Bill would exempt community banks from Section 1071

A bill introduced this week would exempt community banks from Section 1071 requirements. The bill, introduced July 21 by Republican Sens. Katie Britt of Alabama and John Boozman of Arkansas, would exempt banks with fewer than $10 billion in assets that have originated less than 2,500 small business credit transactions in each of the previous two years..The bill, Preventing Regulatory Overreach to Empower Communities to Thrive and Ensure Data Privacy Act, would restrict the definition of affected small businesses to companies with less than $1 million in gross annual revenue, and require the CFPB to undertake updated cost-benefit analyses before implementing Section 1071. Finalized last year under the Biden administration, Section 1071 would require lenders to collect and report the race, sex and ethnicity of owners as well as gross annual revenue. Lenders would have needed to provide data on loans made to small businesses with less than $5 million in the last fiscal year, submit Congressionally-required data points and provide additional information typically included in lender files. Section 1071 has faced several legislative and legal challenges in recent months. In February, the Fifth Circuit Court of Appeals granted a stay in enforcement of the rule in a lawsuit filed by the Texas Bankers Association, American Bankers Association and other groups. In April, The House Financial Services Committee voted to repeal Section 1071. On May 1, the bureau announced it would not enforce the rule as written. The CFPB has also announced it plans to issue new rulemaking as soon as possible. “Even absent resource constraints, the bureau would deprioritize enforcement of this rule because of the unfairness of enforcing it against entities not protected by the court’s stay but similarly situated to parties that are protected by the stay,” the CFPB wrote in announcing it will not enforce the rule. “The bureau looks forward to resolving the status of this regulation and ensuring fair, consistent treatment for all entities impacted by the regulation.”The push to claw back Section 1071 provisions comes as the CFPB faces a lawsuit from consumer groups alleging it violated the Administrative Procedure Act and the Equal Credit Opportunity Act over its lack of progress in implementing the rule. The lawsuit, filed July 23 by San Francisco-based nonprofit Rise Economy, Washington, D.C.-based National Community Reinvestment Coalition and North Bethesda, Md.-based Main Street Alliance, says the data is important to understanding the areas where credit flow is limited.