Disclosure Act (HMDA) requirements of 1975. As community financial institutions have become more commercially focused, the data collection requirements of the 1071 rule may surpass those of HMDA. The following seven steps are a checklist for successful compliance with the final 1071 Rule: 1. Read The Rule And Familiarize Your Staff With Rule Requirements This may seem obvious, but spend the time needed to focus on the regulatory requirements of this particular guidance. This is especially important when complying with a regulation concerning the collection of applicant/ borrower attributes – where it’s essential to know what you can and cannot ask. The Bureau is proposing to apply the rule to covered financial institutions. A covered financial institution is a financial institution or other entity, including fintechs, that originated at least 25 credit transactions that would be covered credit transactions to small businesses in each of the two preceding calendar years. After you’ve assessed whether you are covered under the 1071 data collection rule, the next step is to analyze your small business loan portfolio. 2. Analyze Your Small Business Loan Portfolio In Advance Of The Compliance Date To Determine Impact The CFPB’s proposed definition of a small business is one that had $5 million or less in gross annual revenue for its preceding fiscal year. The bureau is seeking SBA approval for this alternate small business size standard pursuant to the Small Business Act. Next, covered credit transactions include loans, lines of credit, credit cards, and merchant cash advances (including such credit transactions for agricultural purposes and those that are also covered by the Home Mortgage Disclosure Act of 1975). If able, produce a report of small business loans that fit the revenue size above. In addition, if you have the minority information available, you can sort the data by that additional criteria. Either way, this exercise should provide insight into the impact that the 1071 rule will have on your institution. 3. Create Written Policies And Procedures Policies should include the following components, while procedures should represent more detailed instructions describing how to perform tasks associated with the rule. • Background and governance • Roles and responsibilities • Description of the 1071 rule’s impact on the loan portfolio (from the analysis above) • General process of gathering, tracking, monitoring, and reporting pertinent information to comply • Process internal controls • Reporting and conclusions on compliance • Educational expectations for current and new staff • Collection of data • Recording of data • Monitoring and interpreting the data • Staff training 4. Determine A Plan To Gather Data Points And Set Up An Identification/ Data Collection System Data points can be divided into three categories: • System basic data points such as applicant/ borrower loan number, type, purpose, pricing details, and, for denied applications, the denial reason • Data points specifically related to the credit, such as business description, gross annual revenue, census tract, NAICS code, and owner and worker counts • Demographic data points, such as minority (and women) business status, owner ethnicity, race, and sex We recommend including detailed procedures for lenders and other staff collecting this data. You may need to update your internal checklists or application to ensure a centralized and standard place to record information. As with Regulation B and HMDA, there are specific rules related to the method of data collection. For example, suppose an applicant does not provide ethnicity, race, or sex information for at least one principal owner. The proposed rule states that the financial institution or entity must collect at least one principal owner’s race and ethnicity (but not sex) via visual observation and/or surname if the financial institution meets in person, or by video, with any principal owner. The development of analytical reports and periodic monitoring of small business lending is essential for compliance and to identify areas of concern, mitigation, and reporting. NICBONLINE.COM 13
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