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Rule2026-08494

Small Business Lending Under the Equal Credit Opportunity Act (Regulation B)

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Published

May 1, 2026

Effective

June 30, 2026

Issuing agencies

Consumer Financial Protection Bureau

Abstract

The Consumer Financial Protection Bureau (Bureau or CFPB) is revising certain provisions of Regulation B, subpart B, which implements changes to the Equal Credit Opportunity Act made by section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bureau is amending coverage of certain credit transactions and financial institutions; the small business definition; inclusion of certain data points and how others are collected; and the compliance date. The Bureau believes these changes will streamline the rule, reduce complexity for lenders, improve data quality, and advance the purposes of section 1071.

Full Text

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[Federal Register Volume 91, Number 84 (Friday, May 1, 2026)]
[Rules and Regulations]
[Pages 23530-23626]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-08494]

[[Page 23529]]

Vol. 91

Friday,

No. 84

May 1, 2026

Part II

Consumer Financial Protection Bureau

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12 CFR Part 1002

Small Business Lending Under the Equal Credit Opportunity Act
(Regulation B); Final Rule

Federal Register / Vol. 91, No. 84 / Friday, May 1, 2026 / Rules and
Regulations

[[Page 23530]]

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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1002

[Docket No. CFPB-2025-0040]
RIN 3170-AB40

Small Business Lending Under the Equal Credit Opportunity Act
(Regulation B)

AGENCY: Consumer Financial Protection Bureau.

ACTION: Final rule.

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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
revising certain provisions of Regulation B, subpart B, which
implements changes to the Equal Credit Opportunity Act made by section
1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Bureau is amending coverage of certain credit transactions and
financial institutions; the small business definition; inclusion of
certain data points and how others are collected; and the compliance
date. The Bureau believes these changes will streamline the rule,
reduce complexity for lenders, improve data quality, and advance the
purposes of section 1071.

DATES: This final rule is effective on June 30, 2026. The compliance
date for the rule is January 1, 2028.

FOR FURTHER INFORMATION CONTACT: Dave Gettler, Paralegal Specialist,
Office of Regulations, at 202-435-7700 or <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you require this document in an
alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#e9aaafb9abb6a88a8a8c9a9a808b8085809d90a98a8f998bc78e869f"><span class="__cf_email__" data-cfemail="b4f7f2e4f6ebf5d7d7d1c7c7ddd6ddd8ddc0cdf4d7d2c4d69ad3dbc2">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

In 2010, Congress passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act). Section 1071 of that Act \1\
amended the Equal Credit Opportunity Act (ECOA) \2\ to require that
financial institutions collect and report to the Bureau certain data
regarding applications for credit for women-owned, minority-owned, and
small businesses. Section 1071's statutory purposes are to (1)
facilitate enforcement of fair lending laws, and (2) enable
communities, governmental entities, and creditors to identify business
and community development needs and opportunities of women-owned,
minority-owned, and small businesses. Section 1071 directs the Bureau
to prescribe such rules and issue such guidance as may be necessary to
carry out, enforce, and compile data pursuant to section 1071.
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\1\ Public Law 111-203, tit. X, sec. 1071, 124 Stat. 1376, 2056
(2010), codified at ECOA sec. 704B, 15 U.S.C. 1691c-2.
\2\ 15 U.S.C. 1691 et seq.
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The Bureau worked toward a section 1071 rulemaking for a number of
years and has sought public comment from stakeholders numerous times.
The Bureau held a field hearing on May 10, 2017, and published a
request for information regarding the small business lending market.\3\
On July 22, 2020, the Bureau issued a survey to collect information
about potential one-time costs to financial institutions to prepare to
collect and report data on small business lending.
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\3\ The Bureau received 17 comments in response to the request
for information. See CFPB, Requests for Information: Small Business
Lending Market, Docket No. CFPB 2017-0011, <a href="https://www.regulations.gov/document/CFPB-2017-0011-0001/comment">https://www.regulations.gov/document/CFPB-2017-0011-0001/comment</a>.
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On September 15, 2020, the Bureau released an Outline of Proposals
Under Consideration and Alternatives Considered pursuant to the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). On
October 15, 2020, the Bureau convened a Small Business Review Panel for
the section 1071 rulemaking, and the Panel met with small entity
representatives (SERs). The Panel Report, publicly released on December
15, 2020, was the culmination of the SBREFA process for the section
1071 rulemaking and included feedback from SERs and written feedback
from other stakeholders as well.
On October 8, 2021, the Bureau published in the Federal Register a
proposed rule (2021 proposed rule) amending Regulation B to implement
changes to ECOA made by section 1071 of the Dodd-Frank Act.\4\ The
comment period for the 2021 proposed rule closed on January 6, 2022.
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\4\ 86 FR 56356 (Oct. 8, 2021).
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The Bureau received approximately 2,100 comments on the 2021
proposed rule during the comment period. Approximately 650 of these
comments were unique, detailed comment letters representing diverse
interests. These commenters included lenders such as banks and credit
unions, community development financial institutions (CDFIs), community
development companies, Farm Credit System (FCS) lenders, online
lenders, and others; national and regional industry trade associations;
software vendors; business advocacy groups; community groups; research,
academic, and other advocacy organizations; Members of Congress;
Federal and State government offices/agencies; small businesses; and
individuals.
On May 31, 2023, the Bureau published a final rule in the Federal
Register to implement section 1071 by adding subpart B to Regulation B
(2023 final rule).\5\ Further details about section 1071, small
business lending market dynamics, and the Bureau's rulemaking process
leading up to the 2023 final rule can be found in the preamble to the
2023 final rule.
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\5\ 88 FR 35150 (May 31, 2023).
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On July 3, 2024, the Bureau published in the Federal Register an
interim final rule (2024 interim final rule) \6\ to extend the rule's
compliance dates in accordance with orders issued by the United States
District Court for the Southern District of Texas.\7\
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\6\ 89 FR 55024 (July 3, 2024). See also Order Granting-in-Part
& Denying-in-Part Pls.' Mot. for Prelim. Inj., Texas Bankers Ass'n
v. CFPB, No. 7:23-CV-00144 (S.D. Tex. July 31, 2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_pi_order_texas_bankers.pdf">https://files.consumerfinance.gov/f/documents/cfpb_pi_order_texas_bankers.pdf</a>; Order Granting Intervenors' Mots.
For Prelim. Inj., Texas Bankers Ass'n v. CFPB, No. 7:23-CV-00144
(S.D. Tex. Oct. 26, 2023), <a href="https://files.consumerfinance.gov/f/documents/cfpb_pi_second_order_texas_bankers.pdf">https://files.consumerfinance.gov/f/documents/cfpb_pi_second_order_texas_bankers.pdf</a>; Op. & Order,
Monticello Banking Co. v. CFPB, No. 6:23-CV-00148-KKC (E.D. Ky. Mar.
11, 2025); Op. & Order, Revenue Based Fin. Coal. v. CFPB, No. 1:23-
CV-24882-DSL (S.D. Fla. May 6, 2025).
\7\ Texas Bankers Ass'n v. CFPB, No. 7:23-CV-00144 (S.D. Tex.
July 31, 2023) <a href="https://files.consumerfinance.gov/f/documents/cfpb_pi_order_texas_bankers.pdf">https://files.consumerfinance.gov/f/documents/cfpb_pi_order_texas_bankers.pdf</a>.
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Challenges to the 2023 final rule filed by various plaintiffs
remain ongoing in three jurisdictions; each of those courts stayed the
rule's compliance deadlines for some market participants.\8\ However,
the courts did not stay the compliance dates for those who are not
plaintiffs or intervenors in those cases.
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\8\ See Unpublished Order, Texas Bankers Ass'n v. CFPB, No. 24-
40705 (5th Cir. Feb. 7, 2025) (tolling the compliance deadlines for
plaintiffs and intervenors in that case, until further order of the
court); Op. & Order, Monticello Banking Co. v. CFPB, No. 6:23-CV-
00148-KKC (E.D. Ky. Mar. 11, 2025) (same).
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On June 18, 2025, the Bureau published in the Federal Register an
interim final rule (2025 interim final rule) to extend compliance
deadlines by approximately one year \9\ to facilitate consistent
compliance across all covered financial institutions. The Bureau sought
comment on the 2025 interim final rule.
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\9\ 90 FR 25874 (June 18, 2025).
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On October 2, 2025, the Bureau published in the Federal Register a
final rule (2025 compliance date final rule) that confirmed its
findings in the 2025 interim final rule and determined upon a review of
comments received that no further substantive changes were
necessary.\10\ The Bureau received 20 comments in response to the 2025

[[Page 23531]]

interim final rule. Most commenters addressed the 2025 interim final
rule itself. Other comments addressed provisions of the 2023 final rule
not addressed by the 2025 interim final rule, some of which are
discussed below.
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\10\ 90 FR 47514 (Oct. 2, 2025).
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On November 13, 2025, the Bureau published in the Federal Register
a proposed rule to amend the 2023 final rule (2025 proposed rule).\11\
The comment period for the 2025 proposed rule closed on December 15,
2025. The Bureau received approximately 410 comments on the proposal
during the comment period. These commenters included lenders such as
banks and credit unions, community development financial institutions
(CDFIs), Farm Credit System (FCS) lenders, online lenders, and others;
national and regional industry trade associations; service providers;
advocacy groups; community groups; Members of Congress; an independent
office of a Federal agency; small businesses; and individuals.
Materials on the record, including any ex parte submissions and
summaries of ex parte discussions, are available on the public docket
for this rulemaking.
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\11\ 90 FR 50952 (Nov. 13, 2025).
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Based on reactions to the 2023 final rule, including continued
feedback from stakeholders and the ongoing litigation, on comments
received on the 2025 proposed rule, and on further consideration, the
Bureau now believes that at the onset of a potentially long-term data
collection regime, it should start with more modest requirements,
focusing on core lending products, lenders, and data. The Bureau
believes that that reaction to the 2023 final rule was in part based on
its expansive approach, appearing to seek broad coverage of lenders,
products, and information collected.\12\ The Bureau does not believe
that alignment with the statutory purposes of section 1071 requires the
use of its discretionary authority to collect data with such a breadth
of scope.
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\12\ The Bureau had considered, in its SBREFA Outline of
Proposals Under Consideration, a rule that was more limited in
scope. See generally CFPB, Final Report of the Small Business Review
Panel on the CFPB's Proposals Under Consideration for the Small
Business Lending Data Collection Rulemaking (Dec. 14, 2020), <a href="https://www.consumerfinance.gov/documents/9413/cfpb_1071-sbrefa-report.pdf">https://www.consumerfinance.gov/documents/9413/cfpb_1071-sbrefa-report.pdf</a>.
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The Bureau now believes that the 2023 final rule should have given
more weight to qualitative differences among certain types of lenders
and the likelihood that smaller lenders would face difficulties--which
they had expressed in comments on the 2021 proposed rule, after the
2023 final rule, and on the 2025 proposed rules--addressing the
complexity of a rule of broad scope, both of which could potentially
diminish the quality of the data they collect.
The Bureau believes, based on this experience, that a longer-term
approach to advance the statutory purposes of section 1071 is to
commence the collection of data with a narrower scope to ensure its
quality and to limit, as much as possible, any disturbance of the
provision and availability of credit to small businesses. The statutory
purposes of the rule are not well served by an expansive rule that
could create disruptions in small business lending markets.
Rather, the Bureau now believes that an incremental approach will
better serve the statutory purposes of section 1071 in the long term.
Such an approach will start with core lending products, core providers,
and core data points. This approach complies with section 1071 and
furthers its statutory purposes while reducing the rule's initial
impact on small businesses and lenders. Over time, as the Bureau and
financial institutions learn from early iterations of data collections,
the Bureau could consider amending the rule.
The gradual development of data collection under the Home Mortgage
Disclosure Act (HMDA) \13\ and its implementing Regulation C \14\ over
the past 50 years demonstrates the value of an incremental approach.
Congress passed HMDA in 1975,\15\ and the Board Governors of the
Federal Reserve System (Board) promulgated implementing regulations in
1976, requiring the collection of relatively few data points from
relatively few lenders. At various points, HMDA amendments passed by
Congress, among other things, expanded the breadth of financial
institutions covered, as well as the number of data points collected
from those reporting institutions.\16\ Over time, rulemakings by the
Board and the Bureau implemented these amendments, added and removed
data points, and expanded and contracted the scope of Regulation C.\17\
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\13\ 12 U.S.C. 2801 et seq.
\14\ 12 CFR part 1003.
\15\ Home Mortgage Disclosure Act of 1975, Public Law 94-200,
sec. 303(2), 89 Stat. 1124, 1125 (1975).
\16\ Congress amended HMDA in 1980, 1988, 1989, 1992, 1996,
2010, and 2018. See, e.g., Housing and Community Development Act of
1980, Public Law 96-399, sec. 340(c), 94 Stat. 1614 (1980) (codified
as amended at 12 U.S.C. 2809(a)); Housing and Community Development
Act of 1987, Public Law 100-242, sec. 565(a)(l), 101 Stat. 1815
(1988) (codified as amended at 12 U.S.C. 2802); Financial
Institution Reform, Recovery, and Enforcement Act, Public Law 101-
73, sec.1211(d)-(e), 103 Stat. 183 (1989) (codified as amended at 12
U.S.C. 2802(2)); Housing and Community Development Act of 1992, H.
5334, Public Law 102-550, sec. 932(a)-(b) (1992) (codified as
amended at 12 U.S.C. 2803 (a)-(b)); Omnibus Consolidated
Appropriations Act, 1997, HR 3610, Public Law 104-208, sec. 2225,
110 Stat 3009 (1996) (codified as amended at 12 U.S.C. 2808(b)(2));
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public
Law 111-203, section 1094, 124 Stat. 1376 (2010); Economic Growth,
Regulatory Relief, and Consumer Protection Act, Public Law 115-174,
sec. 104, 132 Stat. 1296 (2018).
\17\ See, e.g., 46 FR 40679 (Aug. 11, 1981); 53 FR 31683 (Aug.
19, 1988); 54 FR 51356 (Dec. 15, 1989); 57 FR 56963 (Dec. 2, 1992);
60 FR 22223 (May 4, 1995); 67 FR 7222 (Feb. 15, 2002); 67 FR 43217
(June 27, 2002); 80 FR 66128 (Oct. 28, 2015); 84 FR 57946 (Oct. 29,
2019); 85 FR 28364, 28367 (May 12, 2020).
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The Bureau believes that it should approach the section 1071 data
collection regime as a longer-term project akin to HMDA. The Bureau
believes that it is a proper use of its authority under 15 U.S.C.
1691c-2 to make changes to several portions of the 2023 final rule to
commence data collection with a focus on core lending products, core
lenders, and mostly statutory data points. The Bureau believes that
this incrementalist approach--starting with a more modest rule with a
limited set of products, lenders, or data points--will serve the long-
term interests of section 1071.
In addition, on January 20, 2025, the President issued Executive
Order (E.O.) 14168, ``Defending Women From Gender Ideology Extremism
and Restoring Biological Truth to the Federal Government'' (Defending
Women E.O.).\18\ That order, among other things, directs Federal
agencies to remove references and questions discussing gender identity.
The order also identifies a binary of male/female sex, directing
agencies to use those terms when seeking information about an
individual's sex.
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\18\ 90 FR 8615 (Jan. 30, 2025).
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The Bureau has consulted with the appropriate prudential regulators
and other Federal agencies regarding consistency with any prudential,
market, or systemic objectives administered by these agencies as
required by section 1022(b)(2)(B) of the Dodd-Frank Act.

