Section 1071 likely to survive government challenges

NASHVILLE — Section 1071 of the Dodd-Frank Act sits in legislative limbo though expectations persist that the regulation will remain in some form. 

Section 1071 requires certain financial institutions to collect and report business and demographic information about applicants to the Consumer Financial Protection Bureau (CFPB), according to the bureau’s website.  

Data collection for lenders originating at least 2,500 small-business loans annually was to begin Oct. 1, 2024, but a nationwide injunction issued in October 2023 remains in place as the CFPB face challenges in the U.S. Supreme Court. 

While the CFPB estimates that the market impact on banks and credit unions would land between $147 million and $159 million, the American Banking Association (ABA) estimates 1071 to have a $6.87 billion impact on the banking industry, according to an ABA survey.

The injunction provides dealers and lenders with a reprieve, the CFPB — and by extension Section 1071 — is likely to survive the current legal challenges, Mehul Madia, special counsel at Sheppard Mullin Richter & Hampton’s Washington, D.C., office, said at Equipment Finance Connect 2024 this week. 

“The [CFPB] is being sued in front of the Supreme Court about whether the institution itself is, or the agency itself is, unconstitutional, based on its funding mechanism,” Madia said. “That was argued before the Supreme Court late last year. There’s a decision expected anytime soon and most people, including myself, think that the bureau will survive just fine.”

Changing 1071

Section 1071 is also likely to survive if the administration changes after the November elections, Madia said. 

“Section 1071 is required by statute by the Dodd-Frank Act, so I think that makes it through [an administration change],” he said. “What you do see when there’s a change in administration — especially with the Republican administrations — is that laws get pulled back, and they get modified in a certain way, but then they get re-released.” 

With Section 1071 likely remaining in place in some capacity, organizations such as the Equipment Leasing and Finance Association (ELFA) continue efforts to work with the government to develop a version of the legislation that works better for the equipment finance industry, ELFA President Leigh Lytle previously told Equipment Finance News. 

“The 1071 rulemaking is on pause right now, but it’s going to be coming soon,” Madia said.