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So far Chris Boersma has created 10 blog entries.

Biden Administration’s 2024 Regulatory Agenda

The below table contains a summary of some of the most significant agenda items for regulatory agencies that govern organizations in the financial services industry. Access to all the federal regulatory agenda items can be found here: Current Unified Agenda of Regulatory and Deregulatory Actions (reginfo.gov).

Agency Topic Description Stage
CFPB Fair Credit Reporting Act Rulemaking Key Objectives include change key defined terms, clarify permissible purpose, applicability of FCRA to data brokers and the sale of consumer data, prohibited marketing and advertising, processes to dispute accuracy, and to prohibit including consumer medical debt on consumer reports. Considering developing a proposal
CFPB Overdraft Fees The Bureau is considering new rules regarding both overdrafts and insufficient funds (NSF) fees on its rulemaking agenda under regulation Z, and propose amendments how accounts can be overdrawn and how financial institutions determine whether to advance funds Anticipate a proposal soon
CFPB Section 1033: Personal Financial Data Rights Process the comments received from the issued proposal, revised the proposal to incorporate changes it deems to be fit, and issue a final rule. Anticipate a final rule in 2024
CFPB Supervision of Larger Participants in Consumer Payment Markets The CFPB has defined larger participants in several markets and is considering issuing additional regulations to define further the scope of the CFPB’s nonbank supervision program.  In particular, the CFPB is developing a proposed rule to define larger participants in a market for consumer payments. Currently Developing a Proposal
CFPB Amendments to FIRREA Concerning Automated Valuation Models The agencies issued a proposed rule to implement the CFPA’s AVM amendments to FIRREA in June 2023. They would like to issue a final rule in 2024 Anticipate a final rule in 2024
CFPB Registry of Nonbank Covered Persons Subject to Certain Agency and Court Orders On January 30, 2023, the CFPB proposed a rule that would require certain nonbank covered persons that are under certain final public enforcement orders to register with the CPFB via a public registry, submit copies of public orders, prepare and submit written statements regarding such orders for use in connection with the CFPB’s supervisory functions. The public registry created by the CFPB would identify institutions subject to registration and include public enforcement orders and information regarding those orders. Anticipate a final rule in 2024
CFPB Registry of Supervised Nonbank That Use Form Contracts to Impose Terms and Conditions That Seek to Waive or Limit Consumer Legal Protections On February 1, 2023, the CFPB proposed a rule that would require certain supervised nonbank entities to register with the CFPB and provide information about their use of certain terms and conditions in standard-form contracts for consumer financial products or services that seek to waive or limit consumer rights or legal protections. The CFPB is looking to issue a final rule in 2024 Anticipate a final rule in 2024
CFPB Credit Card Penalty Fees On February 1, 2023, the CFPB proposed to (1) adjust the safe harbor dollar amount for late fees to $8 and eliminate a higher safe harbor dollar amount for late fees for subsequent violations of the same type; (2) provide that the current provision that provides for annual inflation adjustments for the safe harbor dollar amounts would not apply to the late fee safe harbor amount; and (3) provide that late fee amounts must not exceed 25 percent of the required minimum payment. Anticipate a final rule in 2024
FDIC, OCC, FED Incentive-Based Compensation Arrangements A joint proposed rule was issued to: (1) prohibiting incentive-based payment arrangements, (2) determine encourage inappropriate risks by certain financial institutions by providing excessive, compensation or that could lead to material financial loss; (3) requiring those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate Federal regulator. Anticipate a final rule in 2024
FDIC, OCC, FED Basel III Revisions: Amendments to the Capital Rule for Large Banking Organizations Currently inviting public comments on a notice of proposed rulemaking (proposal) that would substantially revise the risk-based requirements applicable to the largest and most complex U.S. banking organizations as well as banking organizations with significant trading activity. Anticipate a final rule in 2024
FDIC, OCC, FED Procedures for Monitoring Bank Secrecy Act Compliance Speculation is centered around further development of proposals related to the beneficial ownership rule and other areas Anticipate a final rule in 2024
FDIC, OCC, FED Long-term Debt Requirements for Large Bank Holding companies, and Large Insured Depository Institutions Requesting comment on a notice of proposed rulemaking to consider whether the issuance of long-term debt by certain large banking organizations would enhance financial stability and enhance resolution options Anticipate a final rule in 2024
FDIC, OCC, FED Resolution Plans Required for Insured Depository Institutions (Large Banks) Seeking comment on a proposal to revise its rule currently requiring the submission of resolution plans by insured depository institutions (IDIs) with $50 billion or more in total assets. Anticipate a final rule in 2024
FDIC, OCC, FED Proposed Amendments to the FDIC’s Section 19 Regulations Section 19 requires persons with certain covered criminal offenses on their records to obtain prior written consent from the FDIC before participating in the conduct of the affairs of any insured depository institution. The agencies are requesting comments on proposed amendments to its section 19 regulations to create more flexibility to allow persons with records to potentially return to a FDIC insured institution. Anticipate a final rule in 2024
FDIC, OCC, FED Guidelines Establishing Standards for Corporate Governance and Risk Management for Covered Institutions with Average Total Consolidated Assets of $10 Billion or More The Proposed Guidelines would provide standards for corporate governance and risk management for covered institutions, including standards outlining the general obligations and duties of the board of directors, expectations for board composition and board committee structures and responsibilities, and expectations for the establishment of an independent risk management function incorporating a three lines-of-defense model. Anticipate a final rule in 2024
FDIC, OCC, FED Quality Control Standards for Automated Valuation Models Developing a rule to implement section 1473 of the Dodd-Frank Act concerning quality control standards for automated valuation models. Anticipate a final rule in 2024
FDIC, OCC, FED Community Reinvestment Act The final rule becomes effective in 2024, but most of the provisions won’t effective until 2026 and 2027. Final Rule Effective, with many provisions deferred to 2026 and 2027
FDIC, OCC, FED Special Assessments Pursuant to Systemic Risk Determination Will begin to impose special assessments on insured depository institutions to recover the loss to the Deposit Insurance Fund, starting January 1, 2024. No bank below the asset size of $5B will have to pay into the assessment. Final rule effective 2024
FED Regulation Q–Regulatory Capital Rules: Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies Providing notice of the aggregate global indicator amounts for purposes of the calculation Global Systemically Important Bank surcharge rule Anticipate a final rule in 2024
NCUA Simplification of Share Insurance Rules The proposal would simplify the share insurance regulations by establishing a trust accounts category that governs coverage of shares of both revocable trusts and irrevocable trusts using a common calculation and provide consistent share insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender. These amendments would be substantially similar to ones adopted by the Federal Deposit Insurance Corporation. Anticipate a final rule in 2024
NCUA Overdraft Policy The proposed rule would remove the 45-day limit and replace it with a requirement that the written policy must establish a specific time limit that is both reasonable and applicable to all members. Anticipate a final rule in 2024
NCUA ACCESS Initiative: Chartering and Field of Membership (FOM) Regulations The proposed regulatory amendments would remove outdated requirements, simplify the charter approval process, and clarify regulatory language. The Board will review the comments and consider final action. Anticipate a final rule in 2024
By |2024-02-07T23:11:22+00:00December 14th, 2023|Uncategorized|0 Comments