II. Legal Authority

The Bureau is issuing this final rule pursuant to its authority
under section 1071. As discussed above, in the Dodd-Frank Act, Congress
amended ECOA by adding section 1071, which directs the Bureau to adopt
regulations governing the collection and reporting of small business
lending data. Specifically, section 1071 requires financial
institutions to collect and report to the Bureau certain data on
applications for

[[Page 23532]]

credit for women-owned, minority-owned, and small businesses. Congress
enacted section 1071 for the purpose of (1) facilitating enforcement of
fair lending laws and (2) enabling communities, governmental entities,
and creditors to identify business and community development needs and
opportunities of women-owned, minority-owned, and small businesses.\19\
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\19\ 15 U.S.C. 1691c-2(a).
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To advance these statutory purposes, section 1071 grants the Bureau
general rulemaking authority for section 1071, providing that the
Bureau shall prescribe such rules and issue such guidance as may be
necessary to carry out, enforce, and compile data pursuant to section
1071.\20\ Section 1071, in 15 U.S.C. 1691c-2(g)(2), also permits the
Bureau to adopt exceptions to any requirement of section 1071 and to
conditionally or unconditionally exempt any financial institution or
class of financial institutions from the requirements of section 1071,
as the Bureau deems necessary or appropriate to carry out the purposes
of section 1071. The Bureau relies on its general rulemaking authority
under 15 U.S.C. 1691c-2(g)(1) in this final rule and relies on 15
U.S.C. 1691c-2(g)(2) when providing specific exceptions or exemptions
to section 1071's requirements.
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\20\ 15 U.S.C. 1691c-2(g)(1).
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See the 2023 final rule for a more detailed discussion of the
Bureau's legal authorities.\21\
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\21\ See, e.g., 88 FR 35150 at 35173-74.
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III. Discussion of the Final Rule

A. Summary of the Final Rule

As set out above, the Bureau has reconsidered certain provisions of
the 2023 final rule. The Bureau has determined that a potentially long-
term data collection regime should start with a focus on core lending
products, lenders, small businesses, and data points. The Bureau
believes in retrospect that the approach it took in the 2023 final
rule--a broad initial coverage of lenders, products, small businesses
and data points--was not conducive to the long-term success of the data
collection regime under section 1071. The Bureau now finds that a
better, longer-term approach to advance the statutory purposes of
section 1071 is to commence the collection of data with a narrower
scope to ensure its quality, and to limit, as much as possible, any
disturbance of the provision of credit to small businesses. The Bureau
believes that such an incremental approach will also comply with
section 1071 and minimize any negative initial impact on small business
lending markets and on data quality. In the future, based on Bureau and
industry experience during the early years of data collection, the
Bureau may consider amending the rule as appropriate in furtherance of
the purposes of section 1071.
The Bureau also finds that the 2023 final rule has not created
significant reliance interests that dissuade the Bureau from
reconsidering its position as to certain portions of the rule. Due to
litigation challenging provisions of the 2023 final rule and delays in
the compliance dates for this rule, the changes made by this final rule
will not meaningfully change compliance obligations as they exist now.
Covered credit transactions. The Bureau concludes that the initial
iterations of data collection under the rule should focus on the core,
widely used lending products most likely to be foundational to small
businesses' formation and operation. This final rule therefore excludes
merchant cash advances (MCAs), agricultural lending, and small dollar
loans from the definition of covered credit transaction.
Covered financial institutions. The Bureau concludes that the
initial iterations of data collection under the rule should focus on
larger core lenders. This final rule therefore contains two changes to
the covered financial institution definition: first, to exclude FCS
lenders from coverage; and second, to raise the origination threshold
from 100 to 1,000 covered credit transactions for each of two
consecutive years. This final rule also contains conforming changes to
the bona fide error portions of the enforcement provisions in the rule.
Small business. The Bureau concludes that the focus of the rule, at
least initially, should be truly small businesses. This final rule
therefore changes the gross annual revenue threshold in the rule's
definition of small business from $5 million or less to $1 million or
less.
Data points. The Bureau concludes that the initial iterations of
data collection under the rule should focus on core data points and be
consistent with other executive agency directives concerning the
collection of demographic data to minimize any burden accompanying new
collections.
This final rule therefore focuses data collection on data points
specifically identified in section 1071 and a limited number of other
data points needed to facilitate the collection of these statutory data
points. This final rule removes the discretionary data points for
application method, application recipient, denial reasons, pricing
information, and number of workers. This final rule also contains
changes to better conform with an executive branch mandate, resulting
in modifications to the collection of data concerning business
ownership status of small business applicants and to the format of
demographic data collected concerning the principal owners of a small
business.
Time and manner of data collection. This final rule amends the
provisions on the time and manner of data collection, to remove certain
requirements that are not statutorily required and appear to anticipate
or presume non-compliance with the rule. It also adds a provision that
emphasizes for applicants their statutory rights under the rule.
Compliance dates. Finally, in light of the changes to the rule,
this final rule extends the compliance date to January 1, 2028, for all
financial institutions that remain covered by the rule. This final rule
also adds certain special transitions rules to provide flexibility to
potentially covered financial institutions.
The Bureau also addresses in this summary two other issues.
Privacy and data publication. The Bureau does not address in this
final rule the privacy discussions in the 2023 final rule or its
statements about the eventual publication of data. The 2023 final rule
did not purport to make any final or binding decisions concerning its
privacy analysis, instead announcing only its ``preliminary assessment
of how it might appropriately assess and advance privacy interests by
means of selective deletion or modification'' of data. The 2023 final
rule also did not reach conclusions regarding the procedural vehicle it
would use to convey its decisions with respect to privacy.\22\ Nor has
the Bureau conclusively announced a timeline for the publication of
application-level data, except for observing that it would need a full
year's worth of data to conduct the necessary privacy analysis. The
Bureau also suggested that it

[[Page 23533]]

intended to publish aggregate data in the first year of receiving data
and before publishing any application-level data. The Bureau is
currently reconsidering all of these issues and preliminary findings
and will continue to engage with stakeholders. The Bureau commits to
addressing these issues and findings in a notice of proposed rulemaking
to be published likely after the collection of the first year's worth
of data. As set out in detail below, the Bureau believes that a full
notice-and-comment rulemaking would best inform the Bureau on its
privacy assessment, including which modifications and deletions to
make.
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\22\ Id. at 35460 (``The CFPB is not determining its final
approach to protecting such interests via pre-publication deletion
and modification because it lacks the reported data it needs to
finalize its approach and it does not see comparable datasets to use
for this purpose. In light of comments received on the NPRM's
privacy analysis, this part VIII offers a preliminary assessment of
how it might appropriately assess and advance privacy interests by
means of selective deletion or modification. The CFPB is not at this
point identifying the specific procedural vehicle for effecting its
privacy assessment. With respect to both substance and process, it
will continue to engage with external stakeholders; and it intends
to invite further input on how it plans to appropriately protect
privacy in connection with publishing application-level data.'').
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As part of eventual data publication, as with HMDA data, the Bureau
intends to note to data users that data alone are generally not used to
determine whether a lender is complying with fair lending laws. The
data do not include all the legitimate credit risk considerations for
loan approval and loan pricing decisions. Therefore, when regulators
conduct fair lending examinations, they analyze additional information
before reaching a determination about an institution's compliance with
fair lending laws.
Grace period. The Bureau is retaining and updating the grace period
articulated in the 2023 final rule, for the same reasons set out in
that notice \23\ and as set out in subsequent extensions of the
compliance dates.\24\ The grace period is now from January 1, 2028,
through December 31, 2028, to align with the new single initial
compliance date of January 1, 2028.
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\23\ 88 FR 35150 at 35458-59.
\24\ 90 FR 25874 at 25876; 90 FR 47514 at 47518.
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B. General Comments

Comments Received
Many commenters, including banks, credit unions, non-depository and
online lenders, trade associations for lenders and small businesses,
advocacy groups, individuals, and others supported the Bureau's
proposed rule.
A number of commenters, including lenders, community groups, and
trade associations affirmed the importance of section 1071 and its
statutory purposes. A coalition of lenders and community groups stated
that section 1071 was a market-based, pro-competition solution to
improving access to capital. Several industry commenters supported the
aims of section 1071 and the proposed rule. An advocacy group supported
section 1071 as important to strengthening credit markets and access to
credit, and encouraged the Bureau to promulgate a final rule that would
support a robust and inclusive credit ecosystem. An independent office
of a Federal agency stated that the proposed rule was squarely in line
with the Regulatory Flexibility Act and implemented statutory goals
without excessive small-entity compliance costs.
One advocacy group stated that the proposed rule aligned with the
Constitution, section 1071, the Defending Women E.O., and biological
reality.
Several banks and a trade association stated that while they
preferred a statutory repeal of section 1071, they welcomed the
Bureau's proposed revisions to the rule.
A number of lenders and trade associations, as well as an advocacy
group supported the proposed rule's rationale that a long-term data
collection regime should start with core products, providers, and data
points to avoid disruption to the markets. Two trade associations
stated that the effectiveness of the rule depends on maintaining,
rather than disrupting, access to credit while collecting reliable
data. Several commenters, including trade associations, banks, and an
advocacy organization, supported the proposal's calibrated approach to
data collection, reflecting the operational and legal concerns raised
by commenters earlier in response to the 2021 proposed rule and the
2023 final rule, and balancing the statutory purposes of section 1071
and the capacity of community banks to serve small businesses. An
advocacy group stated that a long-term program that begins with modest,
core requirements will ultimately provide more accurate and useful data
while avoiding disruptions in credit availability. The commenter
suggested that the Bureau commit to ongoing reassessment of this rule's
requirements and that the Bureau should use the initial data collection
to determine whether products, lenders, or data points should be added.
Several credit unions and their trade associations stated that the
proposed rule would help credit unions and would reduce regulatory
burden on credit unions. Some of these commenters stated that the 2023
final rule may have stopped small business lending by credit unions,
but that the revisions in the 2025 proposed rule encourage them to
continue it. A trade association stated that the proposal recognized
the importance of credit unions in small business lending. One credit
union cautioned the Bureau to consider carefully any expansion of the
rule beyond core lenders and products.
Several community banks and trade associations supported the
proposed rule, stating that it would provide substantial relief to
community banks from regulatory burden. Several of these commenters
called the proposed rule a meaningful recalibration. Another trade
association warned that if rule was not well-tailored, it could harm
community banks, their small business borrowers, and the nation's
economy. Several community banks said they did not have the resources
to comply with the 2023 final rule. One bank stated that a rigid rule
would disrupt the tailored lending relationships and flexibility of
small banks.
Some banks, trade associations, and an advocacy group supported the
proposed revisions but expressed concern that the remaining
requirements of the rule would still impose unintended negative
consequences on lenders and small businesses. One trade association,
while generally supporting the rule, suggested that the rule be brought
into greater alignment with the Community Reinvestment Act regulations.
One of the trade associations suggested that the 2023 final rule be
rescinded entirely to remove any uncertainty caused by the judicial
stays in the litigation challenging the 2023 final rule. A bank
expressed concern that section 1071 did not comply with recent Supreme
Court decisions concerning race-conscious university admissions and
disparate impact.
One bank supported the proposed revisions but opposed incremental
expansion of the rule in the future, arguing that this approach would
result in a lack of regulatory uncertainty. An individual commenter
supported the proposed rule and stated that a rule without bright-line
tests, particularly for data points and institutional coverage, would
result in the collection of insufficient or inconsistent data.
A trade association stated that the rule should evolve thoughtfully
to generate reliable insights to support oversight over small business
lending.
One advocacy group urged the Bureau to provide early and
comprehensive technical compliance resources, including filing
instructions, standardized demographic-data definitions, and system
specifications, well before the January 1, 2028 effective date, noting
that large last-minute revisions would undermine preparation efforts.
Two trade associations requested that lenders have sufficient
compliance lead time to develop data-collection platforms that
accurately capture and report section 1071 data.
Many other commenters opposed the proposed rule generally. These
commenters included community

[[Page 23534]]

