Since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in 2010, there have been significant compliance impacts for financial institutions, including the creation of the Consumer Financial Protection Bureau (CFPB). One of the more significant sections of Dodd-Frank that has been looming since the passage of the Act is Section 1071 requiring small business loan data collection. Dodd-Frank Section 1071 amends the Equal Credit Opportunity Act and its implementing Regulation B. The CFPB issued the Small Business Lending Rule (Rule) to amend Regulation B by adding Subpart B – Small Business Lending Data Collection. The Rule is intended to increase transparency in small business lending, promote economic development and combat unlawful discrimination. Three primary definitions have an impact on how the Rule will affect financial institutions: covered financial institution, covered credit transaction and small business. The CFPB has defined a covered financial institution as a financial institution that has originated at least 100 covered credit transactions to small businesses in each of the two preceding calendar years. A covered credit transaction is defined as a transaction that meets the definition of business credit under existing Regulation B (extensions of credit primarily for business or commercial, including agricultural, purposes) with some exclusions. This includes small business loans, lines of credit, credit cards, merchant cash advances and credit for agricultural purposes. However, even if the credit satisfies the definition of business credit, the following transactions are not considered a covered credit transaction: • Trade credit, which is a financing arrangement wherein a business acquires goods or services from another business without making immediate payment in full to the business providing the goods or services; • Home Mortgage Disclosure Act (HMDA) — reportable transactions; • Insurance premium financing, which generally is a financing arrangement wherein a business agrees to repay a financial institution the proceeds advanced to an insurer for payment of the premium on the business’s insurance contract and wherein the business assigns to the financial institution certain rights, obligations, and/or considerations in its insurance contract to secure repayment of the advanced proceeds; • Public utilities credit as defined in Regulation B; • Securities credit as defined in Regulation B; and • Incidental credit as defined in Regulation B, without regard to whether the credit is extended to a consumer, by a creditor, or whether the credit is consumer credit. In the Rule, a small business has the same meaning as the term “small business concern” according to the Small Business Administration (SBA)1 and had $5 million or less in gross annual revenue (GAR) for its preceding fiscal year. Non-profit organizations and governmental entities are not small businesses pursuant to the Rule because they do not satisfy the SBA’s definition of small business concern. In addition to these definitions, the Rule includes required data points that financial institutions will need to collect. Several data points mirror those collected for HMDA including application method, credit purpose, and action taken to name a few. Others are new and specific to small business loans including GAR, DODD-FRANK SECTION 1071 Objects In Mirror Are Closer Than They Appear BY JOHN PACE, CCRM, CrossCheck Compliance, LLC Utah Banker 12
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