Five Critical Section 1071 Steps Needed Now
September 21, 2022REGISTER NOW
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Five Critical Section 1071 Steps Needed Now has been submitted to ABA Professional Certifications for CE credit review and is pending approval. Once we receive notification of the credit approval, we will notify attendees.
On August 31, 2021, the Consumer Financial Protection Bureau (CFPB) published a 918-page notice of proposed rulemaking (NPRM) to implement Section 1071 of the Dodd-Frank Act. Section 1071 amends the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.
- A final rule is expected by March 2023.
- Compliance with a final rule will be mandatory 18 months after publication.
The industry is in full agreement that implementation of the new rule will consume extensive time and resources. There are critical steps which should be completed before the final rule is published. Completion of these steps will ease the regulatory burden and make the implementation process flow more smoothly.
The revisions to Regulation B represent one of the most significant regulatory events in recent history. All financial institutions, except those that originate less than 25 “covered credit transactions” to “small businesses” in each of the two preceding calendar years, must implement a full compliance management system, including policies, procedures, training, and audit. Implementing the rule will impact the budget process for several years.
Most institutions will need to:
- Add additional personnel;
- Develop, purchase or upgrade data collection and reporting software;
- Train the board of directors, senior management and new and existing employees throughout the commercial and agricultural lending departments, compliance department, and audit;
- Introduce the changes to commercial and agricultural customers. The new rule will change relationships with customers. Care should be taken to introduce those changes gradually, rather than dropping all of the new processes on customers at one time.
Participants receive a detailed manual that serves as a handbook long after the program is completed.
Upon completion of the review of the proposed regulation, participants understand:
- Who is covered by the new regulation;
- The definition of “small business;”
- The definition of “application;”
- Which transactions are reportable and which are exempt from reporting;
- The 21 data fields to be collected;
- The data collection form;
- The tolerances applied to the collected data;
- The “firewall” concept;
- The rules for reporting data to the CFPB;
- What data gets published, when it gets published, and how it gets published;
- The recordkeeping requirements;
- The enforcement provisions;
- The likely effective date of the rule; and
- The five steps needed now to ease the pain of implementing the new rules.
Upon completion of the analysis of critical steps needed now, participants understand:
- The information that needs to be communicated to the board and senior management now, including the
- Nature of the pending changes;
- Impact on staffing and budgeting for the coming years;
- Impact on the institution’s compliance risk analysis resulting from the changes; and
- Timeline for implementing the rules
- The data that will be collected and reported may reveal serious issues such as illegal discrimination and lending patterns that show disparate lending based on income. A preliminary analysis of data should be performed to detect questionable lending patterns.
- Many lenders do not currently use written applications for commercial or agricultural loans. Such an application will likely consist of a one or two pages of basic borrower information and two or three pages of information required by the final rule. The regulatory information will have to be placed behind a firewall to prohibit use by underwriters. The appropriate applications should be developed now so the forms can be placed into use no later than, and maybe even before, the effective date.
- Commercial and agricultural borrowers will likely be overwhelmed by the volume of changes in the application process. A process should be developed to introduce customers to the changes so they will acclimate to the changes before they become mandatory.
- That final regulations will likely be published during the first quarter of 2023. The effective date is likely to occur during 2024. The cost of implementing the new rules will fall in 2023 and 2024. Budget planning needs to occur immediately.
- Estimate expenditures for training:
- Make plans to develop or purchase new software to collect and report required data, or to purchase an upgrade to existing collection and reporting software to facilitate collection of Section 1071 data.
- Make estimates of the volume of data to collected and estimate the time needed to collect, scrub and submit the data to regulators. Anticipate the increased level of staffing needed to accomplish full compliance.
The program is designed for the board of directors, senior management, loan officers, compliance officers, training staff, and auditors.
Jack Holzknecht is the Founder of and a Senior Consultant at Compliance Resource, LLC. He has been delivering the word on lending compliance for 46 years. In 41 years as a trainer over 155,000 bankers (and many examiners) have participated in Jack’s live seminars and webinars. Jack’s career began in 1976 as a federal bank examiner. He later headed the product and education divisions of a regional consulting company. There he developed loan and deposit form systems and software. He also developed and presented training programs to bankers in 43 states. Jack has been an instructor at compliance schools presented by a number of state bankers associations. As a contractor he developed and delivered compliance training for the FDIC for ten years. He is a Certified Regulatory Compliance Manager and a member of the National Speakers Association.
Kimberly Boatwright is EVP and Director of Risk and Compliance at Compliance Resource, LLC and has more than a two decades of experience working in the financial services industry. Ms. Boatwright is a well-regarded financial industry risk and compliance professional with a strong background in program development and implementation. She is a thought leader who specializes in Fair Lending, Anti-Money Laundering, OFAC and consumer compliance. During her career she has worked for and consulted with all types of financial institutions helping to establish and evolve compliance and risk programs. She is a frequent public speaker, trainer, and author on compliance and risk management topics. Kimberly is a Certified Regulatory Compliance Manager and a Certified Anti-Money Laundering Specialist.
September 21, 2022