groups; Members of Congress; trade associations for CDFIs, small farms,
and small businesses; advocacy groups; service providers to lenders;
and individuals.
Many commenters asserted that lending discrimination is still
widespread, and that data collected under this rule is vital to
addressing it. Two advocacy groups identified ongoing disparities in
approvals or amounts approved for minority-owned and women-owned
businesses. A trade association for small businesses cited studies by
Federal agencies identifying gaps in credit access for minority-owned
and women-owned businesses. A trade association for minority-owned
CDFIs asserted that any revisions to the 2023 final rule must be
evaluated against longstanding credit inequities section 1071 was
enacted to address. An individual commenter stated women-owned and
minority-owned businesses have faced systemic barriers in accessing
fair credit, and that a rule that does not result in robust
transparency in lending would be contrary to section 1071.
Several commenters, including community groups, Members of
Congress, and an advocacy group, argued that the collection of less
data would undermine fair lending laws. A community group supported the
reduction in burdens related to this rule but argued that the proposed
revisions would unintentionally reduce the usefulness of the section
1071 data, and that the Bureau must maintain elements necessary to
maintain clear and consistent data on small business lending. The
commenter encouraged the Bureau to reduce burden by focusing on
implementation planning, clear definitions, and sequencing rather than
removing data fields. Another community group stated that the Bureau
should implement the 2023 final rule and collect a critical mass of
data before revising the rule. Another stated that the Bureau should
withdraw the 2025 proposed rule and restore the 2023 final rule to
ensure the rule is sufficiently comprehensive.
One community group argued that it was inconsistent for the Bureau
to propose a rule with more modest requirements that it could expand
over time while seeking in the short term to shed staff and shut down
its own operations. Members of Congress stated that the proposed rule
would preserve the appearance that data was going to be collected but
that the actual result would be too thin and partial to be useful.
Several commenters noted the benefits of collecting more data than
less. A community group and a bank argued that a broader data
collection would benefit both borrowers and lenders; lenders would be
able to identify unmet credit needs, generate more revenue, and avoid
fair lending violations, and small businesses would receive loans and
expand. Several commenters stated that their experience with HMDA
reinforced the importance of broad data collection and reporting in the
context of section 1071. A community group argued that the Bureau
should collect data on non-core lenders because data analysis can
account for differences that may be attributable to different types of
reporting lenders, such as MCAs.
A number of community groups, advocacy groups, service providers,
and individuals, as well as a trade association for minority-owned
CDFIs, argued that the proposed rule undermines the statutory purposes
of section 1071. A community group asserted that, to comply with
section 1071, the rule must require collection of sufficiently detailed
data, and claimed that the proposed rule did not meet this standard. A
coalition of community groups argued that the proposed rule would
undermine section 1071's promise of bringing transparency to small
business lending. One community group noted that data from the Paycheck
Protection Program (PPP) demonstrated the value of section 1071 data in
identifying issues faced by women-owned and minority-owned businesses
in obtaining PPP funding. Another commenter noted that minority-owned
community lenders have seen firsthand how incomplete data can obscure
disparities and impede effective intervention.
An individual commenter asserted that the Bureau failed to
adequately explain how its proposed changes would improve consumer
outcomes or market stability, that a rational connection had not been
made between the stated objectives and the foreseeable consequences for
consumers, and that the Bureau had not considered alternatives that
would maintain strong consumer protections while addressing
administrative or operational concerns.
A number of commenters opposed the Bureau's rationale focusing on
an initial data collection involving core products, lenders, and data
points. Several community groups argued that section 1071 does not
direct the CFPB to pursue a modest, pilot data collection but rather to
develop a broad, comprehensive data collection immediately, sufficient
to reveal patterns in credit access and support fair lending
enforcement; they concluded that the proposal failed to do this and
therefore would frustrate the statutory purposes of section 1071.
Commenters also argued that the incremental expansion of section 1071
data would not be the best way to preserve data quality, and that
lenders had years to prepare to comply with the 2023 final rule.
One advocacy group asserted that the Bureau offered no evidence of
a plan to re-assess the rule at a later date to potentially expand the
collection of data. A community group argued that the Bureau had taken
other actions demonstrating that it was not committed to fair lending.
A bank disputed an assertion in the proposed rule that smaller
institutions would produce worse data. A community group stated that
the proposed revisions would shrink the scope of the rule despite
evidence of an increase in high-cost and opaque small business lending
products. Another community group stated that additional data is needed
to explain these changes in the market. A coalition of lenders and
community groups urged the Bureau to consider the risk of narrowing the
rule, and argued that a less comprehensive rule could have gaps which
would not permit a reliable assessment of credit flows and would limit
the utility of the rule. A community group claimed that the proposed
rule acknowledged, but did not justify, the loss of benefits associated
with the proposed rule including a loss of fair lending benefits,
reduction in community development benefits, as well as benefits
associated with the coverage of certain financing markets and lenders.
One community group stated that the proposed rule's discussion of
the history of HMDA was a misguided basis for the Bureau's longer-term,
incremental approach to data collection. The commenter stated that HMDA
implementation demonstrated that even small lenders can comply with
data collection requirements, and that the market is stronger for data
transparency. The commenter also asserted that while HMDA expanded over
time, section 1071 does not require iteration because Congress learned
from its decades of experience with HMDA. Another community group
stated that the proposed revisions were not supported by evidence; by
contrast, the commenter stated that HMDA's evolution provided 50 years
of lessons to be learned that were embedded in the 2023 final rule.
A community group claimed that the Bureau repeatedly cited
unsubstantiated comments justifying the proposed rule, arguing that
where the Bureau referred to stakeholder feedback, it had met with
groups with special access. The

[[Page 23535]]

commenter also argued that the Bureau cannot use an Executive Order as
justification to override a statutory mandate. The commenter finally
provided a lengthy list of specific communities--including non-profit
organizations, advocacy groups, community lenders and others--that it
argued would be harmed by the lack of data.
The commenter further argued that frequent changes to regulations
would depress economic output; regulatory uncertainty leads lenders to
be overly cautious, leading them to restrict credit access. An advocacy
group argued that smaller lenders tend to pull back when regulatory
standards are unclear or overly expansive.
Responses to Comments Received
With regard to concerns expressed regarding the remaining
requirements of the rule, the Bureau has attempted to reduce
unnecessary costs or complexity as much as possible while still
complying with the statutory mandate provided by section 1071. The
Bureau also notes, in response to a commenter, that rescinding the 2023
final rule entirely would be impracticable.
The Bureau does not believe that incremental expansion of the rule
in the future would lead to regulatory uncertainty. The Bureau intends
to consider any future expansion carefully, with sufficient advance
notice to avoid regulatory uncertainty.
In response to comments stating that lending discrimination is
ongoing, the Bureau notes that the data cited by commenters are
consistent with data cited in the 2023 final rule. The Bureau disagrees
that this information requires the Bureau to pursue an immediate and
maximalist approach to data collection to comply with section 1071. As
the Bureau has noted before, such a position may have the effect of
discouraging lending, including to those populations described by
commenters, or the collection of accurate data generally, to the extent
that lenders face cost and complexity that could have been avoided
under a more gradual, longer-term approach to a new data collection.
The Bureau also disagrees that that the collection of less data in
the short term necessarily undermines fair lending laws. The Bureau
notes that the revisions in this final rule are intended to result in a
fuller, higher-quality collection of data in the longer term with a
minimum of disruption to the small business lending markets. Nothing in
the text or history of section 1071 requires the Bureau to pursue a
maximalist collection of data in the short term, regardless of the
consequences of such a program on smaller lenders. The Bureau believes
based on comments received and its experience with small business
lending that caution at the start of this data collection is both
warranted and appropriate.
With regard to the comment that the Bureau should focus on non-rule
policies to reduce burden on lenders, rather than revising the rule,
the Bureau believes that this is a false dichotomy. The Bureau intends
to assist covered financial institutions with implementation planning
outside of the rule. The Bureau believes that its definitions are
sufficiently clear for operational purposes. The Bureau notes that its
long-term approach to section 1071 is a type of sequencing, as
characterized by the commenter. The Bureau disagrees that it should
first collect data under the 2023 final rule and then revise the rule
based on that data. The Bureau is concerned that the initial cost and
complexity imposed on smaller lenders and those not experienced with
similar data collection regimes may cause avoidable and irreversible
harm.
The Bureau agrees in principle with comments that under section
1071, all else equal, there are benefits to collecting more data rather
than less. The Bureau disagrees that this general principle means that
the immediate collection of the most data possible is beneficial, for
the reasons stated above; the Bureau believes that there is a risk that
such an approach would disrupt credit access, and may cause lenders to
reconsider participation in the small business lending markets, as
comments from industry have stated. The Bureau disagrees that it should
collect data from non-core lenders in the short term at the start of
this data collection. While data analysis may help account for
differences between such lenders and core lenders, the Bureau
reiterates its concerns that the rule may impact such non-core lenders
if required to comply in the short term. The Bureau believes that data
collected from core lenders, on core products, may help guide and ease
compliance for non-core lenders and products in the longer term.
The Bureau disagrees with commenters that the proposal undermines
the statutory purposes of section 1071. The Bureau again believes that
this position, taken by various commenters, assumes that section 1071
on its face requires an immediate collection of the most data possible
without regard to the practical consequences of doing so. Further,
these commenters characterize data collection under the proposed
revisions as if they would result in the collection of no data, rather
than the Bureau's estimates that the revised rule would result in the
collection of 92 to 93 percent of small business loans by depository
institutions. By contrast, the Bureau estimated that the 2023 final
rule would result in the collection of approximately 94 to 95 percent
of small business credit transactions.
Regarding one commenter's assertion that there was no evidence of a
plan to reassess the rule in the future, the Bureau stated in the
proposed rule that it would review data received and continue to
observe the small business lending markets to determine whether and how
to expand coverage of the rule in the future. There are also several
other mechanisms that represent natural points for the Bureau to
reassess the rule, including the inflation adjustment to the small
business definition under Sec. 1002.106(b)(2) occurring every five
years, as well as the statutory requirement under Dodd-Frank Act
section 1022(d) that requires a retrospective assessment of a
significant rule five years after the effective date.
Regarding comments asserting that the proposal acknowledged, but
did not justify, the loss of benefits associated with the proposed
revisions, the Bureau disagrees. The preamble to the proposed rule is
forthright in acknowledging the potential value of certain data that
the Bureau has determined not to collect initially, but balances this
against the cost and complexity of including such requirements at the
start of this long-term data collection regime.
The Bureau disagrees that its discussion of the history of HMDA is
a misguided basis for the proposal's incremental, longer-term approach
to data collection. The Bureau is not persuaded by comments that the
market's specific experience with HMDA has prepared small lenders to
comply with section 1071 immediately; commenters stated the contrary,
that either they have little or no experience with HMDA. As many
commenters have noted, mortgage lending is different from the varied
market in small business credit; many lenders that submitted comments
stated that they are not HMDA-filers and have no previous experience in
complying with any data collection rules.
The broader understanding the Bureau takes from its HMDA experience
is that there is a learning curve to any new data collection
requirement. In this sense, the experience that lenders, borrowers, and
regulators have had with HMDA suggests that it is more prudent to start
modestly and later expand a data collection rule than to start
immediately

[[Page 23536]]

with the broadest possible rule. While the rule will result in costs
and operational complexity for covered financial institutions, the
manner and speed with which the requirements are implemented, based on
the Bureau's experience and from feedback, matters immensely.
The Bureau disagrees that it cited unsubstantiated comments
justifying the proposed rule. Since the release of the 2023 final rule,
much of the commentary on the requirements of that rule have been
entirely public in the form of submissions to the Bureau and
publications on stakeholder websites, as well as formal submissions in
litigation challenging the 2023 final rule.
The Bureau disagrees with the assertion that it is using Executive
Orders to override a statutory mandate. The Bureau's revisions do not
override statutory requirements but, rather, comply with the
requirements of section 1071. In any case the revisions to the rule
that reference their consistency with Executive Orders are justified on
other independent grounds, as explained below in passages discussing
different Executive Orders.
The Bureau agrees in principle with the commenter that frequent
changes to regulations may depress economic output. The Bureau notes,
however, that final rule revises regulatory provisions that lenders
have not yet had to comply with; one of the purpose of these revisions
is to minimize burdens at the start of this longer-term data collection
and to avoid depressing economic output. The Bureau intends to consider
any future revisions to the rule carefully and to implement them in a
manner intended to reduce regulatory uncertainty and maintain credit
access. The Bureau agrees with the same commenter that it should
provide early and comprehensive technical compliance resources,
including filing instructions, and other materials, well before the
compliance date.

C. Comment Period Comments

In the NPRM, the Bureau provided a 30-day comment period for the
public to review and submit feedback on the proposed revisions to the
section 1071 regulatory framework.
The Bureau received a number of comments requesting an extension of
the 30-day comment period from a variety of stakeholders, including
banks, community groups, and individuals.
Most of the commenters requesting an extension asked for an
additional 60 days. One bank requested an additional 90 days, and two
individual commenters requested an extension without specifying a
timeframe.
Many of these commenters argued that 30 days was an insufficient
amount of time to determine the proposal's impacts and provide
meaningful feedback. Commenters pointed to the complexity and
significance of the proposal, asserting that it was lengthy, differed
significantly from the existing regulation, and contained issues that,
they said, the Bureau had never before proposed or sought comment on.
One bank specifically requested a 90-day extension to update the
financial impact analysis it had conducted for the initial 2023 final
rule, stating it needed more time for data collection and analysis to
better inform the final rule.
Several commenters contrasted the 30-day period with the Bureau's
past practices regarding the process leading up to the 2023 final rule,
which included a robust SBREFA consultation process and public comment
on the Bureau's Outline of Proposals Under Consideration, along with a
90-day comment period on the 2021 proposed rule (with some commenters
noting stakeholders actually had 120 days to review the 2021 proposed
rule because it was posted on the Bureau's website 30 days prior to
publication in the Federal Register). One commenter expressed specific
concern that the Bureau chose to forgo a new SBREFA process for this
rulemaking. A few commenters stated that the Administrative Procedure
Act (APA) and E.O. 13563 require agencies to afford the public a
meaningful opportunity to participate in the regulatory process, with
one commenter asserting that this generally requires a comment period
of at least 60 days.
Commenters also cited logistical challenges making the 30-day
deadline difficult to meet. Many commenters highlighted that the Bureau
simultaneously issued a separate Regulation B proposal subject to the
same 30-day deadline, stressing that it was difficult to delve into
both complex proposals since they required review by many of the same
organizational stakeholders and experts. Additionally, many commenters
pointed out that the Thanksgiving and winter holidays fell within or
immediately followed the comment period.
Commenters raised special concerns regarding the comment period's
impact on certain types of stakeholders. Specifically, commenters
suggested the short deadline was particularly challenging for
community-based organizations that needed time to develop community-
informed comments; trade associations that required time to
meaningfully consult with their member banks to provide robust and
granular feedback; and small or public-interest organizations that lack
the resources to turn around complex analyses quickly.
Finally, one commenter asserted that the short comment period--
combined with the simultaneous Regulation B proposal and the holiday
timing--demonstrated the Bureau's disinterest in receiving and fully
considering public comments. The commenter also suggested that the
timeline indicated the Bureau was ready to ignore the full weight of
the public record and its own detailed analysis leading up to the 2023
final rule.
For the reasons set forth below, the Bureau concludes the 30-day
period provided in the proposed rule was sufficient.
The Bureau disagrees with commenters who argued that the 30-day
timeframe was too short to allow for meaningful feedback or a thorough
analysis of impacts, including the specific request for a 90-day
extension to update a financial impact analysis. The issues raised in
this rulemaking build upon a well-established foundation, familiar to
the stakeholders who commented on this rule. The public has had a
substantial amount of time to consider the core concepts of the section
1071 data collection regime across a multi-year, iterative process.
This process has included the 2017 Request for Information, the 2020
SBREFA process, the 2021 proposed rule, and the 2023 final rule itself.
Many commenters, including those opposed to the proposed revisions,
reiterated many of the things they had said in prior comment letters,
precisely because they had familiarity with many, if not most, of the
issues raised by the 2025 proposed rule. The comment letters that the
Bureau received, both in support of and in opposition to the proposed
revisions to the rule, were detailed and appeared to have considered
the proposal carefully and comprehensively.
For this same reason, and because this rulemaking largely proposes
burden-reducing exemptions and clarifications rather than a new
regulatory framework from the ground up, the Bureau determines that a
new SBREFA process is neither required nor necessary. In addition, the
SBA Office of Advocacy has given the Bureau a waiver from the
requirement to conduct a SBREFA Panel for purposes of this rulemaking
because the Bureau had already conducted a panel in advance of the 2023
final rule, as described below in part VII.
While the occurrence of the Thanksgiving and winter holidays may
have placed competing demands on commenters' time, the Bureau
reiterates

[[Page 23537]]

that the quality and quantity of comments it received confirms that
commenters had sufficient time to consider and address material issues
in the proposal.
The Bureau disagrees that this timing, the concurrent publication
of a separate Regulation B proposal, or the 30-day period itself,
signaled a lack of interest in receiving and fully considering public
feedback or an intent to ignore the full weight of the public record
and its own detailed analysis leading up to the 2023 final rule. The
Bureau does not agree that the concurrent Regulation B proposal limited
commenters' ability to respond, because the topics of the two
rulemakings were very different; while this rulemaking focuses on small
business lending data collection under section 1071, the other proposal
addressed aspects of ECOA related to its discrimination prohibition,
specifically disparate impact, discriminatory discouragement of
applications, and special purpose credit programs. To the contrary, the
APA requires agencies to provide the public with a meaningful
opportunity to participate in the regulatory process, but it does not
mandate a minimum 60-day or 90-day comment period. The Bureau
determines that 30 days provided a meaningful opportunity to comment
under both the APA and all relevant E.O.s, including E.O. 13563,
particularly given the targeted nature of the proposal and the
extensive historical context surrounding the rule.
Furthermore, the Bureau's review of the rulemaking docket confirms
that the 30-day period was sufficient for robust public participation.
In total, the Bureau received approximately 410 comments on the
proposal. The Bureau notes that many of the entities that submitted
requests for an extension successfully submitted substantive, detailed
comments on the proposal within the 30-day window. The Bureau has
carefully reviewed all of these comments and utilized them to inform
this final rule, demonstrating that the comment period provided an
adequate and meaningful opportunity for public participation.

