In 2023, a main focus for business lenders will be to address compliance with section 1071 of the Dodd-Frank Act. By March 31, it is expected that the Consumer Financial Protection Board (CFPB) will release its final ruling on section 1071, leaving financial institutions with only 18 months to implement data collection and reporting strategies that ensure compliance.
These regulations will require any lender that processes more than 25 loans per year to collect and report on over 20 new data points to create a baseline for equitable lending practices.
As a result, a large group of institutions, particularly those that do not report CRA information, that have never been required to collect data will now report to regulators. To add to the complexity, many of these institutions are community lenders that do not have the technology in place to gather this information efficiently.
While this regulation will impact institutions of all sizes, lenders earlier in their digital transformation journeys will be adversely impacted.
Why Digitally Mature Lenders Will Win the Race
Collecting the data at scale will require a large amount of time and effort for lenders, especially those that don’t currently have any form of a digital loan application. Those managing application intake manually, will see a significant increase in the work required.
Beyond the data collection component, these lenders will also face challenges in effectively organizing and reporting the information to the CFPB, and experience an increased risk for error due to manual data entry coupled with inconsistent application processes.
Institutions that already have technology in place to automate business lending will have a large head start over those that do not currently leverage technology in their loan origination process. Lenders leveraging digital loan applications will be best positioned to quickly implement a solution that solves for 1071 without the headache.
It is important to note that after the final rule is released, Numerated customers leveraging our solutions can easily become 1071 compliant by simply adding Numerated's 1071 module.
It’s expected that alternative lenders will follow suit and easily adapt their applications to meet the requirements.
1071 compliance will not only affect back office efficiencies for lenders operating on legacy loan origination processes. It will also directly impact the customer experience due to additional paperwork and back-and-forth communication required to ensure all requirements are met.
As business borrower customer expectations continue to favor digital-first experiences, taking them through an even more disjointed, manual process could lead them to choose a competitor that offers an experience that’s easier to navigate.
Become Future Ready with a Digital Solution
The good news for lenders is there is time to get ahead of 1071, while simultaneously laying the foundation for a digital customer experience. With Numerated, lenders can offer business customers a digital, self-service experience that dramatically simplifies the traditional origination process and ensures 1071 compliance by automatically collecting required data points.
Let Numerated help your institution to successfully face the challenge of 1071 and drive continual innovation for your business borrowers.
On Tuesday, May 9, our banking experts will host a webinar to share the latest updates on Section 1071 and what lenders can do to prepare. Learn more and save your seat, here.