June 11, 2013

Understanding Section 1071 of the Dodd-Frank Act and "The Right to Lend Act"

Congressman Robert Pittenger (NC-9th) is introducing a bill this evening entitled "The Right to Lend Act" which is designed to repeal a portion of the Dodd-Frank Act that will require lenders to collect and report information on the race and sex of the owners of business loan applicants. 


Section 1071 of the Dodd-Frank Act amends the Equal Credit Opportunity Act and requires a lender to ask a commercial loan applicant for the "race, sex, and ethnicity of the principal owners of the business."  Loan officers cannot ask these questions; the information must be collected by someone who has no lending authority.  The record must also include the specific census tract in which the principal office of the applicant is located, among other things. This information must be segregated from the credit application itself, and must be shielded from access by anyone within the lending organization who has lending authority over the application.  The information will be reported annually to the Consumer Financial Protection Bureau (CFPB), and will be "made available to any member of the public, upon request."  

The CFPB is required to publish regulations implementing the provision (which will be included in the existing "Regulation B"), and it has conceded that Section 1071 will not be enforced until the regulations have been finalized.  In a January 8, 2013 publication, the CFPB indicated the expected date of a proposed rule was "To Be Determined."  Accordingly, a proposal does not seem to be imminent.

Congressman Pittenger is concerned about the regulatory compliance burden Section 1071 will impose on the already straining community banking sector  According to Congressman Pittenger,  "These provisions...duplicate existing protections already covered in the Fair Lending Act and create an unnecessary burden for small businesses.  Banks should make loans based on credit worthiness, not based on the need to check off a box for a Washington bureaucrat.” 

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