D. Section 1002.104--Covered Credit Transactions and Excluded
Transactions

The Bureau finds that at the onset of data collection under section
1071, the rule should focus on core, generally applicable lending
products that are most likely to be foundational to small businesses'
formation and operation--loans, lines of credit, and credit cards--
before determining whether to expand the scope of the rule to include
more niche or specialty lending products. This final rule therefore
excludes MCAs, agricultural lending, and small dollar loans from the
definition of covered credit transaction to better ensure the smooth
operation of the initial period of data collection, while minimizing
disruptions and regulatory complexity in the credit markets subject to
section 1071.
A trade association representing community banks opposed the
Bureau's proposed exclusions, characterizing the exclusion of non-core
lending products as ``loopholes'' that the Bureau should close. The
commenter argued that small businesses--particularly those with limited
access to traditional financing--frequently rely on non-traditional
forms of credit, and that their exclusion would permit abuse and
borrower dissatisfaction to go undetected in these less-regulated
markets. Furthermore, the commenter asserted that such exclusions would
give lightly regulated lenders a competitive advantage over community
banks, which it described as unquestionably trusted small business
lenders, potentially pushing borrowers toward what it characterized as
more dangerous creditors. The commenter suggested that if the Bureau
retains the exclusions, it should commit to monitoring the market with
the intention of removing them at a later date.
The Bureau disagrees that these exclusions constitute ``loopholes''
that will harm small business borrowers. As discussed in the 2025
proposed rule and as confirmed in this final rule, the Bureau is
adopting an incremental approach to coverage that focuses on core
lending products that are most foundational to small business
operations. The Bureau believes that this approach, at the inception of
this data collection regime, appropriately balances the benefits of
data collection with the need to minimize market disruption and
regulatory complexity. The Bureau may revisit the scope of its coverage
of credit products in future rulemakings.
1002.104(b)(7)--Merchant Cash Advance
Proposed Rule
Existing Sec. 1002.104(a) defines a ``covered credit transaction''
as ``an extension of business credit that is not an excluded
transaction under paragraph (b) of this section.'' Section
1002.104(b)(1)-(6) enumerates six types of transactions that are
excluded from covered credit extensions. The Bureau proposed to add
MCAs to the list of excluded transactions in Sec. 1002.104(b).
Proposed Sec. 1002.104(b)(7) would exclude MCAs, which it would define
as an agreement under which a small business receives a lump-sum
payment in exchange for the right to receive a percentage of the small
business's future sales or income up to a ceiling amount. Consistent
with this proposed new exclusion, the Bureau also proposed deleting
several references to MCAs, and the related term sales-based financing,
in commentary.
Comments Received
The Bureau received many comments on several aspects of the
proposal concerning MCAs from a wide range of lenders, trade
associations, business advocacy groups, community groups, and
individuals. The Bureau previously observed that, throughout the
development of the rule to implement section 1071, MCAs had been the
focus of significant attention and a unique source of near-consensus
among a diverse array of stakeholders--almost all of whom advocated for
covering MCAs except for MCA providers themselves and some trade
associations representing MCA providers. Comments received in response
to the recent NPRM were slightly different in that commenters
supporting the exclusion from the rule also consisted of a few
community banks and a research advocacy organization in addition to MCA
providers and nonprofit trade associations. These commenters argued
that MCAs do not meet the definition of credit under ECOA or State law.
Conversely, many other commenters, including community groups, trade
associations, and lenders urged the inclusion of MCAs in order to
effectively monitor the small business credit market and facilitate
fair lending enforcement. Below is a more detailed summary of comments
grouped by topic.
Comparison of MCAs to Traditional Lending Products and the Growth
of MCAs. In response to the request for comments on the extent to which
MCAs differ from or resemble traditional lending products, several
community banks asserted that there was limited comparability between
MCAs and traditional loans. Some of these commenters explained that the
exclusion of MCAs is appropriate given their unique structures and
underwriting characteristics. A trade association for MCA providers
supported the Bureau's focus on core lenders, asserting that the
coverage of MCAs would not produce data promoting the statutory
purposes of section 1071, given that MCAs are structured differently.
The commenter

[[Page 23538]]

also observed that covering MCAs would be of limited utility given
their small share of small business finance, relative to the hundreds
of billions of dollars in traditional loans.
Several commenters disagreed with the Bureau's focus on core
lenders as justification for excluding MCAs. Community groups argued
that MCAs should be covered because their originations have grown
exponentially, they are no longer marginal products, and small
businesses are commonly exposed to them via advertising. One commenter
estimated that volume of MCAs would grow from $18 billion in 2024 to
$25 billion by 2029; a small business trade association estimated that
MCA volume would grow from $19.7 billion in 2024 to $32.7 billion by
2032. Both commenters, as a result, argued that covering MCAs is
necessary to be consistent with the statutory purposes of section 1071.
One community group noted that while MCAs function differently from
traditional loans, such differences would not preclude data
comparability. For instance, the commenter noted that a standard MCA
contract contains enough information to calculate an estimated annual
percentage rate.
A small business trade association asserted that the proposed
exclusion of MCAs would harm the financial health of small businesses
and obscure from policymakers and industry stakeholders the predatory
and high-cost nature of these products. This commenter argued that MCAs
operate with little Federal oversight and harm small businesses, as
evidenced by opaque pricing terms used by many financing companies that
conceal the full cost of MCA products instead of displaying the annual
percentage rate (APR). Further, the commenter stated the MCA industry
has faced backlash from government entities, stating that, for
instance, SBA 7(a) loans may not be used directly to refinance MCA debt
because of the damaging nature of high-cost MCA products that often
leave small firms with no choice but to restructure or refinance to
retain or improve their credit history. The commenter further stated
that, because of the absence of any regulation requiring data on the
MCA industry and the unwillingness of certain government guaranteed
lenders to refinance small businesses with MCAs, small businesses will
feel the impact by facing the difficult decision to close their doors
or declare bankruptcy.
A community group cited the 2024 Federal Reserve Small Business
Credit Survey indicating that 9 percent of reporting small businesses
applied for an MCA and that medium- and high-risk applicants were much
more likely than low-risk applicants to apply for financing at online
lenders. This commenter also stated that applicants that seek financing
from online lenders were more likely than applicants to other sources
to experience challenges with their lenders. The commenter argued that
confirming the prevalence of MCA lending in certain markets will
further the statutory purposes of section 1071 and provide valuable
data to policymakers and lenders about small business community
development needs, including concerns about potentially detrimental and
discriminatory lending.
Other feedback on MCA data reporting. Several trade associations
and community banks supported the proposed exclusion of MCAs coverage
under this rule, praising the Bureau's commitment to a practical
implementation approach that will have a positive impact on data
integrity and reporting. A community bank asserted that excluding MCAs
makes the dataset more relevant and reduces unnecessary reporting.
Another community bank stated that excluding MCAs allows more
actionable and relevant data collection aligned with the core intent of
section 1071. One trade association suggested that the exclusion of
MCAs recognizes practical operational realities, and that MCAs are less
likely to generate comparable data for section 1071 analyses.
A trade association for MCA providers asserted that subjecting MCAs
to the rule would be especially costly and impractical because of how
MCAs are structured. This commenter predicted that implementing
tracking systems under the rule would require costly programming
upgrades and adjustments to MCA systems that might force smaller MCA
providers to exit the industry, resulting in a less competitive markets
dominated by larger funders and higher costs for MCA users.
An advocacy group supported excluding MCAs from coverage to avoid
unnecessary complexity and disruptions in lending markets. This
commenter asserted that including novel or specialized financing
structures in the earliest round of data collection risks undermining
both data quality and market stability. For example, the commenter said
that MCAs differ fundamentally from conventional extensions of credit
in structure, risk allocation, and repayment mechanics since pricing
mechanisms are often tied to receivables rather than interest rates,
underwriting focuses on future cash-flow volatility, and legal
treatment varies significantly under State law.
By contrast, other community groups, trade associations, and a
business advocacy group maintained that exclusion will create a blind
spot in the data, obscure risks to small business borrowers, and reduce
market transparency. A trade association asserted that excluding these
transactions undermines the statutory purposes of section 1071 and
risks perpetuating inequities in credit access since alternate lenders,
such as MCA providers, frequently serve more vulnerable businesses that
cannot qualify for conventional loans. A trade association representing
CDFIs urged the Bureau to retain broad product coverage to support
effective enforcement and sound policy analysis, especially given that
the MCA market plays a substantial role in the financing outcomes of
minority-owned firms. It also noted that a failure to cover them would
constrain the Bureau's ability to assess pricing structures, repayment
burdens, and other features relevant to fair lending analysis.
A trade association representing small businesses suggested
excluding MCAs contradicts the proposed rule's own data quality
rationale. Specifically, this commenter explained that the Bureau
justifies many of its proposed changes by citing concerns that complex
requirements might yield poor-quality data from smaller, less-resourced
lenders. The commenter argues that this logic does not support
excluding MCAs because MCA providers typically have advanced
underwriting algorithms that already collect demographic-like data, use
automated systems that could easily be adapted for data reporting, and
are generally larger and better-resourced than many small lenders. This
commenter claimed that excluding MCAs would eliminate oversight of a
growing alternative finance sector with no regulatory oversight,
without reducing compliance burden on traditional lenders requesting
relief.
MCAs and the ECOA definition of credit. A trade association for
credit unions and a business trade association expressed uncertainty
about whether MCAs constitute ``credit'' under ECOA but urged the
Bureau to finalize the proposed exclusion of MCAs. A fintech trade
association supporting the exclusion also claimed that MCAs do not meet
the definition of ``credit'' consistent with their longstanding
treatment as purchases of future receivables. A trade association
representing MCA providers asked the Bureau to clarify in the preamble
that MCAs are not ``credit'' under ECOA, arguing that MCAs do not
involve debt, do not confer a right to defer payment,

[[Page 23539]]

and are not loans, and that MCA funders have reliance interests in the
Bureau's purportedly longstanding interpretation that MCAs are not
``credit.''
Two bank trade associations stated that MCAs should be covered
because they do constitute credit under ECOA, even if they are
structured differently than traditional loans. These commenters argued
that unlike with factoring, the small business must repay the MCA
provider for the advance out of future revenue. The commenters also
stated that if there were some MCAs that would not meet the definition
of credit, the Bureau should limit the exclusion to those specific MCAs
as this would create a more level playing field across institutions
that provide financing to small businesses, and create a data set that
better reflects demand for small business financing.
State Laws and MCAs. A trade association representing MCA providers
and an advocacy group agreed with the proposal that the MCA exclusion
would not render MCA financing unregulated because of State law
developments in sales-based financing. The trade association also
asserted that State-level disclosure regimes impose transparency
obligations tailored to these products which decreases the risk of
unfair or deceptive practices. The commenter also stressed how, in
light of growing State regulations on MCA financing, a final rule
implementing section 1071 that imposes more Federal requirements could
result in duplicative and conflicting laws that spread confusion
regarding compliance.
A community group stated that the proposal's discussion of State
regulation of MCAs reflected the Bureau's misunderstanding of the
purpose of State laws regulating MCAs and their impact on the 1071
rule, arguing that instead such laws reflect concern about the
pervasiveness of MCA lending and the impact on small businesses, and
that they justify inclusion of MCAs in the final rule. The commenter
further asserted that Congress did not require collection of 1071 data
contingent on whether States regulate the product or not, and that in
the period since the 2023 final rule was issued, few States
substantively regulate MCAs and these State laws cannot reasonably be
cited as a changed circumstance that justifies a substantial rewrite to
the rule. Lastly, this commenter disagreed with the Bureau's contention
that high costs and predatory practices in the MCA market could be
addressed by Federal and State law enforcement agencies.
Final Rule
The Bureau is finalizing its proposal to add MCAs to the list of
excluded transactions under Sec. 1002.104(b). Final Sec. 1002.104(a)
defines a ``covered credit transaction'' as an extension of business
credit that is not an excluded transaction under Sec. 1002.104(b).
Section 1002.104(b) enumerates types of transactions that are excluded
from the definition of a covered credit transaction. The Bureau is
adding MCAs to the list of excluded transactions in Sec. 1002.104(b).
Final Sec. 1002.104(b)(7) excludes MCAs, which are defined as
agreements under which a small business receives a lump-sum payment in
exchange for the right to receive a percentage of the small business's
future sales or income up to a ceiling amount.\25\ Consistent with this
new exclusion, the Bureau also is deleting several references to MCAs,
and the related term sales-based financing, in commentary.
---------------------------------------------------------------------------

\25\ See R.&R. on Cross Mots. for Summ. J. at 4, Revenue Based
Fin. Coal. v. CFPB, No. 1:23-CV-24882-DSL (S.D. Fla. Feb. 17, 2025).
---------------------------------------------------------------------------

In the 2023 final rule, the Bureau declined to exclude MCAs from
its definition of a ``covered credit transaction.'' It explained its
belief that the statutory term ``credit'' in ECOA is intentionally
broad so as to include a wide variety of products without specifically
identifying any particular product by name, such that all credit
products should be included in the rule unless the Bureau specifically
excluded them and concluded that ``credit'' encompasses MCAs. It
further explained that MCAs should not be understood to constitute
factoring within the meaning of the existing commentary to Regulation B
subpart A or the definition it was including as comment 104(b)-1,
because factoring involves entities selling an existing legal right to
payment from a third party, while no such contemporaneous right exists
in an MCA. The Bureau also noted its understanding that, as a practical
matter, MCAs are underwritten and function like a typical loan (i.e.,
underwriting of the recipient of the funds; repayment that functionally
comes from the recipient's own accounts rather than from a third party;
repayment of the advance itself plus additional amounts akin to
interest; and, at least for some subset of MCAs, repayment in regular
intervals over a predictable period of time), although it also
implicitly acknowledged practical differences between MCAs and
conventional loans by including numerous provisions intended to capture
MCA-specific data.
Upon further consideration and in light of the comments received,
the Bureau believes it would be consistent with the purposes of section
1071 to exclude MCAs from the definition of ``covered credit
transaction'' under Sec. 1002.104(a). The Bureau agrees with
commenters who stated that monitoring the growth and development of
MCAs will generate a stronger policy record to determine whether and
how MCA products should be integrated into Federal data collection
requirements in the future. For the reasons outlined below, the Bureau
believes it advances the purposes of section 1071 at this time to
exclude MCAs from the definition of covered credit transaction, and to
focus on ensuring the smooth operation of data collection as to core
lending products and providers most likely to be foundational to small
businesses' formation and operation.
The Bureau believes that at the onset of the data collection under
section 1071 the focus should be on core lenders and products before
the Bureau considers expanding the scope of the rule. The CFPB believes
it would advance the purposes of section 1071 at this time to exclude
MCAs from the definition of covered credit transaction, and to focus on
ensuring the smooth operation of data collection as to core lending
products and providers most likely to be foundational to small
businesses' formation and operation.
The Bureau believes it erred in the 2023 final rule by prematurely
determining that collection of data on MCA transactions would serve
section 1071's statutory purposes by concluding that all MCAs
constitute credit. The 2023 final rule's one-size-fits-all approach did
not take into account the varied terms and features of MCAs across the
market that may be relevant to whether the products meet the definition
of ``credit'' under ECOA, nor did it account for the fact that MCAs are
relatively new products whose features and practices may be evolving,
including in response to State regulation. Moreover, while some State
courts have analyzed whether some MCAs meet State law definitions of
``debt'' or ``credit,'' there is a dearth of case law analyzing whether
MCAs meet ECOA's definition of ``credit.''
Excluding MCAs from the definition of ``covered credit
transaction'' is consistent with the way the Bureau has already treated
leases, which also present close questions as to whether they meet the
definition of ``credit'' under ECOA. In the 2023 final rule's

