With the March 30 finalization of section 1071 of the Dodd-Frank Act, financial institutions are facing new small business lending requirements for data collection and reporting to the Consumer Financial Protection Bureau.
While the rule primarily impacts equipment finance lenders, their vendor partners and third-party partners will play a key role in the data collection process.
“We all need to look at our third-party agreements to make sure that that’s covered in our reps and warrants, that the information that they’re providing and that they’re making good faith efforts to collect the information, but I think that we have to trust the people we work with,” Stephanie Hall, vice president of sales at Carmel, Ind.-based Quality Equipment Finance, said during a webinar presented by the Equipment Leasing and Finance Association Wednesday.
“We’re told that we can rely on what the applicant provided, and I would believe that we’re working with partners that we trust,” she added.
Working with trusted software partners will be vital for lenders, but those software partners all need to have the capability to ensure compliance, Hall said.
Smaller lessors, which have more time before they must begin reporting their section 1071 data to the CFPB, are starting to look for software that will be compliant under the finalized rule, Hall said. “So, it’s certainly starting to affect how we’re all thinking and what we’re doing, but I don’t know how much has been done [to prepare].”
To comply with section 1071, the necessary technology and firewalls must be installed to ensure that employees have access to only certain information, Hall said.
“They’re definitely going to be tech costs; we’re going to need to change the way that we’re submitting our data in our own systems even down to the point of the unique identifier,” she said.
“We’re going to have to build that out and we’re going to have to ask for help from our software providers to create the firewall, but also just human capital expenditures, as we’re going have to probably redefine roles and move people around and change responsibilities so that there isn’t the crossover of information,” Hall added.
The credit and sales firewalls are potential pain points in the demographic data collection process since the sales team must request the demographic information, but the credit department cannot see or know that information, Jeff Bilbrey, chief executive of leasing management software company Leasepath, said during the webinar.
“It’s possible to have exceptions to that as long as notice is given to each applicant on an application-by-application basis … a lot of companies, it’s there’s a credit review committee, there’s executives involved in some credit decisions,” Billbrey noted.