available information needed to make this determination, the Final Rule says that it can use “any reasonable method to estimate its covered originations” for 2022 and 2023 and provides several examples of this. Visual Observation Requirement A third important change from the Proposed Rule is that the bank will no longer be required (or allowed) to collect a business owners’ demographic information by way of visual observation or surname. This made many breathe a huge sigh of relief as the idea of trying to collect ethnicity and race through these means raised a variety of concerns during the time of the Proposed Rule. So, under the Final Rule, this information will only be able to be collected directly from the applicant(s) and not through any other means. What Data Points Does This Cover? It is interesting that the original 2010 Dodd-Frank statute which enacted the 1071 rule required 13 data points, which have now ballooned in the Final Rule to be reportable through 81 data fields. One notable change in the data points for the final rule is the addition of “LGBTQI+” business status. Whereas in the Proposed Rule there were two separate data points for business status — one for women-owned and one for minority-owned — the Final Rule just includes one data point for business status which encompasses all three of these: … The Bureau notes that proposed § 1002.107(a)(19), “women-owned business status,” has been combined with proposed § 1002.107(a)(18), “minorityowned business status,” and the final § 1002.107(a)(18) 274 data point now addresses “minority-owned, womenowned, and LGBTQI+-owned business statuses.” As a result, the data points in proposed § 1002.107(20) and (21) have been renumbered as final § 1002.107(19) and (20). … p. 274: https://files.consumerfinance.gov/f/ documents/cfpb_1071-final-rule.pdf While we can’t reasonably cover them all here, the remaining data points were similar to the Proposed Rule and may be reviewed in the CFPB’s Data Points Chart. What Transactions Are Covered? Covered Credit Transactions Very generally, a covered credit transaction is an extension of business credit under Regulation B, but with certain exclusions, some specifically for purposes of Section 1071, such as: • Trade credit; • HMDA-reportable transactions; • Insurance premium financing; • Public utilities credit; • Securities credit; • Certain incidental credit; • Factoring; • Leases; • Consumer-designated credit used for business or agricultural purposes; • Purchases of a credit transaction; • Purchases of an interest in a pool of credit transactions; and • Purchases of a partial interest in a credit transaction (such as a loan participation agreement). Despite the length of this list of exclusions, the definition is still extremely broad and covers a wide variety of transactions, including closedend loans, open-end lines of credit, credit cards, merchant cash advances and various credit products used for agricultural purposes. Covered Originations A very important thing to note in this area is that “covered originations” for purposes of determining institutional coverage and compliance dates is narrower than the above. A common question we have been getting on the hotline is whether extensions and renewals should be counted. For this purpose, extensions, renewals and certain other loan amendments are not considered covered originations, even if they increase the credit line or credit amount of the existing transaction. What Else Should I Be Thinking About? Firewall A very unique aspect of this rule is the so-called “firewall” provision, which bears mentioning here. In general, employees and officers should be prohibited from accessing the following responses if that employee or officer is involved in making any determination about the application: • The applicant’s minority-owned, women-owned, and LGBTQI+- owned business statuses; and • Its principal owners’ ethnicity, race, and sex. There are limited exceptions to this firewall requirement, including a notice allowance, and the Final Rule also prohibits the bank from disclosing this demographic information to other parties, again, with limited exceptions. 9 THE ARIZONA BANKER
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