Federal rule changes leave equipment lenders with data challenges

Revised federal small-business lending rules pose a challenge for equipment lenders: They can rely on dealers to collect now-required data from borrowers, but they’re still responsible for compliance. 

The revised Section 1071 of the Dodd-Frank Act rule gives lenders flexibility over when they request applicant information, Elena Babinecz, a shareholder at law firm Baker Donelson, said Oct. 27 at ELFA’s annual convention in Palm Desert, Calif.  

Their procedures must still be designed to obtain responses, she said. “If you have non-responses for a majority of your data points, it’s going to be a red flag.” 

The Consumer Financial Protection Bureau finalized its revised rule May 1, narrowing coverage and moving the compliance date to Jan. 1, 2028.  

Small businesses are defined as those with gross annual revenue of $1 million or less. Institutions that originate at least 1,000 covered credit transactions to small businesses in each of 2026 and 2027 must comply. 

Read more about Section 1071 here. 

Reporting extends beyond originations to include denied applications, approvals customers do not accept, withdrawn applications and applications classified as incomplete, according to the bureau. 

Dealer relationships complicate collection 

Collecting information about owners’ race, ethnicity and sex can introduce an unfamiliar step into equipment financing, Babinecz said.  

Vendors and dealers often handle customer relationships, leaving lenders with little direct applicant contact before making credit decisions. 

Brian Kestenbaum, senior vice president and general counsel at equipment lender NewLane Finance, raised another complication: determining which company qualifies as the originator responsible for reporting when a broker or vendor refers an application. 

The rule permits lenders to make an initial information request after a credit decision when earlier collection is not feasible because the lender didn’t contact the applicant directly, according to the CFPB’s website. However, lenders cannot deliberately structure their application processes to avoid contact and delay collection. 

An applicant who has been denied financing might ignore a subsequent request for demographic information, potentially leaving the lender’s collection procedures open to regulatory scrutiny, Babinecz said. 

Dealer practices matter 

Dealers uncomfortable asking demographic questions could steer applicants toward declining to provide the information, Babinecz said. Assigning collection to a dealer does not eliminate the lender’s exposure, she said. 

Applicants might decline to provide demographic information, but collection practices cannot discourage responses, she said. The CFPB’s rule addresses how lenders collect information as well as their written procedures. 

Lenders should decide ahead of the deadline whether they or their dealers will request sensitive information, then develop procedures for that collection process, Babinecz said. 

“Do you really want to be asking the dealers to be collecting that information?” she said. 

Check out our exclusive industry data here.