[[Page 23540]]

analysis of leases,\26\ the CFPB acknowledged that some lease
transactions could constitute ``credit.'' But rather than include all
lease transactions in the 2023 final rule to ensure coverage of those
leases that did actually constitute credit the CFPB determined that it
would be able to monitor the market for such products without including
them in the 2023 final rule. The CFPB is now taking a similar approach
to MCA transactions as it did to leases.
---------------------------------------------------------------------------

\26\ See, e.g., 88 FR 35150, 35240 (May 31, 2023). (``The Bureau
is not covering leases under this final rule, as requested by some
commenters. The Bureau agrees that some business leases are
structured like loans and other credit but notes that a commenter's
example of a small business being able to retain leased equipment is
an example of the creation of a security interest, not a lease under
final comment 104(b)-2.''); id. (``The Bureau appreciates
commenters' concerns that not covering leases could open a door to
potential evasion and lead to data gaps or fair lending problems.
The Bureau believes that it can observe the small business financing
market for such abuses and prevent them without including all leases
in the rule. For example, in considering financial institutions'
compliance with the rule, the Bureau intends to closely scrutinize
transactions to ensure that companies are appropriately categorizing
and reporting products as required by section 1071.'').
---------------------------------------------------------------------------

The Bureau also concludes that the 2023 final rule's coverage of
MCAs did not take into account State law developments addressing sales-
based financing. Several States have legislation and/or regulations in
place addressing the MCA market and requiring providers to disclose
terms such as the total cost of capital and the financing rate. The
Bureau understands that such laws provide key protections for users of
MCAs and may shape MCA terms and practices in ways that bear on the
question of whether they meet ECOA's definition of ``credit.'' \27\
While the 2023 final rule referenced these pieces of State legislation,
it did not consider the extent to which the evolving landscape under
State law rendered premature a determination that including MCAs in the
definition of ``covered credit transaction'' for purposes of mandating
data collection furthered section 1071's statutory purposes.
---------------------------------------------------------------------------

\27\ See, e.g., Conn. Pub. Act 23-201, Conn. Gen. Stat. sec.
36a-861 et seq. (2024) (creating a disclosure regime specific to MCA
and other sales-based financing transactions); Va. Code Ann. sec.
6.2-2230 et seq. (imposing licensing and disclosure requirements);
Utah Commercial Financial Registration and Disclosure Act, Utah Code
Ann. sec. 7-27-102 and 7-27-202 (imposing licensing and disclosure
requirements).
---------------------------------------------------------------------------

Comparison to Traditional Lending Products and the Growth of MCAs.
In response to the request for comments on whether and how much MCAs
differ from or resemble traditional lending products, the Bureau agrees
with community banks asserting that MCAs are structured differently
from traditional loans. The Bureau also agrees that they make up a
small share of small business financing overall. The Bureau does not
believe that these alone are sufficient to exclude MCAs from the rule.
The Bureau determines, however, at the onset of this long-term data
collection program that it is prudent not to cover MCAs at this time.
The Bureau acknowledges comments noting the rapid growth of MCAs
and the wide exposure small businesses have to such products, but
disagrees that this gives rise to an immediate necessity of covering
MCAs. The Bureau recognizes that MCA data may be comparable with
traditional loan data in that an estimated annual percentage rate can
be calculated, but the Bureau does not agree that the calculation of an
estimated APR resolves the question of whether all MCAs can or should
be covered under section 1071.
The Bureau acknowledges commenter concerns that MCAs may harm the
financial health of small businesses, including that government lenders
will not refinance small businesses that have taken out MCAs, and that
more data might help policymakers and industry stakeholders identify
predatory and high-cost products. The Bureau also acknowledges the
Federal Reserve survey data noting that many small businesses are
familiar with and have applied for MCAs, and more often that it was
medium- and high-risk applicants that did so. The Bureau further does
not dispute that additional data on the prevalence of MCA financing may
help policymakers and lenders understand small business community
development needs, including concerns about potentially detrimental and
discriminatory financings.
However, the Bureau does not necessarily agree with the conclusions
of commenters that either MCAs must all be excluded from the rule on
the grounds that none of them are credit or that they must all be
covered by the rule on the grounds that all of them are credit. The
Bureau further disagrees with the conclusion commenters draw from their
observations regarding current MCA market dynamics, including that
because of their growth and impact amongst small business lenders, the
Bureau must collect data on all MCAs.
These observations do suggest, however, that it would be useful for
the Bureau to continue monitoring the MCA market going forward. In any
case, the Bureau reaffirms its determination that, while data cited by
commenters suggests that nine percent of small businesses apply for
MCAs, they are not yet a core product that should be covered at the
onset of this long-term data collection program.
Other feedback on MCA data reporting. The Bureau disagrees with the
assertion that subjecting MCAs to the rule would be any more costly or
impractical than covering loans simply because of how MCAs are
structured. The Bureau observes that the implementation of any
compliance systems may be less costly to certain MCA providers in
markets that are covered by State compliance or data collection
obligations.
The Bureau agrees that MCAs should be excluded from the definition
of a ``covered credit transaction,'' at least at the onset of this
long-term data collection regime, to avoid unnecessary complexity and
disruption in lending markets. The Bureau agrees fully that including
novel or specialized financing structures in the earliest round of data
collection risks undermining both data quality and market stability as
to these products.
The Bureau acknowledges the concern by some commenters that
excluding MCAs may obscure risks to small business that use MCAs and
reduce market transparency. The Bureau further acknowledges comments
that MCA providers frequently serve more vulnerable businesses that
cannot obtain conventional loans. The Bureau agrees that MCAs may play
a substantial role for many minority-owned firms. However, the Bureau
returns to the predicate issue of whether it was appropriate in the
2023 rule for the Bureau to broadly conclude that all MCAs, regardless
of their particular terms and features, meet ECOA's definition of
``credit.'' Given the difficulty of this determination, and the lack of
clear resolution on this issue based on comments received, the Bureau
believes it is prudent not to require the collection of data on MCAs at
the onset of this data collection regime.
The Bureau disagrees that excluding MCAs necessarily contradicts
the proposed rule's data quality rationale. Based on comments received,
while some MCA providers may be well-positioned to provide data because
they already comply with State laws or regulation requiring data
collection and reporting. The same comments also suggest, however, that
some MCA providers, more often but not necessarily smaller ones, have
no such compliance infrastructure in place. These questions, however,
appear to address the manner of implementing any data collection
regime, assuming

[[Page 23541]]

that the transactions at issue are ones that Bureau has authority to
collect data on under section 1071.
MCAs and the ECOA definition of credit. The Bureau disagrees with
the assertions of certain commenters that MCAs are categorically not
credit. The Bureau also disagrees with categorical attempts to exclude
MCAs from the definition of credit, including on the grounds that they
should be treated as simply a purchase of future receivables.\28\ There
is evidence provided by commenters that in certain instances, MCAs in
practice do involve debt, confer a right to payment, and are loans.
Commenters also provided evidence that in many instances MCA providers
are seeking recourse against the natural person owners of a small
business that no longer has revenue. The Bureau also disagrees that MCA
providers have a reliance interest in the purportedly longstanding
interpretation that MCAs do not constitute credit; the 2023 final rule
stated that all MCA transactions constitute credit. The Bureau also
disagrees with the assertion that all MCAs should be covered as credit
under ECOA. The Bureau believes that certain MCAs may have some
features resembling factoring in certain circumstances.
---------------------------------------------------------------------------

\28\ The 2023 final rule refers to a joint letter from community
and business advocacy groups who explained that that merchant cash
advances are distinct from factoring in that a genuine factoring
transaction creates a completed sale of receivables owed to the
seller as a result of goods delivered or services provided by the
seller to a third party. 88 FR 35150 at 35222.
---------------------------------------------------------------------------

The Bureau determines, however, that it has not found information
in the comments it has received that would help in developing a clear,
bright-line definition separating MCAs that constitute credit from
those that do not. The Bureau believes, as a result, that further
analysis is required to determine what subset of MCAs constitute credit
for purposes of ECOA.
State laws and MCAs. The Bureau acknowledges comments that
exclusion of MCAs from this rule would not render MCA financing
unregulated because of State law developments in sales-based financing.
The Bureau also acknowledges that State-level disclosure regimes help
impose transparency obligations tailored to MCAs, potentially reducing
the risk of unfair or deceptive practices, and that coverage under this
rule may give rise to duplicative efforts.
The Bureau believes the discussion on whether MCAs are credit and
the connection to State laws developments is misplaced. The Bureau
solicited comment on State laws and regulations to understand whether
their categorization of MCAs generally, or of certain MCAs, meet the
criteria of ECOA credit and coverage under this rule. Many States
regulate MCAs, describing them as financings without addressing
directly whether such products are credit or not.
The Bureau believes that, taking into account the factors listed
above, the relative novelty and evolving landscape of the MCA industry
and the ongoing changes at the State level concerning the regulation of
MCAs, excluding MCA transactions from coverage under the rule at this
time is necessary and appropriate to carry out the purposes of section
1071. As explained above, MCAs differ in kind from traditional lending
products, such that collecting data on MCA transactions under section
1071 may not produce information that is comparable to data collected
on other types of transactions. And because MCAs have not been widely
regulated, many smaller MCA providers may lack the infrastructure
needed to manage compliance with regulatory requirements. Taken
together, requiring MCAs to be reported could lead to data quality
issues, which would not advance the purposes of section 1071.
While the 2023 final rule and commenters cited concerns about high
costs and predatory practices in the MCA market,\29\ the Bureau
continues to believe those concerns may be addressed by Federal and
State law enforcement agencies through their respective enforcement
authorities.
---------------------------------------------------------------------------

\29\ At the same time the Bureau acknowledged that ``information
on merchant cash advance lending volume and practices is limited.''
88 FR 35150 at 35220.
---------------------------------------------------------------------------

The CFPB will continue to monitor developments in the markets for
MCAs and other sales-based financing to determine whether, over time,
sufficient evidence might become available to allow a subset to be
appropriately included in the definition of ``covered credit
transaction'' for purposes of data collection.
1002.104(b)(8)--Agricultural Lending
Proposed Rule
The Bureau proposed to add agricultural lending to the list of
excluded transactions under Sec. 1002.104(b). The Bureau proposed new
Sec. 1002.104(b)(8), which would define agricultural lending as a
transaction to fund the production of crops, fruits, vegetables, and
livestock, or to fund the purchase or refinance of capital assets such
as farmland, machinery and equipment, breeder livestock, and farm real
estate improvements. Consistent with this proposed amendment, the
Bureau proposed to delete references to agricultural credit in the
current commentary. The Bureau explained in its proposal that this
would simplify the rule by narrowing its scope to core, generally
applicable, small business lending products and avoid covering a
distinct and specialized lending sector that is already subject to a
different regulatory reporting scheme.
Comments Received
Agricultural lenders, banks, trade associations, and community
groups commented on this proposed exclusion. A number of banks and
trade associations supported the exclusion. An advocacy group supported
a phased approach to section 1071 requirements, noting that excluding
coverage of certain products in the short term does not foreclose
future coverage once lenders gain experience with data reporting and
compliance burdens are better understood.
Some banks and trade associations stated that the utility of
agricultural loan data is limited because such loans are subject to
different underwriting criteria, are secured by unique assets (such as
crops or livestock), and are subject to unique repayment cycles tied to
seasons and commodity price cycles, making them difficult to compare
with non-agricultural loans.
A trade association for banks argued that agricultural loan data is
not likely useful in fulfilling section 1071's statutory purposes,
explaining that agricultural lenders provide product offerings based on
individual needs, financial strength, access to other funding, and
other relationships with the creditor or collateral, and that the
credit requests of agricultural borrowers pose unique underwriting
challenges.
Other community bank commenters highlighted the relationship
between community banks and agricultural borrowers, arguing that the
exclusion would allow community banks to continue to serve such
borrowers without increasing the costs of credit or reducing credit
availability. One commenter emphasized the disproportionate importance
of community banks in agricultural lending, stating that community
banks extend over 75 percent of agricultural loans while representing
less than 15 percent of banking assets nationwide. Two trade
associations representing credit unions, and a community bank asserted
that covering agricultural lending would increase compliance costs and
reduce credit available to farmers.

