According to the CFPB, the goals of Section 1071 include enabling greater transparency in small business lending and identifying opportunities and weaknesses for ensuring equal credit opportunities for small, minority, and women-owned businesses. We covered the purpose of the regulation and initial context in March of 2023. Since then, the rule has been contested and many have argued that the burden on financial institutions will be higher than expected. Nevertheless, institutions are expected to start collecting data as early as July 2025. Below are key updates:
Updated Timeline
The final rule did go into effect in March 2023 as expected, but following a U.S. Supreme Court decision, the original compliance dates have been extended. Large lenders are expected to comply first and must begin reporting by July 2025, instead of October 2024. Below are the new deadlines for compliance:
|
Tier |
Origination Threshold |
Collection Start Date |
Deadline to Report |
|
1 |
2,500+ |
July 18, 2025 |
June 1, 2026 |
|
2 |
500 - 2,500 |
January 16, 2026 |
June 1, 2027 |
|
3 |
100 - 500 |
October 18, 2026 |
June 1, 2027 |
Updated Requirements and Expectations from the CFPB
Section 1071 will require any institution that processes more than 100 loans per year to collect data points on the individual(s) associated with business loan applications. These include detailed demographic data that must be kept "firewalled" from lender scrutiny to ensure compliance. 81 data points for each small business credit application must be collected, including:
- The race, ethnicity, and gender of each business owner (up to 4)
- Credit type and purpose
- Loan amount requested and approved
- Interest rate and other loan terms
- Business size and annual revenue
- Action taken on the application (e.g., approval, denial, etc.)
These requirements apply to a broad range of financial institutions, including banks, credit unions and online lenders. For many institutions, this will be the first time having to report any data at all.
Expected Costs & Impact - Higher Costs than the CFPB Predicted
According to an outline of the 1071 proposal, the CFPB estimated the new requirements would initially cost lenders $44,800 to $77,800 to build systems in compliance with 1071 and between $8,349 to $278,618 annually depending on institution size and complexity.
Institutions claim the complexity of collecting, storing and reporting 81 data points per loan application, coupled with system overhauls, data security concerns and ongoing regulatory compliance will drive up expected expenses well beyond the CFPB's projections. According to a 2024 survey by the American Bankers Association, bankers believe initial compliance costs will range from $112,685 to $7,474,186 and ongoing costs from $71,944 and $2,010,125.
How to Drive Cost-Savings in Collecting 1071 Data
For many lenders, the complexity of 1071 compliance and associated costs can be alarming. The good news is that choosing the right technology partner can significantly lower the cost per application and make onboarding new systems simple.
Numerated has implemented changes to our standard applications to comply with 1071 data once collection begins. Our solution can be implemented at a fraction of the cost estimated by the CFPB and ABA.
Additionally, the CFPB prohibits five of the new data points in 1071 from being used as determining factors used to make credit decisions. Numerated ensures these 5 data points are kept behind a strict firewall. These values are masked in the application and made available for reporting purposes only.
Stay Ahead of 1071 Compliance with Numerated
Numerated is ready to help your institution navigate the process and meet the requirements of section 1071. We have already implemented data collection for New York institutions affected by Reg 76 and are implementing 1071 as part of our Front Office solution.
Learn more about how you can easily comply with the CFPB 1071 ruling with Numerated.
