The U.S. election last November has cast a shadow of uncertainty over the future of Section 1071, a controversial regulation that has been a source of concern for commercial finance providers. This regulation, set to take effect in the summer of 2025, would require lenders to collect demographic data from borrowers and report it to the Consumer Financial Protection Bureau (CFPB). Republican control of both chambers of Congress and the White House means that this is the best opportunity for real changes in this area since the two years of all-Republican control in 2017 and 2018. (It is wise to remember, however, that Section 1071 survived that biennium.)
The potential implications of the new administration on Section 1071 are far-reaching. Several scenarios are currently being discussed:
- CFPB Leadership Change: A new CFPB Director could choose to halt the defense of the rule in court, allowing the 5th Circuit Court of Appeals to potentially overturn it. Alternatively, a new director might opt to withdraw the rule entirely or delay its implementation. It should be noted that a new Director is an assumption. Director Chopra has not announced that he is resigning, and the incoming Trump administration has not announced that they are removing him.
- Congressional Intervention: The U.S. Congress could introduce legislation to amend or repeal Section 1071. While a previous attempt to overturn the rule through a resolution was vetoed by President Biden, the current political landscape may offer a more favorable environment for such efforts.
- Shifting Priorities: The new administration may prioritize other issues, such as foreign policy or tax reform, diverting attention from Section 1071. This could lead to its implementation with minimal changes.
The wide range of possibilities has created significant uncertainty for Tier I institutions, which are facing a tight compliance deadline. ELFA is closely monitoring these developments and considering its next steps. While definitive answers are not readily available, ELFA will continue to provide updates on the situation. If this is an important issue for you, we would encourage you to contact your elected federal officials and voice your opinion. If you would like assistance doing that, please reach out to the ELFA public policy team.
In a recent issuance about the potential future of Section 1071, the CFPB referenced the results of a pilot study released earlier this year. The study used mystery shoppers to investigate potential racial disparities in small business lending practices. The CFPB claims that their study found significant differences in how lenders treat Black and White borrowers.
The CFPB's use of mystery shoppers aligns with concerns raised by ELFA about the potential impact of Section 1071. The regulation's data collection requirements could expose lenders to increased scrutiny and potential legal risks.
As the future of Section 1071 remains uncertain, commercial finance providers must stay informed and adapt to potential changes in the regulatory landscape. By understanding the potential implications of the new administration and the CFPB's ongoing efforts to address lending disparities, industry stakeholders can better prepare for the challenges and opportunities ahead.