[[Page 23542]]

Several commenters stated that the proposed exemption would avoid
duplicate oversight and reduce unnecessary reporting. A trade
association for banks, a community bank, and a small business trade
association asserted that agricultural lending is already subject to
Federal data collection requirements by the Farm Credit Administration
(FCA) and by prudential regulators under the Community Reinvestment Act
(CRA). A trade association for FCS lenders noted that if the rule
covered agricultural lending, it would overlap with existing reporting
requirements for small agricultural lending and would burden FCS
lenders.
Commenters opposing the exclusion emphasized that agricultural
lenders have a significant impact on small business lending markets and
should be covered by the rule. One community group noted that farms are
small businesses that apply for agricultural loans and are therefore a
subset of small business loans intended to be covered by section 1071.
A small business advocacy group expressed concern that the proposed
exclusion would prevent lenders and policymakers from addressing gaps
in lending that threaten the livelihood of small, family-owned farms,
and urged coverage of agricultural lending to generate data necessary
to address lending disparities, especially because minority-owned farms
constitute less than 5 percent of all small farms.
One community group representing farmers asserted that no
nationwide, publicly available data set exists for farm loan
applications. This commenter stated that the FCA does not publish
applicant-level data, that the data they have is available only through
Freedom of Information Act (FOIA) requests, that the data do not
contain demographic information, and that because the CRA only applies
to banks, there is no comparable data on small farm loans made by
credit unions, FCS lenders, or nondepository institutions. Another
community group also objected to the proposed rule's statement that
agricultural lending data is already reported to other agencies, noting
that the same argument could be made to exclude small business loans
reported under the CRA. This commenter stated that Congress, in
establishing section 1071, did not distinguish between lending data
that was or was not otherwise collected by different agencies. An
advocacy group for small farms expressed concerns that the exclusion
will negatively impact the farmers who have long struggled to access
credit that works for them.
A community-based organization and group representing farms stated
that the proposed exclusion would obscure lending to small farms, which
would frustrate the community development and fair lending purposes of
section 1071. These commenters disagreed with the rationale proposing
to exclude agricultural lending, arguing that data on farm loans could
still be collected and identified as such, permitting an analysis of
farm and non-farm credit trends. Several commenters cited past
litigation concerning discrimination against Black farmers as evidence
of a significant risk of discrimination and unequal credit access in
the agricultural context as a reason justifying the collection of
agricultural loans, including whether the loans were issued by a public
sector lender or had a Federal guarantee. A community group and
advocacy group stated that this history of discrimination, including in
public sector lending, necessitates the collection of agricultural
lending data.
Several advocacy groups representing farms characterized the
proposed exclusion as an unlawful, arbitrary, and capricious action
that abdicates the Bureau's statutory responsibility through a policy
of non-enforcement. These commenters argued that Congress mandated that
the collection and publication of all application-level small business
loan data, and that the proposed exclusion of farm loans would violate
the plain text and purpose of section 1071. Another commenter stated
that the proposed exclusion ignores the evidentiary record, the
Bureau's own prior findings, and overwhelming public comments on the
need for transparency in agricultural lending. This commenter asserted
that the Bureau's rationale for the proposed exclusion--i.e., the need
to simplify data collection at this early phase--is a complete reversal
that lacks new factual support and fails the APA's requirement for
reasoned decision-making.
In response to the request for comments on the proposed definition
of agricultural lending, a trade association for banks requested
several clarifications in the regulation text and commentary. First,
the commenter suggested adding the word ``principally'' to the
beginning of the regulatory text in proposed Sec. 1002.104(b)(8) so
that the revised text would be ``transaction principally to fund''
(proposed addition in italics) to ensure that lenders know that if a
borrower applies for a loan for multiple purposes, the transaction is
exempt if the primary purpose of the loan is agricultural. Second, the
commenter requested extensive additional commentary and guidance on
what the proposed exclusion includes because the terms ``crops'' and
``livestock'' could be interpreted in different ways. Third, the
commenter encouraged the Bureau to adopt expansive definitions to
capture specialized farming operations beyond ``traditional'' crops and
livestock. Fourth, the commenter said the Bureau also should clarify
the scope of the exemption, such as whether it includes businesses that
provide inputs to farmers. Lastly, this commenter urged the Bureau to
adopt a safe harbor for lenders applying the definition in good faith.
An FCS lender and a trade association for banks asked the Bureau to
use the definition of ``agricultural purpose'' in comment 8 of section
1026.3(a) in Regulation Z instead of the text of proposed Sec.
1002.104(b)(8). One of these commenters further suggested a slight edit
to the pre-existing Regulation Z definition of ``agricultural purpose''
by replacing ``a natural person'' with ``any person.''
Final Rule
The Bureau is finalizing its proposal to add agricultural lending
to the list of excluded transactions under Sec. 1002.104(b). Final
Sec. 1002.104(b)(8) defines agricultural lending as a transaction to
fund the production of crops, fruits, vegetables, and livestock, or to
fund the purchase or refinance of capital assets such as farmland,
machinery and equipment, breeder livestock, and farm real estate
improvements. Consistent with this addition, the Bureau is deleting
references to agricultural credit in commentary. This will simplify the
rule by narrowing its scope to core, generally applicable, small
business lending products and avoid covering a distinct and specialized
lending sector that is already subject to a different regulatory
reporting scheme.\30\
---------------------------------------------------------------------------

\30\ See revisions to Sec. 1002.105(b) discussed below
excluding FCS lenders from the definition of ``covered financial
institution.'' To the extent that a given financial institution can
point to multiple reasons why it does not qualify as a ``covered
financial institution''--i.e., both because it no longer meets the
raised activity threshold for non-agricultural loans, and because it
is an FCS lender--either independent reason would suffice. The
overlap reflects the Bureau's intent to ensure that these lenders
are excluded from coverage.
---------------------------------------------------------------------------

In the 2023 final rule, the Bureau declined to exclude agricultural
credit from its definition of a ``covered credit transaction.'' It
noted that ECOA itself has no exceptions for agricultural credit, that
agricultural businesses are included in section 1071's statutory
definition of small business (defined by cross-reference to the Small
Business Act),

[[Page 23543]]

and that there have been instances of discrimination in agricultural
lending. It rejected comments asserting that agricultural credit is
unique and not comparable to other types of small business lending,
instead observing that ``every small business industry has its own
unique characteristics.'' \31\ In response to commenters' concerns
about the impact on local community financial institutions and an
outsized effect on the cost of credit for farmers, the Bureau
emphasized that it was increasing its institutional coverage threshold
to 100 annual originations, from the 25 originations it had originally
proposed. The Bureau mentioned that many agricultural lenders have
already been required to collect and report some form of data by HMDA,
the CRA, and/or the FCA, but did so only to note that lenders
accordingly should be able to adapt to the Bureau's new data collection
requirements.
---------------------------------------------------------------------------

\31\ 88 FR 35150 at 35227.
---------------------------------------------------------------------------

The Bureau has considered the comments on the proposal and believes
that excluding agricultural lending from the definition of ``covered
credit transaction'' advances the statutory purposes of section 1071 at
this early phase as the Bureau begins the collection of small business
lending data. While the 2023 final rule declined to create such an
exclusion, the Bureau now believes, on reconsideration and in light of
comments received, that it did not adequately consider the marked
distinctions--and resulting data disparities--between agricultural
lending and other types of commercial lending.\32\ Agricultural loans
are often secured by biological-based assets such as crops or
livestock, which are subject to variables and risk from weather and
disease. These characteristics create unique underwriting challenges
that make such loans difficult to compare to those in other industries.
Indeed, other data collection regimes, such as CRA regulations, appear
to acknowledge categorical differences between loans to small
businesses generally and loans to small farms.\33\
---------------------------------------------------------------------------

\32\ Contrary to the assertion of some commenters, the Bureau
need not proffer new factual support in order to reevaluate its
previous policy choices.
\33\ Compare, e.g., 12 CFR 25.12(v) (OCC CRA regulations
defining small business loans), with Sec. 25.12(w) (OCC CRA
regulations defining small farm loans).
---------------------------------------------------------------------------

Some commenters argued agricultural lending must not be excluded
from the definition of ``covered credit transaction'' to monitor the
farm economy sector and identify access to credit issues. However, as
the Bureau and commenters have noted, agricultural lending is subject
to several existing Federal data collection frameworks, meaning that
existing data regimes serve to monitor agricultural lending and access
to credit. The Farm Credit System, as discussed in further detail in
part III.E conducts a substantial amount of agricultural lending
through a nationwide network of congressionally chartered, borrower-
owned cooperatives. This system is subject to extensive oversight by
the FCA and other Federal agencies with oversight over agricultural
lending. Among other things, many agricultural borrowers report data to
the Farm Service Agency, which collects demographic data including
race, ethnicity, and gender from applicants as part of its program
oversight.\34\ Further, under CRA regulations, banks must report data
on lending to small farms alongside reporting their lending to small
businesses. The 2023 final rule did not adequately consider the
existing data reporting requirements for agricultural lending.\35\
While the application-level data that will be collected under this rule
are not necessarily identical to the data that is collected by the FCA,
CRA, and FSA (an agency of the USDA), the Bureau believes that these
varied sources of data overlap and are currently sufficient to monitor
agricultural lending.
---------------------------------------------------------------------------

\34\ See U.S. Dep't of Agric., Farm Service Agency Customer Data
Worksheet (Form AD-2047) (updated Mar. 19, 2025), <a href="https://www.farmers.gov/sites/default/files/documents/farmersgov-form-ad-2047.pdf">https://www.farmers.gov/sites/default/files/documents/farmersgov-form-ad-2047.pdf</a>.
\35\ As the Bureau acknowledged in the 2023 final rule, ``many
agricultural lenders have already been collecting and reporting some
form of data by HMDA, the CRA, and/or the Farm Credit
Administration.'' 88 FR 35150 at 35227.
---------------------------------------------------------------------------

Further, the Bureau believes that excluding agricultural lending is
necessary or appropriate to carry out the purposes of section 1071 to
avoid imposing new, overlapping reporting requirements on agricultural
lenders at this point when the Bureau is commencing the collection of
data under this rule. The Bureau disagrees with commenters that
characterize the proposed exclusion of agricultural lending as
unlawful, arbitrary, and capricious. The Bureau has stated its change
in position from the 2023 final rule, and justified it based on its own
reconsideration of existing evidence and additional feedback from an
array of stakeholders. The Bureau also believes that these comments did
not take into consideration the approach Bureau articulated in the 2025
proposed rule. The Bureau believes that excluding agricultural lending
at this time furthers the purposes of section 1071 because such an
exclusion limits potential issues with data quality. Compliance may
pose greater difficulties for small agricultural lenders, which are
often rural entities with less compliance infrastructure than other
lenders, potentially impacting the quality of their data. The Bureau is
also concerned that these entities may need to divert their limited
resources away from lending activities to comply with this rule.
Further, for lenders that provide both agricultural and non-
agricultural loans that will still be subject to coverage, the
agricultural exclusion better situates such lenders to focus their
section 1071 reporting efforts on data for core lending products.
Regarding the comment requesting modifications to the proposed
definition of ``covered credit transaction,'' the Bureau does not
believe it is necessary to modify or clarify the regulation text and
commentary at this time. The Bureau is concerned that the modifications
or clarifications requested might have the effect of reaching lending
that may be related to agricultural lending but actually is not
differentiated at all from non-agricultural small business lending.
After this final rule is issued, lenders will have ample opportunity to
contact the Bureau for informal staff guidance on specific questions
about the agricultural lending exclusion.
The Bureau also declines to adopt the definition of ``agricultural
purpose'' in Regulation Z instead of the definition of ``agricultural
lending'' in Sec. 1002.104(b)(8). Commenters failed to identify
practical or material differences between the Regulation Z definition
and Sec. 1002.104(b)(8). The Bureau believes that cross-referencing
Regulation Z may give rise to potential unintended consequences of
adopting an acontextual definition from a legal and regulatory regime
with somewhat different purposes and scopes. In particular, Regulation
Z generally governs only consumer-purpose credit, in contrast to this
rulemaking's explicit limitation to business-purpose credit.
Given these factors, the Bureau believes it is appropriate to focus
on conventional, generally applicable small business lending at this
time by excluding agricultural lending from coverage under the rule. In
doing so, the Bureau is using its authority under ECOA section
704B(g)(2) to adopt exceptions to any requirement of section 1071 and,
conditionally or unconditionally, exempt any financial institution or
class of financial institutions from the requirements of section 1071,
as the Bureau deems necessary or appropriate to carry out the purposes
of section 1071.

[[Page 23544]]

1002.104(b)(9)--Small Dollar Business Credit
Proposed Rule
Under the 2023 final rule, a ``covered credit transaction'' is
defined as an extension of business credit that is not an excluded
transaction under Sec. 1002.104(b). In adopting the 2023 final rule,
the Bureau considered but declined to adopt a de minimis loan size
threshold, citing the significant volume of lending involving credit
amounts below the thresholds suggested by commenters at that time.
The Bureau proposed to add small dollar business credit to the list
of excluded transactions under Sec. 1002.104(b). Proposed Sec.
1002.104(b)(9) would exclude from the definition of covered credit
transaction a transaction in an amount of $1,000 or less, to be
adjusted for inflation over time.
Comments Received
The Bureau received comments regarding the proposed exclusion of
small dollar business credit in Sec. 1002.104(b)(9) from a wide range
of industry stakeholders, including banks, credit unions, and trade
associations representing financial institutions. The Bureau also
received comments on the proposal from consumer and civil rights
advocacy organizations, as well as community development financial
institutions.
Industry commenters generally supported the Bureau's proposal to
exclude small-dollar loans at any threshold, with banks, credit unions,
and their trade associations arguing that the costs of data collection
could make the provision of small loans infeasible, increase their
cost, or reduce credit availability. One commenter explained the
potential harm from such effects, emphasizing that small-dollar
commercial loans are critical for vulnerable businesses, with another
commenter highlighting their importance in rural and underserved
communities. Several commenters stated that the exclusion would allow
the Bureau to focus on market segments where transparency is most
valuable and prevent the distortion of data by small transactions. A
few commenters noted that small-dollar loans are typically incidental
in nature and often function more like consumer credit than traditional
small-business loans, and a trade association for fintechs similarly
observed that these products do not align with traditional small
business lending structures. Finally, one commenter noted that the
Bureau could always increase the threshold at a later date.
Some industry commenters, including several banks, several trade
associations for banks, a trade association for small businesses, and a
trade association for fintechs supported the proposed $1,000 threshold,
with one trade association noting that very few small business
operations can be funded with $1,000 or less.
However, other industry commenters urged the Bureau to adopt a
higher threshold. A coalition of trade associations for banks argued
that a $1,000 exemption is of limited benefit because businesses are
more likely to use consumer credit for loans of that size. This
commenter also noted that merchant cash advance providers (which the
Bureau proposed to exclude from the rule) offer advances as low as
$5,000, suggesting that a higher threshold is needed to allow covered
lenders to compete.
Regarding specific thresholds, one trade association representing
fintechs suggested a $2,500 threshold to match the CDFI Small Dollar
Loan Program and better fit the commercial lending context. Several
commenters recommended a $5,000 threshold. These commenters argued that
$5,000 would better capture operational realities, particularly in
rural or high-cost markets, and avoid capturing loans that are likely
exceptions to typical lending practices, while still excluding loans
that are administratively burdensome to report.
One commenter suggested a $25,000 threshold to balance operational
burden with the frequent business need for fast turn-around for loans
needed to, for example, fund equipment repairs or purchase inventory.
Several other commenters, including credit unions and related trade
associations, advocated for a $50,000 threshold. They noted that this
amount tracks the National Credit Union Administration's (NCUA)
definition of a ``commercial loan'' and that consumer credit is
available below this amount. One trade association argued that loans
above $50,000 are more likely to involve individualized underwriting
decisions and negotiated terms that are probative for fair lending
analysis. It also asserted that this threshold provides a good balance
between preserving the integrity and usefulness of the data set, while
protecting borrower privacy and access to small-dollar business credit.
Finally, the commenter suggested that if the Bureau does not adopt a
$50,000 threshold, it should adopt a more streamlined reporting regime
for such loans.
Some industry commenters requested specific modifications to the
proposal other than the threshold amount. One trade association
requested that the exclusion be optional, noting that some lenders may
have difficulty tracking and excluding small loans, particularly for
credit limit increases. Another trade association stated that there
should be no distinction between types of loans or lenders, nor any
limit on the number of small dollar loans to a single borrower.
Finally, one trade association for small businesses suggested that the
Bureau monitor whether this exemption inadvertently excludes meaningful
data from the microlending sector.
Two community groups opposed the proposed exclusion, arguing that
it would create significant gaps in understanding how small businesses
access capital. They noted that the exclusion would limit the view of
credit extended to businesses with limited access to traditional
credit, as well as to businesses in rural and smaller communities, and
would leave out a significant portion of financing used at the earliest
stages of business formation. One community group also argued that the
exclusion is unnecessary because technological improvements have
reduced the burden of data submission. Additionally, an individual
commenter challenged the Bureau's assumption that credit under $1,000
is not relevant to small business formation or operation, particularly
for minority-owned businesses. This commenter opposed the proposal,
citing statistics indicating that 17 percent of new businesses took a
loan of less than $5,000 in their first year, and that minority groups
are more likely to borrow smaller amounts. Finally, this commenter
noted that the exclusion would reduce benefits associated with the
community development purposes of the rule.
Final Rule
For the reasons set forth below, the Bureau is finalizing Sec.
1002.104(b)(9) as proposed to exclude from the definition of a covered
credit transaction any transaction in an amount of $1,000 or less, to
be adjusted for inflation over time.
In finalizing these revisions, the Bureau agrees with industry
commenters that requiring data collection on very small transactions
would create a compliance burden disproportionate to the utility of the
data collected. The Bureau acknowledges that establishing a specific
threshold for such an exclusion involves a degree of judgment in
balancing data utility against industry burden. Based on the comments
received and its understanding of small business lending markets,
gained