CRA Final Rule Key Elements You Should Know

The must anticipated Community Reinvestment Act (CRA) Interagency Final Rule was released on October 24, 2023. The release was the first time the rule had been revised in almost three decades. The final rule included a comprehensive overhaul of the requirements, including how banks will be evaluated. The Community Reinvestment Act (CRA) was created in 1977 and was designed to encourage banks to meet the credit needs of communities, with a strategic focus on low to moderate income communities.  On April 1, 2024, the final rule and the public file requirements will be implemented. Banks have until January 1, 2026, to comply with most of the remaining provisions:

  • New definitions
  • Revised bank size and categories
  • Designation of the eleven qualification criteria
  • Interagency illustrative list of qualifying activities
  • Retail lending assessment areas
  • Receive credit for community development activities anywhere in the country, and
  • data collection

The reporting requirements, for large banks only, will become effective on January 1, 2027, with the data to be reported no later than April 1, 2027. The final rule was designed to meet eight key objectives:

  1. CRA continues to be a strong and effective tool to address the credit needs of the underbanked and create innovative solutions to expand access to credit;
  2. Adapt to changes such as expanded role of mobile and online banking;
  3. Providing greater clarity, consistency, and transparency;
  4. Tailoring CRA evaluations and data collection to a bank’s size and business model;
  5. Tailor data collection and reporting requirements and use existing data whenever possible;
  6. Promote transparency;
  7. CRA and fair lending responsibilities are mutually reinforcing; and
  8. Promote a consistent regulatory approach.

