, told Editor-at-Large Jack Milligan for Bank Director magazine’s fourth quarter 2023 issue. “I just don’t think that lenders can rely on that in any way.”
• Naomi Snyder, editor-in-chief for Bank Director
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