The US Consumer Financial Protection Bureau (CFPB) published its final rule implementing Section 1071 of the Dodd-Frank Act on March 30, 2023. The rule aims to enforce fair lending laws with respect to women-owned, minority-owned, and small businesses by requiring lenders to collect and report data about their small business lending activities.
Read more about the small business lending rule
Newgen is Ready!
Even with the continued development of Section 1071 and the recent extension of compliance deadlines, Newgen’s Commercial and Small Business Loan Origination Solution (LOS), built on a low-code framework, will allow financial institutions (FIs) to implement compliance standards and facilitate ongoing adjustments efficiently.
With Newgen’s advanced Small Business Loan Origination Solution, the embedded 1071 compliance feature will help financial institutions comply with regulatory changes. Newgen’s low-code platform will make adapting to evolving guidelines faster as a part of the Small Business Lending Rule. Meanwhile, even if your financial institution already utilizes a loan origination platform, Newgen’s solution can help fill the gaps around 1071 with quick implementation.
How Can Newgen Help?
Newgen has configured an out-of-the-box Small Business LOS to incorporate the Section 1071 requirements released so far. We’re keeping a close watch on the developments of Section 1071.
Newgen can assess the existing IT landscape and operations of the FIs to suggest the best-fit approach—full-fledged Small Business LOS, a modular 1071 solution, or a hybrid option—for banks. The FIs can access Section 1071 webinars and demonstrations showcasing the proposed approach and Newgen’s recommendations.
We also ensure peace of mind to the FIs if Section 1071 evolves further even after it has been implemented. As Newgen’s solution is built on a low-code platform, making changes to it will take days instead of weeks or months.
Newgen’s Two-Fold Approach
Comprehensive Small Business LOS Enabled with Section 1071 Functionality
Reportable loan identification will include identifying covered transactions and validating the small business. The comprehensive data capture and data security strengths will allow users to collect data from multiple sources, and effectively restrict access to data through firewalling.
Modular Architecture (à la carte) for 1071 Data with FI’s existing LOS System
In this model, Newgen provides an online portal for easy data collection, identification of covered transactions, and validation for small businesses. The data export feature makes real-time integration into the FI’s existing LOS smoother. Also, archive 1071 data in a separate system or storage as per your business needs.
Complete Data Collection
Collect the data required under Section 1071 from multiple sources including customer applications, bank entries, and third-party integrations. Find the provision for automated coding of the data in the Newgen solution and export validated data in the CFPB required file format for appropriate reporting.
Transparency and Firewall Management
Maintain a detailed audit trail of all actions for accountability and compliance for all user actions. Rights-based access ensures compliance with security for Section 1071 demographic data, restricting access for users involved in making any determination concerning a covered application.
Select Your Solution for Section 1071
How Can You Prepare for Section 1071?
As Section 1071 evolves, financial institutions must take proactive measures in training and educating the users. This approach will help the FIs and users understand the changes and prepare for them in advance.
Financial institutions should assess the current technology and gaps surrounding Section 1071. They must also closely observe operational processes used in the lending lifecycle, technical flexibility to adopt change, integration approach, etc. Additionally, FIs will also have to evaluate the best way to handle the firewalling of data.
Highlights of Newgen’s Preparedness for Section 1071 Compliance
Proven Small Business Loan Origination
Newgen’s innovative solution for small business lending will offer best practices in the loan origination journey. Banks handling the lending processes manually can use Newgen’s Small Business Lending solution for 1071 compliance.
Read more about Newgen’s small business lending solution:
Holistic Approach
The solution will cover omnichannel application capture with automated eligibility checks for small business entities, covered transactions, and 1071 reportable loans with rights-based access for firewall and report generation for the CFPB.
Data Collection
The 1071 data collection ability makes online and branch data collection via secure links simple and offers flexibility on the type (mandatory or optional) of data collection. This will ensure that the 81+ reportable data elements are captured from multiple resources, including loan applications, bank entries, and third-party integrations.
Data Reporting
Leverage the provision for automated coding of the data in the Newgen solution and export validated data in the CFPB-required file format for appropriate reporting. The solution supports exporting data into CSV text file format and validating data export and error handling.
Firewall Management
To ensure data firewalling, this approach will look at profile-based demographic data restrictions and restrictions for employees involved in any determination of the covered transaction. Additionally, the solution is integrated with the eSignature application and comes with the Newgen back-office application for reviewing and firewalling data.