The size and category requirements in the final rule are listed in the figure below:

Each of the tests for large and intermediate banks are listed below:

  • Large Banks: Retail Lending Test (40%), Retail Products and Services Test (40%), Community Development Financing Test (10%), and Community Development Servicing Test (10%).
  • Intermediate Banks: Retail Lending Test (50%), and either the existing Community Development Test or the Community Development Financing test (50%).

Additional retail services and product evaluations will be required for banks over $10 billion.  It would include an evaluation of their digital delivery systems, and the availability and usage of responsive deposit products. Other new requirements for large banks include creating a retail lending assessment area (RLAA). The RLAA is map of geographic areas where the bank has originated at least 150 closed-end mortgage loans or 400 small-business loans in each of the two prior calendar years. Banks are excluded from this requirement when they conduct 80% or more of specified retail lending activity inside of their facility-based assessment areas. Facility based assessment areas are still at the core of a CRA examination. The agencies will develop a publicly available illustrative list of qualifying CRA activities. Banks can request clarification from their regulator for activities not included on the illustrative list.

By |2024-01-19T20:55:13+00:00November 20th, 2023|Uncategorized|0 Comments

Regulatory Status Check: What is Happening with Payments?

Payments is a financial service that is changing rapidly and generating significant regulatory interest. New technologies enable financial institutions to transform how retail and commercial customers make and receive payments. These innovations present sizable growth opportunities, while delivering better experiences and lowering costs. However, new payment capabilities also introduce risks that must be managed. In this case it is helpful to look at what both the CFPB and Federal Reserve are doing and how they might be related.

The CFPB Sees Problems

In September, the CFPB issued a report highlighting several concerns around new payments innovations including:

  • Rapid growth of tap-to-pay usage
  • Dominant mobile operating systems impose different regulations on contactless payments
  • Restrictive tap-to-pay practices may reduce consumer choice and hamper innovation

The CFPB’s goal is to accelerate the shift to open banking and payments to “help people get paid faster, access more attractive rates on deposits and loans, switch more easily, avoid intrusive surveillance, and minimize the consequences of inaccurate credit reporting.”

To do so, the CFPB is working on a new proposed rule titled Personal Financial Data Rights under its Section 1033 authority of the Dodd-Frank Act. If successful, the new Section 1033 rule would govern access to and sharing of consumers’ personal financial data, which would have a massive impact on the relationship between banks, fintechs, and consumers. The proposals under consideration would require that financial firms provide consumers access to their own financial data on deposit accounts, credit cards, and other transaction accounts. Consumers would then be able to provide permissions to this data safely and securely to other financial firms.

In addition to the above report, in June, the CFPB also expressed concern that “Billions of Dollars Stored on Popular Payment Apps May Lack Federal Insurance.” Specifically:

  • More than three quarters of adults in the United States have used a payment app.
  • Nonbanks can earn money when users store funds on their platforms
  • Funds sitting in payment app accounts often lack deposit insurance
  • User agreements often lack specific information.

These issues specifically focus on the evolution of payments in point-of-sale (POS) purchases and the role that mobile device operating systems play. The popularity of contactless payments on smartphones and wearables means consumers can securely make POS payments through different apps and services. However, this innovation means that tech companies are playing a prominent role in determining consumers’ payment options. Any restrictions imposed by the dominant operating systems—Apple’s iOS operating system and Google’s Android operating system—will have a major effect on access to payments systems and could hinder the development of a truly open ecosystem.

The Federal Reserve offers a Solution

The Federal Reserve launched FedNow on July 20, 2023. FedNow is a service that provides interbank clearing and settlement enabling funds to be transferred from the account of a sender to the account of a receiver in near real-time and at any time, any day of the year. This service provides many benefits for businesses to help them manage payments effectively and efficiently.

One of the benefits FedNow provides is liquidity management transfer capability to support instant payments. The liquidity management transfer enables participants in the FedNow Service to transfer funds to one another to support liquidity needs related to payment activity. The transfer also supports participants in a private-sector instant payment service backed by a joint account at a Reserve Bank by enabling transfers between the master accounts of participants and a joint account.