[[Page 23545]]

through years of rulemaking and small business lending market
observation and expertise, the Bureau agrees with commenters that
business loans under $1,000 are typically circumstantial, often serving
as auxiliary features of business deposit accounts, such as overdraft
facilities. The Bureau thus determines that the $1,000 threshold
strikes an appropriate balance and aligns with market realities by
filtering out circumstantial transactions. Collecting data on
transactions in this range would likely yield a partial and distorted
view of the market. Simultaneously, the Bureau believes that this
threshold preserves visibility into the smallest substantive commercial
lending, including business credit cards. This threshold ensures
coverage of core credit products often utilized by small businesses.
The Bureau declines to adopt any of the higher thresholds
recommended by commenters because it is concerned about losing data
necessary to fulfill the statutory purposes of section 1071. Regarding
$2,500 or $5,000 alternative thresholds, the Bureau concludes that a
$1,000 threshold better distinguishes between credit that is
circumstantial or ancillary to a deposit account and more purposeful
commercial credit that section 1071 intends to monitor. The Bureau
disagrees that loans in this range generally represent exceptions to
typical lending practices or that operational realities justify their
exclusion. The Bureau believes, based on the comments received and its
understanding of small business lending markets, that a $2,500 or
$5,000 threshold would exclude valuable data on smaller dollar loans,
which, as noted by commenters, is often a source of capital for the
smallest minority-owned businesses. The $2,500 limit of the CDFI Small
Dollar Loan Program is inapposite to this rule, as the program's
goals--ultimately to assist consumers by funding CDFIs--differ from the
statutory purposes of section 1071 focused on small businesses.\36\
Finally, the Bureau disagrees that a higher threshold is necessary to
allow lenders to compete with MCA providers. According to the
commenters requesting a $5,000 threshold, most MCA providers do not
offer advances under $5,000; this suggests that MCA providers do not
compete with lenders for small businesses seeking financing under
$5,000. The Bureau does not believe, therefore, that a $1,000 threshold
would prevent lenders from competing effectively with MCA providers.
---------------------------------------------------------------------------

\36\ Cmty. Dev. Fin. Insts. Fund, Small Dollar Loan Program,
<a href="https://www.cdfifund.gov/programs-training/programs/sdlp">https://www.cdfifund.gov/programs-training/programs/sdlp</a> (``The
Small Dollar Loan Program (SDL Program) is intended to expand
consumer access to financial institutions by providing alternatives
to high-cost small dollar lending.'') (last visited Mar. 24, 2026).
---------------------------------------------------------------------------

The Bureau also declines to adopt a threshold of $25,000 or
$50,000. If loans in the $1,000 to $5,000 range include credit
transactions that are not ancillary and advance the statutory purposes
of section 1071, this is even more true of transactions between $5,000
and $50,000. While the Bureau acknowledges industry comments regarding
the operational burden of reporting these loans, and the availability
of consumer credit below these amounts, the Bureau concludes that
thresholds at these levels would leave substantial gaps in the dataset.
Available data indicates that financing in amounts of $25,000 or less
is particularly important for the smallest firms, including those with
low annual revenues, startup firms, and non-employer firms.\37\
Adopting a higher threshold would obscure lending patterns for these
entities and fail to capture data on ``microloans,'' a critical source
of capital often defined as loans up to $50,000. Regarding the argument
that the $50,000 threshold aligns with the NCUA definition of a
``commercial loan,'' the Bureau notes that the NCUA definition serves a
purpose distinct from the fair lending and community development
purposes of section 1071. The Bureau further disagrees that loans below
$50,000 should be excluded because they lack individualized
underwriting; such loans remain highly relevant for analyzing access to
credit and potential fair lending risks. Finally, given the importance
of these transactions to fulfill the purposes of section 1071, the
Bureau declines to adopt the alternative suggestion for a streamlined
reporting regime for them. Such a bifurcated system of reporting is
likely to add complexity to the section 1071 data collection regime,
rather than reduce it.
---------------------------------------------------------------------------

\37\ See, e.g., Fed. Rsrv. Sys., 2025 Firms in Focus: Chartbook
on Firms by Revenue Size, <a href="https://www.fedsmallbusiness.org/reports/survey/2025/2025-small-business-data-chartbooks">https://www.fedsmallbusiness.org/reports/survey/2025/2025-small-business-data-chartbooks</a> (last visited Apr.
3, 2026). See also Fed. Rsrv. Sys., 2024 Report on Startup Firms:
Findings from the 2023 Small Business Credit Survey, <a href="https://www.fedsmallbusiness.org/reports/survey/2024/2024-report-on-startup-firms">https://www.fedsmallbusiness.org/reports/survey/2024/2024-report-on-startup-firms</a> (last visited Apr. 3, 2026).
---------------------------------------------------------------------------

With respect to comments from community groups opposing the
exclusion entirely, the Bureau concludes that the $1,000 threshold
minimizes the loss of meaningful data while preventing distortions that
result from reporting ancillary credit transactions. The Bureau
acknowledges the importance of capturing data on credit for the
smallest businesses, including minority-owned businesses, businesses in
rural and underserved communities, and startups, and concludes that the
$1,000 threshold will effectively capture such data. To the extent that
the threshold excludes some non-ancillary credit, the Bureau determines
that this reflects the necessary balance between data utility and
burden reduction described above. Regarding the statistics cited by an
individual commenter, that 17 percent of new businesses utilize loans
of less than $5,000 in their first year, the Bureau notes that the
exemption retains coverage for transactions between $1,001 and $5,000.
Consequently, the threshold preserves significant visibility into the
microlending activity cited by this commenter. The Bureau disagrees
with the assertion that technological improvements render the exclusion
unnecessary. The Bureau determines that, even with automated systems,
the fixed costs and other burdens of data collection relative to the
potential return on a transaction of $1,000 or less remain
disproportionately high, creating a risk that lenders might cease
offering very low dollar loans to avoid the compliance burden.
Finally, the Bureau declines to adopt the industry request to make
the exclusion optional. The Bureau determines that lenders are capable
of filtering these transactions out themselves before submission.
Because lenders generally track the amount of the credit application,
the Bureau does not believe it will be difficult for lenders to
identify and exclude transactions of $1,000 or less. Regarding the
comment that there should be no distinction between types of loans or
lenders, the Bureau confirms that the exclusion in Sec. 1002.104(b)(9)
provides for none; nor is there a limit on the number of such small
dollar loans to a single borrower that may be excluded. Finally, the
Bureau intends to monitor the small business lending markets to
determine if the threshold amount (as adjusted every five years for
inflation) remains appropriate over time.
1002.104(b)--Other Requests for Exemptions
Proposed Rule
The 2023 final rule broadly defined a ``covered credit
transaction'' as an extension of business credit that is not
specifically excluded. While the rule enumerated certain exclusions--
such as trade credit, HMDA-reportable transactions, insurance premium
financing, public utilities credit, securities credit, and incidental
credit--

[[Page 23546]]

it aimed for broad coverage to prevent evasion and ensure a complete
data set. Consequently, the 2023 final rule encompassed a wide range of
credit products, including merchant cash advances and agricultural
credit.
In the 2025 proposed rule, the Bureau proposed narrowing the
definition of ``covered credit transaction'' to focus on ``core''
lending products--loans, lines of credit, and credit cards--that are
most likely to be foundational to small business formation and
operation. Consistent with this focus, the Bureau proposed adding
specific exclusions for merchant cash advances, agricultural lending,
and small-dollar credit transactions. While the Bureau solicited
comment on these specific proposals (discussed further elsewhere), the
Bureau did not seek comment on other potential product or transactional
exclusions.
Comments Received
A wide range of industry participants, including banks, credit
unions, fintechs, and national and specialized trade associations urged
the Bureau to adopt additional exclusions or clarify existing
exclusions for specific types of products, transaction structures, and
borrowers. Specific requests addressed indirect lending, trade credit,
individual products (such as Purchase Money Obligations and Buy Now,
Pay Later transactions), commercial real estate, and transactions
involving entities with non-standard ownership structures such as
trusts and government agencies.
A broad group of industry trade associations requested that the
Bureau exclude all indirect lending transactions from coverage. These
commenters argued that indirect lenders lack a direct relationship with
the small business applicant, which would make data collection by the
financial institution impractical and burdensome. They further asserted
that indirect lenders would be forced to contact applicants solely to
collect data, describing this as an unprecedented requirement unlikely
to yield meaningful data and likely to harm the customer experience.
Commenters also noted that intermediaries, such as vendors or dealers,
often seek financing terms from multiple indirect lenders
simultaneously, and that without an exclusion, the Bureau would receive
duplicative data submissions from numerous financial institutions
regarding the same potential transaction. One trade association
suggested that if a full exemption were not feasible, the Bureau could
instead allow demographic information collection after the credit
decision, allow data collection to occur at the first contact between
customer and financial institution, or create unique customer
identifiers within loan applications and provide clear guidance on how
vendors, dealers, and finance companies should collectively handle
reporting using these identifiers.
Some commenters made specific requests for clarification or
exclusion regarding indirect automobile lending. A group of banking
trade associations urged the Bureau to clarify, through examples in
commentary, that the compliance obligation for these transactions lies
with the dealer, not the indirect lender, because dealers are typically
the entities that interact with the applicant and have final authority
to set credit terms. The commenters further noted that this was
warranted because auto lending contracts are sometimes purchased by
lenders after completion, when the customer already has their vehicle.
Meanwhile, two trade associations for auto dealers requested that the
Bureau work with the Federal Reserve Board (which has authority over
auto dealers) to exempt auto dealers from any future rulemaking on this
topic. The coalition argued that auto dealers do not have the
appropriate staff or resources to carry out compliance functions
designed for financial institutions. It also stated that auto dealers
are often the type of small, women-owned, and minority-owned businesses
that section 1071 is designed to protect, not the entities it should
burden.
A few commenters requested exclusions for other forms of indirect
credit. A group of trade associations, including one representing the
equipment finance industry, requested an exclusion for indirect
equipment finance transactions facilitated by dealers. The commenters
argued that dealers have the final authority to set terms of equipment
financing transactions, and that discrimination risk is low because
credit decisions primarily focus on the value of the equipment being
purchased rather than borrower characteristics. Another group of
commenters requested an exclusion for private label, store-brand
credit. These commenters pointed to Federal regulators' historical
recognition of the unique nature of these point-of-sale transactions,
citing specific exclusions in the Financial Crimes Enforcement
Network's (FinCEN) beneficial ownership rule and the Bureau's
Regulation P, and noted that data collection in this context would
disincentivize retailers from offering this form of credit, as they are
particularly interested in swift, frictionless transactions. The
commenters recommended that the Bureau exempt in-store applications or
at least permit demographic data requests to be sent to applicant's
post-application.
A trade association representing the equipment finance industry
requested that the Bureau exclude purchase money obligations (PMOs) as
defined under UCC Article 9. The commenter argued that PMOs are
distinct because they finance specific equipment rather than general
business operations, and lenders rely on a priority security interest
in that equipment for underwriting rather than borrower
characteristics. Furthermore, the commenter noted that PMOs are often
arranged through dealers or vendors, creating an indirect relationship
between lender and borrower. Finally, the commenter asserted that PMOs
should be exempt consistent with the rationale for excluding true
leases, merchant cash advances, factoring, and trade credit, arguing
that regulatory parity is necessary to ensure consistent treatment
across similar financing structures.
Several trade associations requested that the Bureau expand the
existing trade credit exclusion, which applies to ``financing
arrangement[s] where a business acquires goods or services from another
business without immediate payment.'' Two trade associations requested
that the Bureau expand the exclusion to include similar credit provided
by a financial institution. One of the commenters argued that such
credit facilitates the same transactions between the same businesses
and therefore deserves the same regulatory treatment; it also argued
that any data collected by financial institutions would be of limited
use without equivalent data from business-to-business trade credit. The
commenter additionally asserted that, absent this exclusion, businesses
would be forced to provide their own credit, but they sometimes lack
the expertise or cash flow, potentially reducing the availability of
credit.
A trade association requested that the Bureau exclude ``floor plan
financing,'' which it argued is similar to trade credit in that the
merchant receives the inventory without advance payment. The commenter
also explained that floor plan financing has flexible timing and
pricing terms that do not align well with other data to be collected
under section 1071. Finally, two trade associations representing auto
dealers recommended expanding the exclusion to include trade credit in
situations where the business lender intends to sell or

[[Page 23547]]

transfer its rights as creditor to a third party. The commenters
asserted that this limitation to the trade credit exclusion was added
to commentary for the first time in the 2023 final rule without
explanation or discussion, which it argued both violates procedural
requirements of the APA and undermines the core of the trade credit
exemption.\38\ They recommended removing that text from the commentary
to achieve a more balanced regulatory burden.
---------------------------------------------------------------------------

\38\ See Regulation B, subpart B, comment 104(b)(1)-1.
---------------------------------------------------------------------------

