Abolish Dodd-Frank's Loan Data Collection Rule, Bipartisan Push

Congressman Roger Williams has introduced legislation to repeal Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect and report data on small business loan applications.

Credit unions are strongly supporting this legislative initiative, asserting that the rule imposes excessive compliance costs, potentially amounting to $500 million annually across the industry. They emphasize that these costs disproportionately affect community lenders and limit credit access for small businesses.

The CFPB extended compliance deadlines by 290 days in June 2024 due to ongoing legal challenges, pushing initial reporting requirements to July 2025 for large-volume lenders.

With the Trump administration returning to office in January 2025 and firing CFPB Director Rohit Chopra, there is renewed momentum for deregulation. This follows President Biden's 2023 veto of a previous repeal attempt that had passed both chambers with bipartisan support.

Arguments for repealing Section 1071 of the Dodd-Frank Act

• Credit unions contend the rule forces them to ask intrusive questions about race, gender, and sexual orientation that could alienate small business borrowers.

• Compliance costs threaten to push smaller lenders out of the market, reducing competition.

• Privacy concerns about collecting sensitive borrower data that could be exposed through public reporting.

Opposition perspective for repealing Section 1071 of the Dodd-Frank Act

Consumer advocates and certain Democrats assert that data collection is crucial for identifying discriminatory lending patterns.

The CFPB insists that the rule is vital for enforcing fair lending laws. However, its implementation is currently halted nationwide, awaiting a Supreme Court review of related CFPB authority.

The success of this legislative effort hinges on Congress's ability to override an anticipated presidential veto, considering Biden's past support for the rule.

With credit unions rallying support and new leadership at the CFPB, 2025 is set to be a decisive year in this regulatory conflict.

Significant Implications for Alternative Lenders

The ongoing battle over Section 1071 of Dodd-Frank has significant implications for alternative lenders like online platforms, MCA providers, and fintechs, with compliance costs, market exits, and regulatory uncertainty shaping the landscape. Here's how these dynamics specifically impact non-bank players:

Compliance Costs and Operational Strain

1. Technology Advantage vs. Margin Pressure
   While alternative lenders excel in digital underwriting and rapid deployment, Section 1071’s 81 data-point requirement forces costly system overhauls to track race, gender, and revenue metrics.
   
   Smaller fintechs and MCA providers—already navigating state-level disclosure laws like California’s CFL—face compounded costs. For example:

   • MCA lenders in California spend ~15% more on compliance due to dual state/federal rules.

   • Online lenders report 12-20% increases in operational costs for data aggregation tools and staff training.

2. Divergent State vs. Federal Burdens
   Non-bank lenders already comply with patchwork regulations (e.g., NY’s $10k fines per violation, Utah’s $20k caps). Section 1071 adds federal complexity, with penalties up to $500k for systemic reporting failures. This risks squeezing margins for lenders serving niche markets like subprime SMEs.

Market Contraction and Strategic Retreats

1. Risk of Market Exit
   Smaller MCA providers and online lenders are evaluating exits from high-risk segments (e.g., startups, minority-owned businesses) to avoid compliance costs. A 2024 Oxford Economics study found 23% of alternative lenders may reduce services in low-margin sectors if 1071 takes effect.

   • Example: Some fintechs now require minimum FICO scores of 650+ for small business loans (up from 600), citing compliance-driven risk aversion.

2. Consolidation Trends
   Larger players like Funding Circle and OnDeck are acquiring compliance-strapped startups, leveraging economies of scale. This mirrors post-2008 consolidation, where 40% of alt-lenders merged or closed.

Regulatory Uncertainty and Contingency Planning

1. Supreme Court Wildcard
   While the Supreme Court upheld the CFPB’s funding in 2024, pending rulings on CFPB v. CFSA (challenging 1071’s scope) could still invalidate parts of the rule. Lenders are preparing dual-track systems:

   • Tier 1 lenders (500+ loans/year) must comply by July 2025.

   • Contingency plans include AI-driven audit trails and third-party compliance partnerships.

2. Legislative Repeal Prospects
   The 2025 House bill to repeal 1071 has bipartisan backing but faces a veto threat. Alternative lenders are lobbying for exemptions:

   • Proposed carve-outs for lenders with <$500M in assets.

   • Advocacy groups like the Online Lenders Alliance push for “safe harbor” clauses to protect good-faith compliance efforts.

Strategic Implications for 2025

• Winners: Large fintechs (e.g., Square, PayPal) with resources to absorb costs and monetize data analytics.

• Losers: Niche MCA providers and community-focused alt-lenders, especially those serving rural/underserved markets.

• Watchlist: States like Texas and Florida, where 20-30% of alt-lenders may halt services if compliance costs spike

2025 will force alternative lenders to choose between investing in compliance infrastructure, exiting high-risk markets, or merging with larger entities. While technology offers efficiency gains, margins remain vulnerable to regulatory shifts. The Supreme Court’s stance and legislative outcomes will dictate whether the sector sees consolidation or a resurgence of innovation-driven growth.

1-Minute Video: Cobalt API Automates 50-State Compliance in Minutes

Pizza Inc. in one state, Pizza LLC in another. Multiply by hundreds of clients. It's a data management disaster waiting to happen.

Cobalt Intelligence's API is the disaster prevention plan you need.

Automatically check good standing, pull missing details, and reduce errors significantly.

Join the league of businesses already trusting us!

Your team's expertise + our API = a winning combination.

Let's prevent the disaster together.

Book a FREE Demo Call

Headlines You Don’t Want to Miss

Affirm Surges on Strong Holiday Shopping, Exceeds Estimates

Affirm, a buy now, pay later (BNPL) lender, reported significant growth in gross merchandise volume (GMV) and revenue, driven by a strong holiday shopping season. The company's shares surged as it exceeded analysts' estimates, forecasting higher revenue for fiscal 2025.

Private Credit Lenders to Take Over Zips Car Wash Through Bankruptcy

Zips Car Wash, one of the largest privately held car wash operators, has filed for Chapter 11 bankruptcy to reduce its debt by $279 million and secure $15 million in new capital. The company will be acquired by its existing lenders, who will take control of the business through the restructuring process, ensuring stability and long-term growth.

Sixth Street and First Citizens Bank launch equipment financing platform Sixty-First Commercial Finance

First Citizens Bank and Sixth Street investment firm have partnered to launch Sixty-First Commercial Finance, a new equipment financing platform offering mid- and large-ticket capital equipment financings ranging from $5 million to $100 million for middle-market companies.