Another benefit of FedNow is that it is designed to maintain uninterrupted processing with security features to support payment integrity and data security. End-of-day balances are reported on Federal Reserve accounting records for each participating depository institution on each FedNow Service business day. Access to intraday credit is provided to participants during the business day under the same terms and conditions as for other Federal Reserve services.

What this means for Your Organization

Financial services organizations who offer payment services currently need to continue to watch CFPB developments over the next several months. They will also need to prepare to make necessary changes to their policies, procedures, and compliance training to make sure they are operating under proper CFPB guidelines. In the meantime, FedNow offers many businesses many benefits for their payments services including:

  • Depository institutions and their service providers who are thinking of offering payment services can build on FedNow fundamental capability to offer value-added services to their customers.
  • Allow your organization to compete with institutions already offering instant payment services.
  • Allows organizations to provide interbank clearing and settlement that enables funds to be transferred from the account of a sender to the account of a receiver in near real-time and at any time, any day of the year.
By |2024-01-19T20:55:21+00:00October 13th, 2023|Uncategorized|0 Comments

Likely Regulatory Changes in 2024

Most people want to know what types of regulatory changes are expected over the next year or so to plan accordingly and increase compliance budgets for staffing or other resources. To help you prepare, here is a list of firm changes with effective dates, and what we believe is likely to either be finalize or become effective by December 31, 2024:

  • Beneficial Ownership Rule – The new rule is effective January 1, 2024. Reporting companies created or registered before that date will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports;
  • Section 1071 – A financial institution must begin collecting data and otherwise complying with the final rule on October 1, 2024, if it originated at least 2,500 covered originations in both 2022 and 2023;
  • The Federal Deposit Insurance Corporation is amending its regulations governing deposit insurance coverage. The amendments simplify the deposit insurance regulations by establishing a “trust accounts” category that governs coverage of deposits of both revocable trusts and irrevocable trusts using a common calculation and provide consistent deposit insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender.
  • The Securities and Exchange Commission today adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. Small companies won’t be required to comply until June 18th, 2024, at the latest;
  • The National Institute for Standards and Technology (NIST) has published draft revisions to its Cybersecurity Framework (CSF). Public comments on the draft will be accepted until November 4. The developers plan to publish the final version of CSF 2.0 in early 2024.
  • Section 1033: Personal Financial Data Rights – Expected effective date in 2024 – Gives consumers rights over their data, requires providers to create and deliver disclosures, and allows consumers to “break up” and change institutions if the are unhappy with their current provider. Due to other expected final rules in late 2023, we probably won’t see a final rule for this law until 2024.
  • The FDIC proposed three options to reform the deposit insurance system to further ensure financial system stability, depositor protection, and reduce the risk of bank run offs like we saw earlier in the year. We don’t expect a final rule until sometime in 2024.

It’s only a matter of time before the US offers a digital currency option. The Stablecoin Transparency Bill would create legislation and guidance for a US digital currency option that would be fully backed by the US dollar, making it a stable cryptocurrency option. A final bill is not expected until late 2024 or early 2025.

Cybersecurity threats will continue to increase. This will cause added stress on existing, qualified cybersecurity professionals, causing them to switch jobs more frequently. Additionally, both federal and state privacy laws are expected to increase in 2024.

The Consumer Financial Protection Bureau (Bureau) issued a proposal to amend Regulation Z, which implements the Truth in Lending Act (TILA), to better ensure that the late fees charged on credit card accounts are “reasonable and proportional” to the late payment as required under TILA. A final rule is not expected until 2024.

An interagency proposed rule was released earlier this year that would likely implement quality control standards for automated valuation models (AVMs) used by mortgage originators and secondary market issuers, used to determine the value of consumer’s principal dwelling. The final rule is not expected until 2024.

By |2024-01-19T20:55:29+00:00August 21st, 2023|Uncategorized|0 Comments

Regulators Focusing Monitoring on Organizations Serving Fintechs

Earlier this year, the Federal Deposit Insurance Corporation (FDIC) issued an enforcement action against Cross River Bank, noting it had engaged in unsafe and unsound banking practices related to its compliance with Fair Lending laws and regulations by failing to establish and maintain internal controls, information systems, and prudent credit underwriting practices.

