Table of Contents
- What’s the status of 1071?
- What does the 1071 injunction mean for my financial institution?
- What is the CFPB doing about 1071 during the injunction?
- My financial institution is a small business lender that meets the thresholds for a Covered Financial Institution. What should we do about 1071?
- How is Ncontracts preparing for 1071 implementation?
Q: What’s the status of 1071?
A: The mandatory October 2024 deadline for Phase I compliance with Section 1071 of the Dodd-Frank has been extended for all financial institutions until after the Supreme Court makes its decision on the constitutionality of the CFPB’s funding structure. That decision isn’t expected until June of 2024.
It’s likely that Phase 2 and 3 may also be extended.
This latest change comes courtesy of a federal court in Texas. While the court’s original injunction in July delayed implementation deadlines only for members of the American Bankers Association and Texas Bankers Association (since they were the ones the filed the suit), the judge expanded the order to all covered institutions on October 26.
This injunction supersedes the September ruling of a Kentucky federal district court that said the CFPB can’t enforce Section 1071 of the Dodd-Frank Act until the Supreme Court decision but did not require a delay in the mandatory compliance dates.
Q: What does the 1071 injunction mean for my financial institution?
A: While financial institutions are hopeful that 1071 will go away, that’s unlikely for two reasons.
- It’s unlikely the CFPB’s funding will be ruled unconstitutional, according to court watchers. It would overturn years of legal precedent and potentially nullify other agencies that receive funding outside the appropriations process, including the Federal Reserve, FDIC, OCC, NCUA, and Social Security, among others. It could create chaos in the financial system.
- Congress already passed 1071 into law as part of the Dodd-Frank Act. To make 1071 disappear, a very divided Congress would have to engage in a partial repeal to Dodd-Frank. While a bill in the Senate achieved a majority vote, the House is undergoing political chaos, and the proposed bills are split on party lines.
Also, fair lending is a priority of the Biden administration, and a partial repeal of Dodd-Frank would run counter to this goal. The White House already threatened to veto. Without a majority and presidential support, a bill repealing 1071 is unlikely to pass. Congress has the option to override the veto, but unlike an initial passage, a veto override requires a two-thirds majority in both chambers to be codified into law. That would require at least 66 senators and 290 House members which is very unlikely to happen as the senate was only able to procure 53 votes to repeal.
Q: What is the CFPB doing about 1071 during the injunction?
A: The CFPB is continuing business as usual for the most part. While it can’t implement and enforce the final rule, it can still provide guidance. It revised its Filing instructions guide for small business lending data collection in 2024 and issued updated frequently asked questions to assist with small business lender’s compliance efforts.
Specifically, the CFPB updated the Filing Instruction Guide with a focus on a few data points for the Small Business Lending Data collected and reported. The CFPB's update entails a reorganization of specific demographic information codes, aimed at aligning them more effectively with Home Mortgage Disclosure Act data. Additionally, minor adjustments have been made to clarify wording in the pricing information data section, along with some administrative updates to validation IDs.
Q: My financial institution is a small business lender that meets the thresholds for a Covered Financial Institution. What should we do about 1071?
A: Implementing 1071 is a big lift that will take a long time to implement. From planning to testing, 1071 data collection and reporting requires many steps, and no FI wants to rush compliance, especially when dealing with a significant and high-profile rule.
"The majority of small business lenders we’ve spoken with are moving forward with their 1071 implementation plans. They see 1071 as inevitable, and they don’t think it’s worth the risk of putting off implementation on the small chance that it doesn’t come to pass."
The majority of small business lenders we’ve spoken with are moving forward with their 1071 implementation plans. They see 1071 as inevitable, and they don’t think it’s worth the risk of putting off implementation on the small chance that it doesn’t come to pass. They want to take their time and get 1071 implementation right, especially because implementing 1071 will require budget planning. Putting off budget planning may mean an institution will not have necessary resource to execute its implementation plan. Asking for resources now vs. next year may be the difference between uninterrupted change management and an unsuccessful implementation as budgeting tends to be an annual activity.
On-Demand Webinar: Section 1071 Compliance: What Does the Final Rule Mean for Small Business Lenders Like You?
There are also other new rules on the horizon, including open banking, anti-money laundering (AML) and the Community Reinvestment Act (CRA). Putting off 1071 implementation may mean having to take on a significantly heavier burden of regulatory change management next year.
Free Whitepaper: How to Manage Regulatory Change at Financial Institutions
Therefore, if you’re a small business lender, we recommend making plans to implement 1071 and adding three to six months to your compliance deadlines to account for the delay of the Supreme Court decision.
Q: How is Ncontracts preparing for 1071 implementation?
Ncontracts’ N1071 solution will help commercial lenders comply with 1071 with software and services to guide lenders and help them comply with the new requirements.
It begins with a customizable model policy and procedure checklist created by Ncontracts experts to demonstrate how to implement 1071 from a governance and practical perspective.
Ncontracts software will help transmit 1071 data and analyze it for disparate impact. 1071 regulatory updates, enforcement actions, and guidance are built into the system.
Ncontracts will assist your organization in setting up software with appropriate data to reflect internal processes and provide unlimited remote training of users on system, policy, and procedures to ensure full utilization. Unlimited users have access to the software along with training modules with videos and knowledge checks to train business units, executives, and the compliance team on 1071.
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1071 Update: Q&A with a Reg Expert
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