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On November 13, the CFPB issued a proposed rule to amend Regulation B's 2023 small business lending rule implementing section 1071 of the Equal Credit Opportunity Act.The proposal would revise the scope of covered transactions, redefine which institutions are subject to reporting, modify several data fields, and adjust compliance timelines.
The Bureau explained that the proposal is intended to refine the 2023 small business lending rule issued under section 1071 (previously discussed here and here) by narrowing early reporting obligations and adjusting key definitions and data elements. It stated that these revisions are designed to align the 1071 framework with a phased implementation strategy and provide additional clarity for institutions preparing for compliance.
The proposal would make several key changes to the small business lending rule, including:
- Revised small business definition. The proposal changes the "small business" definition from gross annual revenue of $5 million or less to $1 million or less, with future inflation adjustments in $100,000 increments every five years starting in 2035.
- Concentrating reporting obligations on higher volume lenders.The Bureau raised the origination threshold from 100 to 1,000 covered credit transactions for each of two consecutive years.
- Focusing coverage on core lending products.Coverage would be limited to traditional small business loans, lines of credit, and credit cards, while revenue-based financing such as merchant cash advances, and small dollar loans are excluded.Agricultural lending is also excluded, with the Bureau citing unique collateral, underwriting, and overlapping regulatory data submission requirements.
- Refining small business definitions and demographic data requirements.The rule removed several discretionary data points and streamlined demographic reporting by adjusting ownership and sex fields and removing LGBTQI-owned business status, along with reducing prescriptive language tied to discouragement concerns during demographic collection.
- Centralizing compliance timelines and creating an error safe harbor. A single compliance date of January 1, 2028 would apply to all covered institutions, accompanied by a bona fide error provision for institutions that maintain reasonable controls yet still encounter inadvertent reporting inaccuracies.
Putting It Into Practice:The proposed rule is open for comment for 30 days after publication in theFederal Register. However, just this week the CFPB filed a noticewith the D.C. Circuit that it is set to run out of funds by the end of the year.How the CFPB will be able to follow through with the rule's implementation timeline remains to be seen. Financial institutions should review how the proposed adjustments align with ongoing implementation work and remain ready to recalibrate timelines and data strategies as the rulemaking progresses.
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