One day prior to the public release of the consent order, the CEO of Cross River Bank mentioned how regulators are monitoring firms that serve fintechs amid the recent volatility in the banking sector. He also stated, “Regulatory scrutiny on banks in general is increasing and the events with [Silicon Valley Bank] will only expand those efforts with a specific focus on banks that support fintech.” In the consent order, regulators are reviewing credit products offered by both the bank and the third party fintech partners. Many people are viewing this as a sign the federal regulators are attempting to narrow the gap in how financial institutions and non-banks are regulated.

By |2024-01-19T20:55:37+00:00July 26th, 2023|Uncategorized|0 Comments

FAQs – The Current Regulatory Environment and the Bank Term Funding Program

March has been a very active month in the financial services industry. In addition to new regulations becoming active, there have been several bank failures which is affecting how banks are looking at their policies and procedures.

BAI has put together an FAQ document helping explain what is going on and what banks can do to make sure they don’t run into the issues that caused the other banks to fail. Read BAI’s “FAQs – The Current Regulatory Environment and the Bank Term Funding Program – (March 2023*)” to learn more.

By |2024-01-19T20:56:17+00:00July 26th, 2023|Uncategorized|0 Comments

Consumer Financial Protection Bureau Defines Abusive Acts

On April 3, 2023, the Consumer Protection Financial Bureau (CFPB) issued a policy statement to summarize how it defines and analyzes the elements of abusive acts and provides relevant examples.

There are two abusiveness prohibitions. An abusive act or practice: (1) Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) Takes unreasonable advantage of:

  • A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
  • The inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or
  • The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

Abusive Acts may include actions or omissions that obscure, withhold, de-emphasize, render confusing, or hide information relevant to the ability of a consumer to understand terms and conditions. It can take numerous forms, such as buried disclosures, physical or digital interference, overshadowing, using complex language, omitting material terms, and various other means of manipulating consumers’ understanding.

The second form of “abusiveness” under the CFPA prohibits entities from taking unreasonable advantage of certain circumstances. Congress determined that it is an abusive act or practice when an entity takes unreasonable advantage of three particular circumstances. The circumstances are:

  • A “lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service.” This circumstance concerns gaps in understanding affecting consumer decision-making.
  • The “inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service.” This circumstance concerns unequal bargaining power where, for example, consumers lack the practical ability to switch providers, seek more favorable terms, or make other decisions to protect their interests.
  • The “reasonable reliance by the consumer on a covered person to act in the interests of the consumer.” This circumstance concerns consumer reliance on an entity, including when consumers reasonably rely on an entity to make a decision for them or advise them on how to make a decision.

The statutory text of the prohibition does not require that the consumer’s lack of understanding was reasonable to demonstrate abusive conduct. Similarly, the prohibition does not require proof that some threshold number of people lacked understanding to establish that an act or practice was abusive.

By |2024-01-19T20:56:24+00:00July 26th, 2023|Uncategorized|0 Comments

Section 1033 Proposal, Personal Financial Data Rights

The Consumer Financial Protection Bureau (the Bureau) is currently writing regulations to implement section 1033 of the Dodd-Frank Act (DFA). The proposed rules would require a covered entity to make available transaction data and other information concerning a consumer financial product or service obtained from a covered entity to a consumer or to a third party (agent, trustee, or representative acting on behalf of a consumer), at the consumer’s request. It also requires the Bureau to develop standards for the development and use of standardized formats for information made available to consumers. It enables consumers to allow consumers to transfer data to a new company, to a new service provider without having to start over. The Bureau stated the proposal will impact “depository and non-depository financial institutions that provide consumer funds-holding accounts or that otherwise meet the Regulation E definition of financial institution, as well as depository and non-depository institutions that provide credit cards or otherwise meet the Regulation Z definition of card issuer.” There are six categories of information that must be made available to consumers:

  • Periodic statement information for transactions which have settled;
  • Information regarding prior transactions that have not yet settled;
  • Information about prior transactions not typically shown on periodic statements or online banking portals;
  • Online banking transactions that the consumer set up but has not processed;
  • Account identity information; and
  • Other information, including consumer reports, fees, bonuses, rewards, discounts, and information about security breaches that exposed a consumer’s identity or financial information.

Third parties who collect, use, or retain consumer information would be obligated to:

  • Authorization disclosures including key terms of access, and categories of information accessed, and how to revoke it;
  • Protocols for the solicitation and obtain consumers’ consent to the terms of access
  • A statement of adherence to obligations regarding collection, use, and retention of the consumer’s information
  • Limiting collection, use, and retention of consumer-authorized information to what is reasonably necessary to provide a product or service
  • Providing consumers with a simple means to revoke authorization
  • Implementing data security standards to prevent exposing consumers to data security harms

The CFPB is considering an exemption based on a threshold based on asset size or activity level.

