A new presidential administration and a legal battle have cast an air of uncertainty over Section 1071 of the Dodd-Frank Act, the regulatory change on the horizon that is starting to alter equipment lenders’ operations.
Some equipment lenders are preparing to cut back on loans to small businesses due to strict reporting required by Section 1071, which directs financial institutions to collect and report data from loan applications by small businesses to the Consumer Financial Protection Bureau (CFPB).
Litigating the CFPB’s authority
Despite being finalized in March 2023, Section 1071 could be killed by President-elect Donald Trump’s administration with relative ease due to a lawsuit filed by the Texas Bankers Association (TBA) against the CFPB, Jemma Saluta, partner at law firm Womble Bond Dickinson, told Equipment Finance News. The firm’s specializations include equipment finance and government regulation.
“If this regulation [were] not in litigation, then there would have to be revisions of the final rules,” Saluta said. “It would have been a lot more of a burden for the new administration to change it. But because of the litigation stance, where they are currently prosecuting in Texas and the Court of Appeals, it becomes a little bit more of a fast track to say, ‘we don’t want this.’”
In the lawsuit, filed in April 2023, the TBA alleges that the CFPB exceeded its statutory authority and failed to consider industry feedback when implementing Section 1071. A federal court in the Southern District of Texas ruled in August 2024 that CFPB had not exceeded its authority, but the decision is being appealed by both the TBA and the American Bankers Association, according to a release by TBA.
The oral argument for the appeals case is slated for Feb. 3, 2025, several weeks after the presidential inauguration.
While it’s unclear what actions the new administration will take with regard to Section 1071, billionaire Tesla founder Elon Musk, who has been tapped by Trump to head a new Department of Government Efficiency, recently called for eliminating the CFPB altogether.
Compliance drives tech investment
In the meantime, lenders should take measures to adhere to Section 1071 requirements, which are set to take effect in July 2025, Womble Bond Dickinson partner Shari Bacsardi told EFN.
Technology, including AI-driven automated solutions, is one way that lenders can address the new reporting requirements, Kevin O’Connor, sales director at Northbrook, Ill.-based Beacon Funding, told EFN.
“Love it or hate it, I think 1071 is going to spark a little bit of innovation in the industry,” he said. “Part of that is overhauling the process for how we collect data. … I think it’s going to spark some innovation from some of the bigger players.”
Lenders also must be diligent about preserving records to avoid any missteps in their data reporting, Sara Costanzo, partner at creditor rights law firm Weltman, Weinberg and Reis, told EFN.
The third annual Equipment Finance Connect at the JW Marriott Nashville in Nashville, Tenn., on May 14-15, 2025, is the only event that brings together equipment dealers and lenders to share insights, attend discussions on crucial industry topics and network with peers. Learn more about the event and register here.
