Looking back at Section 1071 of the Dodd-Frank Act

The wheels of regulation often move slowly, but 2023 marked the advancement of new regulations under Section 1071 of the Dodd-Frank Act, which required equipment vendors to gather data on borrower demographics.

Opponents have argued Section 1071 will have far-reaching implications for equipment vendors’ workloads and access to capital.

Here’s a look at the key milestones of 1071’s advancement this year:

Equipment vendors face new regulations under Dodd-Frank

The Consumer Financial Protection Bureau’s (CFPB) changes to Section 1071 of the Dodd-Frank Act will require lenders and dealers to begin collecting consumer data, including demographic information.

• Financial institutions that originated at least 2,500 small business loans per year in 2022 and 2023 will be required to collect data starting Oct. 1, 2024.
• Financial institutions that originated between 500 and 2,500 covered transactions per year in 2022 and 2023 will be required to collect data starting April 1, 2025.
• Financial institutions that originated at least 100 covered transactions per year in 2022 and 2023 will be required to collect data starting Jan. 1, 2026.
• Institutions that did not meet the covered transaction threshold for 2022 and 2023, but originate at least 100 transactions in 2024 and 2025, will be required to begin collecting data on Jan. 1, 2026.

Opinions mixed on finalized CFPB section 1071 Dodd-Frank rulemaking

Many trade groups, including the American Financial Services Association (AFSA), the Equipment Leasing and Finance Association (ELFA) and the Independent Community Bankers of America (ICBA) publicly addressed concerns for the rule, while U.S. Rep. Maxine Waters (D-Calif.), who drafted the provision 13 years ago and is the top Democrat on the House Financial Services Committee, commended the CFPB’s rule.

Lenders to lean on vendors for data collection

Many lenders started leaning on their dealer partners and service providers to gather the required data, further burdening already tight margins at dealerships. Software providers that could assist in gathering demographic data also were sought after.

NEFA joins fight  

In October, the National Equipment Finance Association (NEFA) said it planned to join the fight against Section 1071 at the 2023 NEFA Funding Symposium in San Antonio, joining AFSA, ELFA, and ICBA.

“This is a process we felt very strongly that our board and us from a staff standpoint, we should jump in and get involved,” NEFA Chief Executive Chad Sluss said.

US District Court issues nationwide Section 1071 injunction

The final chapter of the 1071 saga came at the end of October when The United States District Court for the Southern District of Texas issued an expanded, nationwide injunction of the rule’s implementation.

The court issued an injunction on Oct. 26 for all covered financial institutions against the implementation of Section 1071. The court’s action followed a preliminary injunction issued July 31 by the Southern District of Texas on behalf of the American Bankers Association, Texas Bankers Association and McAllen, Texas-based Rio Bank.

The U.S. Supreme Court decision on the constitutionality of the CFPB’s funding structure in CFPB v. Community Financial Services Association of America, which is expected before June 2024, is the linchpin around which the Southern Districts of Texas’ national injunction rests and will be the next mile marker in the ongoing saga.