As the effective start dates for Section 1071 data collection draw near, banks need to review the requirements outlined in the Dodd-Frank Act and guidance provided by the CFPB. To stay in compliance with new data collection requirements, your institutions must understand which data points to collect, and how to build processes and procedures around them.
Brad Stumpe, partner and compliance and loan review practice leader at Anders, was joined by CRA Today’s Linda Ezuka in the webinar, Section 1071- Implementation Strategies and Impact on CRA and Fair Lending to discuss how banks can begin their Section 1071 preparations. The pair covered implementation, fair lending and CRA considerations related to the final rule, including the new timeline due to legal challenges.
When Should Banks Begin Collecting Section 1071 Data?
The effective collection and reporting dates have been pushed back, with new dates for each tier:
Tier One:
- At least 2,500 covered originations in both 2022 and 2023 (or 2023 and 2024)
- Collection begins July 18, 2025
- Initial submission June 1, 2026
Tier Two:
- At least 500 covered originations in both 2022 and 2023 (or 2023 and 2024)
- Collection begins January 16, 2026
- Initial submission June 1, 2027
Tier Three:
- At least 100 covered originations in both 2022 and 2023 (or 2023 and 2024)
- Collection begins October 18, 2026
- Initial submission June 1, 2027
With the extension of the effective dates, reporting institutions may use either 2022 and 2023 as the two years to determine tier status, or 2023 and 2024. Similarly, one of the originally allowed methods to determine the number of originations was to annualize fourth quarter 2023 originations and apply that number to both 2022 and 2023. Reporters now also have the option to annualize fourth-quarter 2024 originations and apply that number to both 2023 and 2024.
This essentially provides four options to determine tier status. If you are not solidly within one of the three tiers, see which of these options provide for the latest compliance date:
- Full year originations for 2022 and 2023
- Full-year originations for 2023 and 2024
- Annualized originations for fourth quarter 2023, and
- Annualized originations for fourth quarter 2024.
What Data Must Be Collected for Section 1071?
Section 1071 requires financial institutions to collect various data points—some mandated by the Dodd-Frank Act and others added at the CFPB’s discretion. These data fields range from basic identifiers to more intricate financial details about the business applying for credit. Items marked with an asterisk are required by the Dodd-Frank Act:
- Unique Identifier*
- Application Date*
- Application Method
- Application Recipient
- Action Taken*
- Action Date *
- Credit Type*
- Credit Purpose*
- Guaranty Type
- Loan Term
- Amount Applied For
- Amount Approved or Originated*
- Denial Reasons
- Census Tract*
- Census Tract Address Type
- NAICS Code
- Number of Workers
- Time in Business
- Gross Annual Revenue*
- Interest Rate Type and Period
- Interest Rate
- Index Name and Value
- Margin Value
- Origination Charges
- Broker Fees
- Initial Annual Charges
- Prepayment Penalty
- Number of Principal Owners
- Principal Owners’ Ethnicity, Race, and Sex*
- Business Ownership Status
- Minority Owned*
- Women Owned*
- LGBTQI+ Owned
Importance of “Reasonably Designed” Procedures
One key aspect of Section 1071 is the requirement for “reasonably designed” procedures to collect applicant-provided data. While a written application for commercial loans is not required under 1071, consideration should be given to how much of this data will be collected without one. Comments under Section 107(c) state that the earlier the information is requested in the application process, the more likely it is that the timing will be considered reasonable. In any event, the initial request for applicant-provided data must occur prior to notifying an applicant of the action taken.
Towards this end, a simple screening question early in the process about whether gross revenues exceed $5 million can help determine if the loan request is potentially subject to Section 1071 reporting requirements.
Detecting Potential Discouragement
The 1071 rule also requires reporters to maintain procedures to identify and respond to indicators that bank personnel are potentially discouraging applicants from providing applicant-provided data. Externally, that could be comparing your response rates to those of similar reporters – which you may not have during the first year. If you belong to a peer group, consider discussing response rates amongst yourselves to gauge how your institution compares to others. Internally, this could be comparing response rates by department, region, location, officer or other reasonable factor.
Reporters can begin collecting data up to 12 months prior to the collection date, which gives institutions like yours a chance to perform a dry run with your processes. Tier 1 reporters could begin collecting data now to test procedures, processes and systems to identify pain points and ensure compliance. If you do opt to collect information early, be sure to follow all data collection rules, including the firewall rule.
Anders Banking and Financial Institutions advisors can provide guidance on implementing Section 1071 procedures or understanding the specifics of the data collection process. To learn more about getting your institution ready to comply with these regulations, and the associated costs, request a meeting with an advisor below.
