Understanding the Section 1071 Rule: An Essential Guide for Executives

As a CEO, CFO, or Chief Risk Officer in the banking and credit risk industry, it’s crucial to have a comprehensive understanding of regulatory requirements that impact your organization. One such regulation that warrants attention is the Consumer Financial Protection Bureau’s (CFPB) Section 1071 Rule. This blog post provides an essential guide to help executives grasp the key aspects of this rule and its implications for their institutions.

The Section 1071 Rule, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, mandates financial institutions to collect and report certain data related to small business lending. The primary objective is to address disparities in access to credit among underserved communities by requiring lenders to track and disclose information on the race, ethnicity, and gender of small business borrowers.

Understanding the scope and applicability of the Section 1071 Rule is paramount for executives tasked with overseeing compliance efforts within their organizations. Covered entities include banks, credit unions, and non-bank lenders engaged in small business lending activities. These institutions are required to collect and report data on various aspects of small business loans, including the demographic characteristics of borrowers and the type and purpose of the loan.

Executives should also be aware of the compliance challenges and risks associated with the Section 1071 Rule. Failure to comply with regulatory requirements can result in severe penalties, reputation damage, and legal ramifications for financial institutions. Therefore, it’s imperative to establish robust compliance frameworks, leverage advanced data analytics technologies, and collaborate with regulatory experts to ensure adherence to the rule.

Executives must prioritize understanding the Section 1071 Rule and its implications for their organizations. By staying informed, engaging with regulatory authorities, and proactively addressing compliance challenges, executives can mitigate regulatory risk and uphold their institution’s commitment to fair lending practices and regulatory compliance.

Stay ahead of regulatory changes—read our blog to discover how Worth can help your financial institution prepare for CFPB’s Section 1071 compliance.