• Information about the applicant/borrower and the owners of the applicant/ borrower, such as: ◦ applicant’s gross annual revenue ◦ number of workers for the applicant ◦ whether the applicant is a women-owned, minority-owned, and/or LGBTQ+‑owned business ◦ the ethnicity, race and sex of any individual who owns 25% or more of the applicant Gathering this scope of information will require the buildout of operational processes and significant training for personnel. Data for the previous calendar year must be collected and reported on June 1 of the following year and can be reported individually or through the parent of a financial institution. Publication of Data The CFPB will publish the data it collects on its website with such modifications and deletions as it determines are appropriate. In conjunction with this publication, each financial institution covered by the rule will be required to publish a statement on its website informing its visitors that the data it has reported is available on the CFPB’s website.16 17 Depending on the scope of the modifications and deletions to lenders’ data the CFPB chooses to make, it appears that individuals, as well as attorneys and interest groups, will have access to broad arrays of lenders’ data, including data related to fair lending issues. This will increase litigation risks for lenders, and along with regulatory reviews of the data, will require lender reviews of their own data. Enforcement, “Bona Fide Error” Exception and Safe Harbors It is expected that the CFPB will aggressively monitor compliance with this rule, and any violation is subject to administrative sanctions and/or civil liability, as provided by Sections 704 and 706 of the ECOA.18 In addition to administrative sanctions and civil liability for non-compliance, the rule will expose lenders to an increased likelihood of regulatory fair lending investigations and enforcement actions. The CFPB has stated that a key purpose of the rule is to examine small business lending from a fair lending perspective.19 Bona Fide Error: A financial institution can escape sanction and liability if its non-compliance was a “bona fide error.” In other words, the institution must show that the error was unintentional and occurred despite maintenance of procedures reasonably adapted to avoid such errors.20 A financial institution is presumed to maintain procedures reasonably adapted to avoid error if, based on a random sample of applicants, the number of errors found in a financial institution’s data submission is no greater than 6.4% for institutions processing 100 to 130 applications annually to 2.5% for the institutions processing more than 100,000 applications annually.21 An error is not bona fide if, based on the circumstances, it is reasonable to believe that the institution intentionally committed the error or failed to maintain adequate procedures.22 Limited Safe Harbors: The rule also creates certain limited safe harbors where errors associated with collecting and reporting data on an applicant’s census tract, NAICS code, small business status, and application would not constitute violations.23 Consequences of the Rule — Economic Costs and Reputational Risks Most, if not all, financial institutions will have to build out overlays to their loan application system that allow for the Colorado Banker 8
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