Audit and Transparency
Maintain a detailed audit trail of all actions for accountability and compliance for all user actions. Rights-based access will ensure compliance with security for Section 1071 demographic data, restricting access for users involved in making any determination concerning a covered application.
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End-to-end Commercial Lending Automation Powered by AI
All you need to know about Dodd-Frank-Act Compliance
The US Consumer Financial Protection Bureau (CFPB) published its final rule implementing Section 1071 of the Dodd-Frank Act on March 30, 2023. The rule aims to enforce fair lending laws with respect to women-owned, minority-owned, and small businesses by requiring lenders to collect and report data about their small business lending activities.
The final rule presents extensive requirements, and its implementation is expected to pose operational challenges. Institutions experienced with Home Mortgage Disclosure Act (HMDA) reporting requirements may be better prepared to comply, but the process will likely be complicated and time-consuming for all covered institutions.
On July 31, 2023, the U.S. District Court issued a preliminary injunction in favor of two trade groups and a private bank that had initiated a legal action against the CFPB, seeking to delay the implementation of Dodd- Frank 1071. Additionally, the Texas Bankers Association and the American Bankers Association jointly communicated with the CFPB on August 2, 2023, requesting the adoption of a relief measure for exempting all banks from compliance with the Dodd-Frank 1071 rule.
This legal challenge and industry pushback resulted in extending the original deadlines. Originally, lenders were required to begin collecting data between October 1, 2024, and January 1, 2026. However, the CFPB issued an interim final rule in June 2024 to extend these deadlines. See the updated compliance dates below:
- Tier 1 institutions (highest volume lenders): New compliance date – July 18, 2025
- Tier 2 institutions (moderate volume lenders): New compliance date – January 16, 2026
- Tier 3 institutions (smallest volume lenders): New compliance date – October 18, 2026
Notwithstanding the continued development of Dodd-Frank 1071, Newgen’s Commercial and Small Business Loan Origination Solutions, built on a low code foundation, provides banks and financial institutions with the capability to efficiently implement the solution and facilitate ongoing adjustments in a matter of days. During the Paycheck Protection Program, Newgen successfully executed the loan origination and forgiveness solutions and deployed them for newer banks in a mere two days, swiftly accommodating changes as necessitated. We invite you to collaborate with Newgen to engage in an ongoing learning process and achieve the next level of digital transformation for a fully compliant small business lending platform.
“Covered financial institutions” must collect and report data. These institutions include a wide range of entities engaged in financial activities, with a minimum requirement of 100 covered originations in each of the two preceding calendar years. Loan brokers and correspondents may collect data on behalf of a covered financial institution.
Entities eligible as “small businesses” must have $5 million or less in gross annual revenue for the preceding fiscal year. Not-for-profit organizations and governmental entities are not considered small businesses under this rule.
The CFPB extended the original implementation timeline due to a legal challenge. The new deadlines are tiered based on the number of covered loans an institution originates. You can find the latest deadlines on the CFPB’s website [link to CFPB Section 1071 page on CFPB website.
- Tier 1 institutions (highest volume lenders): Compliance date – July 18, 2025
- Tier 2 institutions (moderate volume lenders): Compliance date – January 16, 2026
- Tier 3 institutions (smallest volume lenders): Compliance date – October 18, 2026.
The rule also implements a “firewall” to limit access to certain demographic data, prohibiting employees and officers of the financial institution involved in making determinations concerning the applicant’s eligibility from accessing this information, unless certain conditions are met.
Covered financial institutions must collect and report data about the transaction, the small business, and the principal owners of the business. Data points include application date, method, recipient, action taken, credit type, credit purpose, and more. Financial institutions must also maintain procedures to collect applicant-provided data in a manner designed to obtain a response.
The CFPB intends to focus its supervisory and enforcement efforts on preventing discouragement of applicants from providing responsive data. It will monitor response rates, compare rates among institutions, and investigate irregularities that may indicate discouragement.
In conclusion, the final rule implementing Section 1071 of the Dodd-Frank Act introduces comprehensive requirements for collecting and reporting data on small business lending activities, aiming to enforce fair lending laws. Covered financial institutions need to prepare for compliance, navigate the complex rule, and be aware of potential enforcement efforts by the CFPB.