By |2024-01-19T20:56:08+00:00July 26th, 2023|Uncategorized|0 Comments

After the Bank Failures, What’s Next?

In less than three months, Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank collapsed due to liquidity and interest rate risk issues. The total assets of these three institutions were $548.5 billion, surpassing the total assets of all bank failures in 2008 by almost $200 billion. Aggressive increases in the federal funds rate led to decreased values in long term bond and mortgage-backed securities and lowered the institutions’ ability to meet customer demand for cash during large simultaneous bank runs. Other institutions with large amounts of uninsured deposit balances could have similar risks.

The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) released reports stating the collapses resulting from bank mismanagement of interest rate risk, and regulators acting to slow to follow up on previously noted concerns with the organization’s risk management actions. The failure of the three banks is estimated to have cost the FDIC $36 billion from its deposit insurance fund.

On May 11, 2023, The FDIC Board voted 3-2 to propose a 0.125% special assessment to banks with uninsured deposits over $5 billion to replenish the deposit insurance fund. The special assessment would apply beginning the first quarter of 2024 and would continue for a total of eight quarters. Earlier in the month, the FDIC proposed a potential reform to the deposit insurance system, offering three options to the FDIC deposit insurance limit. The options include (1) limited coverage, or maintaining status quo, with the option to change in the future, (2) unlimited coverage, offering full coverage for all depositors and all types of deposit accounts, or (3) a targeted approach, which means it would offer different deposit insurance coverage across account types. The FDIC Insurance Reform report was quoted as saying, “Business payment accounts are not currently defined in the structure of the deposit insurance system but must be identifiable for the viability of Targeted Coverage”.

Finally, interest rate risk oversight and stress testing requirements are currently in place for institutions $250 billion or larger. The Dodd-Frank Act (DFA) originally set the threshold at $50 billion and above to comply with the requirements. The threshold was raised during deregulations efforts in 2018 to only include institutions deemed to be “systemically important”. Analysis reports provided by the Federal Reserve and FDIC have suggested the failed banks could have been considered systemically important to the banking system. Regulatory changes in this area would be expected to take longer to become law.

By |2024-01-19T20:56:01+00:00June 5th, 2023|Uncategorized|0 Comments

New Section 1071 Basics for Small Businesses

On March 30, 2023, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending Regulation B to implement Section 1071 of the Dodd-Frank Act, also known as the Small Business Data Collection Act. It applies to Banks, Credit Unions and Fin-Techs that originated at least 100 covered originations in each of the two preceding calendar years.

Data must be collected and reported on by small businesses, which are defined as a business which had $5 million or less in gross annual revenue for its preceding fiscal year. Covered credit transactions need to be reported on which includes transactions made to a small business, specifically loans, lines of credit, credit cards, merchant cash advances, and credit products used for agricultural purposes. Credit transactions that are excluded from reporting requirements are trade credit, public utilities credit, securities credit, incidental credit, transaction that are reportable under HMDA, insurance premium financing, factoring, leases, consumer designated credit that is used for business or agricultural purposes, letters of credit, and purchases of originated covered credit transactions.

A covered application which triggers data collection, reporting, and related requirements when submitted by a small business is defined as an oral or written request for a covered credit transaction that is made in accordance with procedures used by a financial institution for the type of credit requested. Application types which are excluded are reevaluation, extension, or renewal requests on existing business credit accounts, unless the request seeks additional credit amounts; inquiries and prequalification requests; solicitations, firm offers of credit, and other evaluations that the financial institution initiates, unless the financial institution invites the business to apply. Effective Dates are rolled out in the following phases:

  • October 1, 2024, if it originated at least 2,500 covered originations in both 2022 and 2023
  • April 1, 2025, if it originated at least 500 covered originations in both 2022 and 2023
  • January 1, 2026, if it originated at least 100 covered originations in both 2024 and 2025

Specific data point requirements can be found within the CFPB data points chart.

For more information on Section 1071, click here to watch BAI’s webinar: HMDA for business, Section 1071: Small business lending data collection rule and its implications.

By |2024-01-19T20:55:56+00:00May 2nd, 2023|Uncategorized|0 Comments
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