A trade association representing the factoring industry supported
the existing exclusion for factoring arrangements, noting that the 2025
proposed rule did not propose to change it.
With respect to leases, although the Bureau did not propose
altering the existing exclusion for true leases, several industry
participants requested an exclusion of such transactions from coverage,
arguing that leases differ substantially from traditional small
business credit because they involve the transfer of possession or use
rather than an extension of credit. One commenter asserted that leases
do not constitute credit under ECOA, and that including them would
impose operational costs without advancing the rule's objectives. The
commenter emphasized that the exclusion is necessary to ensure
consistency with regulatory definitions and preserve data integrity.
A coalition of trade associations representing the commercial real
estate finance industry requested an exclusion for all loans secured by
non-owner-occupied commercial real estate. The coalition argued that
such loans are not foundational to small business formation or
operations. It further argued that commercial real estate loans differ
from traditional small business loans because real estate loans are
based on a property's expected cash flow and value, rather than the
business's cash flow, and that Federal law acknowledges the
distinction, citing SBA regulations, FFIEC Call Report instructions,
and the OCC Commercial Real Estate Lending Handbook.
A trade association representing mid-size banks requested that the
Bureau provide greater clarity regarding the existing exemption for
HMDA-reportable transactions. The coalition noted that Regulation C,
which implements HMDA, excludes mortgages and open-end lines of credit
that are primarily for business purposes unless the loan is for home
purchase, home improvement, or refinancing. They explained that
although the existing rule exempts loans reportable under HMDA, the
determination is burdensome and unclear because HMDA coverage depends
on the purpose of the loan. To resolve this, the commenter recommended
that the Bureau either provide more illustrative examples in commentary
or base applicability of the section 1071 reporting framework on the
purpose of the loan as expressed in FFIEC Call Report codes. One bank
expressed support for the existing HMDA exemption, and an individual
commenter urged the Bureau to end HMDA reporting for all commercial
loans in favor of section 1071 reporting.
A trade association representing fintechs requested that the Bureau
exclude Buy Now, Pay Later (BNPL) transactions, which it characterized
as credit ``not subject to a finance charge and not payable in more
than four installments.'' The commenter argued that BNPL loans differ
from traditional small business loans because they facilitate discrete
commercial purchases and do not involve pricing, risk-based terms, or
extended underwriting considerations that give rise to potential
discriminatory outcomes. The commenter further noted that BNPL loans
lack the pricing variables required to even detect discriminatory
credit practices. As a result, the commenter argued that the coverage
under this rule of BNPL would introduce substantial volumes of low-risk
data thus diluting the interpretive value of the reporting framework,
could discourage BNPL lending, and would be inconsistent with
Regulation Z, which the commenter characterized as excluding such
arrangements from the definition of credit.
A bank requested that the Bureau exclude partner lines of credit,
also known as ``capital call lines of credit,'' which are single-
purpose loans extended to partners in venture capital or private equity
firms to cover capital calls. Characterizing these loans as niche
transactions, the commenter argued that an exemption would advance the
purposes of the statute by allowing the Bureau to focus its data
collection on core lending products that are foundational to small
business formation and operation.
Two trade associations requested that the Bureau exclude
transactions involving certain entities for which ownership is
ambiguous or not determinable. Specifically, the commenters requested
the exclusion of commercial loans made to trusts, arguing that these
could raise difficult issues, including identifying the appropriate
individuals for data collection (e.g., settlors, beneficiaries,
trustees), determining the ``net profit or loss'' of the trust, and
identifying the beneficiaries entitled to that net profit or loss. The
request also covered nonprofit organizations, which the commenters
noted do not have a ``net profit or loss'' that accrues to individuals
and generally do not have owners. Commenters further cited non-
operating entities such as special purpose vehicles, pass-through
entities, and other types of wealth management vehicles, which they
characterized as primarily investment vehicles and therefore outside
the intended scope of section 1071. Finally, the commenters listed
public agencies, which they noted are rarely considered small
businesses and have no identifiable owners.
Final Rule
The Bureau declines to adopt the additional categorical product
exclusions suggested by commenters, though this final rule includes a
correction to Sec. 1002.109(a)(3) that will clarify reporting
obligations, and provides clarifications regarding coverage and
permissible data collection procedures for certain transactions as
discussed below.
The Bureau declines to exclude indirect lending transactions from
coverage. This decision encompasses the specific requests to exclude
indirect automobile lending, indirect equipment finance, PMOs, and
private label or store-brand credit. The Bureau believes, consistent
with the 2023 final rule, that data concerning indirect lending
furthers section 1071's statutory purposes. For instance, data on
indirect auto and equipment finance helps data users identify business
and community development needs because vehicles and equipment are
often essential for small businesses to operate. Similarly, private
label and co-branded credit cards can be an important source of working
capital for small businesses.
In response to the request to clarify, through examples in
commentary, that the compliance obligation for indirect auto
transactions lies with the auto dealer, not the indirect lender, the
Bureau notes that comment 105(a)-1 already clarifies the exclusion of
auto dealers from coverage under this rule. Regarding the request that
the Bureau work with the Federal Reserve Board (Board) to exempt auto
dealers from future rulemaking, the Bureau notes that application of
section 1071 requirements to entities excluded from the Bureau's
jurisdiction by section 1029 of the Consumer Financial Protection Act
is a matter for the Board to determine, and requests regarding the

[[Page 23548]]

Board's potential future actions are outside the scope of this
rulemaking. Additionally, comments 109(a)(3)-1 and -2 provide several
scenarios and ten specific examples identifying various indirect
lending scenarios, including those in which no data on a transaction
would be submitted to the Bureau because an auto dealer would have been
ultimately responsible for reporting it. The Bureau recognizes,
however, that the inclusion of the word ``covered'' in Sec.
1002.109(a)(3) in the 2023 final rule was an error that contributed to
confusion regarding these obligations in the auto lending context.
Because auto dealers are statutorily excluded from the Bureau's
rulemaking authority, they are not ``covered'' financial institutions
under this rule. As a result, the phrase ``last covered financial
institution'' inadvertently implied that the reporting obligation
defaults to the indirect auto lender even when an auto dealer has the
final authority to set material terms. This was not the Bureau's
intent. To correct this error and clarify reporting obligations, this
final rule removes the word ``covered'' from Sec. 1002.109(a)(3).
Thus, if the last financial institution with authority to set material
terms is not a covered financial institution, the application is not
reported. Finally, with respect to comments concerning the purchase of
auto loans after origination, the Bureau notes that comment 104(b)-4
makes clear that the term ``covered credit transaction'' does not cover
the purchase of an originated credit transaction.
Moreover, the Bureau finds the remaining arguments for excluding
other indirect lending products unpersuasive. The Bureau does not
believe that sufficient evidence has been presented that asset-based
underwriting in equipment finance or PMOs eliminates discrimination
risk; fair lending concerns remain relevant regardless of collateral.
Similarly, the Bureau rejects the contention that these products are
not foundational; for many small businesses, securing a vehicle or
equipment is as critical to operations as a working line of credit.
Regarding regulatory parity, PMOs differ from true leases (which are
not ``credit'' under ECOA) and trade credit (which is strictly between
business buyers and sellers without a financial or other intermediary).
Finally, with respect to comments concerning the role of dealers in
other indirect lending contexts, the Bureau emphasizes that Sec.
1002.109(a)(3) and related commentary make clear that the compliance
obligation rests with the last financial institution with authority to
set material terms.
The Bureau acknowledges, however, the concerns raised by commenters
regarding the practical difficulties of collecting data in indirect
lending and point-of-sale environments. The Bureau recognizes that in
these transactions, the financial institution typically does not have
any direct interaction with the applicant at the time of application.
The Bureau agrees that requiring third-party intermediaries--such as
auto dealers, equipment vendors, or retailers--to collect demographic
data could be operationally complex and possibly disruptive to the
customer experience. The Bureau also shares the concern that requiring
data collection before a credit decision is made for indirect loans
could--depending on which entity is the last with authority to set
material terms--result in an applicant receiving duplicative data
requests from multiple lenders competing for the same contract.
To address these concerns, and consistent with its request for
comment regarding the 2023 final rule's provisions dictating the time
and manner of information collection, the Bureau is adopting revisions
to the ``time and manner'' provisions in Sec. 1002.107(c), as
discussed in detail below. Specifically, this final rule amends the
provision concerning the timing and manner of the collection of
demographic data, clarifying that such collection may take place in
certain situations even after a credit decision is made on an
application. This flexibility allows indirect lenders to avoid adding
complexity to point-of-sale interactions and eliminates the need for
dealers or vendors to collect the data on the lender's behalf.
Furthermore, because the rule permits this post-decision collection,
financial institutions can gather the required information directly
from the applicant at a later time, ensuring that the process does not
delay or interrupt the underlying commercial sale. Consequently, the
Bureau believes that these modifications to the data collection
procedures largely resolve the operational challenges cited by
commenters, rendering a categorical exclusion for these products
unnecessary.
The Bureau declines to expand the trade credit exclusion to include
credit similar to trade credit provided by financial institutions. As
the Bureau explained in the 2023 final rule, trade credit is excluded
because it is not a general-use business loan; rather, trade creditors
generally extend credit as a means to facilitate the sale of their own
goods or services. These entities are not primarily financial services
providers, nor do they generally have the infrastructure needed to
manage compliance with regulatory requirements associated with making
extensions of credit. The Bureau understands that, unlike trade
creditors themselves, financial institutions requesting this exclusion
offer stand-alone credit products in the same way as other lenders and
are not retailers or merchants with limited regulatory compliance
experience. As such, the Bureau does not have the same concerns about
data quality or reduced small business lending regarding these entities
that it does about trade creditors themselves. The Bureau also
disagrees that limiting the trade credit exclusion to non-financial
institutions will negatively impact small business cash flow; small
businesses retain access to diverse credit products, including trade
credit from vendors and standard credit products from financial
institutions.
Consistent with this distinction, the Bureau declines to remove the
commentary provision regarding the transfer of creditor rights and
declines to broadly exclude floor plan financing. Regarding the
transfer of rights, the Bureau reiterates that credit extended by a
business is not trade credit where the supplying business intends to
sell or transfer its rights as a creditor to a third party. The Bureau
stands by its determination that the trade credit exclusion should be
limited to arrangements where the business providing the goods or
services retains the credit obligation, rather than extending to
transactions that involve financial institutions or third-party
purchasers. The Bureau further disagrees that the inclusion of this
commentary in the 2023 final rule violated the APA; rather, it was a
logical outgrowth of the Bureau's proposal and directly responsive to
comments on the 2021 proposed rule requesting that the exclusion be
expanded to include third-party financial institutions. The commentary
affirmed the Bureau's position that the trade credit exclusion is
designed for merchants, not financial institutions or those acting on
their behalf. Similarly, regarding the request to exclude floor plan
financing, the Bureau notes that under Sec. 1002.104(b)(1), the trade
credit exclusion applies where the manufacturer or distributor is
financing its own inventory, but not where a financial institution is
providing the financing.
The Bureau reaffirms the existing exclusions for true leases and
factoring arrangements. The Bureau agrees with commenters that true
leases differ from small business loans because they involve the
transfer of possession and use rather than the extension of credit.

[[Page 23549]]

Accordingly, true leases are not covered credit transactions. The
Bureau likewise maintains the long-standing exclusion for factoring
arrangements, for the reasons set forth in the 2023 final rule.
The Bureau declines to exclude all loans secured by non-owner-
occupied commercial real estate. While some commenters argued that
these loans are underwritten based on property value rather than
business cash flow, or that they often involve special-purpose vehicles
(SPVs) formed by larger entities, the Bureau believes a categorical
exclusion is unnecessary. The new definition of small business in
revised Sec. 1002.106(b), setting the gross annual revenue threshold
at $1 million rather than $5 million, will likely exclude many of the
transactions cited by commenters. Further, because comment 106(b)-3
allows financial institutions to include the revenue of an applicant's
affiliates when determining whether an applicant is a small business,
single-purpose entities--such as those common in commercial real
estate--are permitted to have their revenue aggregated with that of
their parent or affiliates for purposes of determining whether they are
a small business under this rule. For instance, if a large developer
with well over $1 million in revenue forms a new SPV with no gross
annual revenue in the past fiscal year to purchase a property, the
comment on affiliate revenue permits the SPV applicant for credit to be
considered not a small business under this rule. The Bureau believes
that this approach effectively filters out the large real estate
developers that commenters sought to exclude, while preserving the
collection of data on small businesses that purchase small rental
properties without the help of large affiliates, as their access to
credit is a core concern of the statute.
The Bureau also declines to modify the existing exclusion for HMDA-
reportable transactions or to adopt an alternative standard based on
FFIEC Call Report codes. The Bureau believes that existing Sec.
1002.104(b)(2) is sufficiently clear: a transaction is excluded if it
is a ``covered loan'' under Regulation C. The Bureau declines to adopt
a different standard based on Call Report codes, as doing so could
create inconsistencies where the definitions do not align, leading to
coverage gaps or duplicative reporting. The Bureau also declines to
provide additional illustrative examples in commentary, as the cross-
reference to Regulation C already provides a precise and legally
distinct boundary.
The Bureau declines to specifically exclude BNPL transactions from
coverage, since the rule already excludes them as a type of
``incidental credit.'' The commenter requesting this exclusion defined
BNPL credit in part as ``not subject to a finance charge and not
payable in more than four installments.'' Existing Sec. 1002.104(b)(6)
excludes ``incidental credit,'' defined by reference to Sec.
1002.3(c)(1) in Regulation B, subpart A (but without regard to whether
the credit is consumer credit). Under that definition, extensions of
credit are considered incidental credit if they are not made pursuant
to the terms of a credit card account, are not subject to a finance
charge, and are not payable by agreement in more than four
installments. Accordingly, the BNPL transactions identified by the
commenter requesting an exclusion already appear to meet these criteria
for incidental credit, and are thus already excluded from the
definition of a covered credit transaction.
The Bureau declines to adopt a specific exclusion for partner lines
of credit, also known as ``capital call lines of credit.'' Specific
exemptions for particular sub-types of lines of credit would complicate
the rule and undermine the goal of a streamlined, consistent definition
of coverage. Moreover, the concerns raised are largely mitigated by the
existing regulatory framework. The commenter did not provide evidence
regarding the scope of entities affected by this issue, but the Bureau
believes that the volume of reportable transactions involving small
businesses, as defined by revised Sec. 1002.104(b)(2), in this context
is likely minimal. Furthermore, as noted above regarding commercial
real estate, the adjusted revenue threshold and existing affiliate
revenue commentary will likely exclude the vast majority of investment
funds and sophisticated vehicles that utilize these products.
Regarding comments on specific entity types, the Bureau confirms
that nonprofit organizations and public agencies are generally excluded
from coverage. The term ``business'' is defined in existing Sec.
1002.106(a) by reference to the term ``business or business concern''
in 13 CFR 121.105 of SBA regulations. This definition, in turn, defines
a business as an entity ``organized for profit.'' Nonprofit
organizations and public agencies do not meet this definition of
``business'' and are not small businesses for purposes of this rule.
The Bureau declines to categorically exclude trusts or non-
operating entities. Regarding trusts, the Bureau notes that many
businesses are organized as trusts for commercial purposes and,
provided they are organized for profit, meet the definition of
``business'' subject to coverage. While commenters raised concerns
about identifying principal owners for trusts, the Bureau believes that
existing comment 102(o)-2 provides sufficient clarity. That comment
states that if the applicant is a trust, a trustee is considered the
principal owner. Finally, regarding non-operating entities and wealth
management vehicles, concerns regarding the reporting of investment
vehicles are largely addressed by the changes to the small business
definition discussed above. Specifically, the adjusted revenue
threshold and existing affiliate revenue commentary will likely exclude
the vast majority of the high-value investment vehicles and passive
holding companies cited by commenters.

E. Section 1002.105--Covered Financial Institutions and Exempt
Institutions

The Bureau finds that at the onset of data collection under section
1071 the focus should be on larger core lenders before the Bureau
considers whether it would be appropriate to expand the scope of the
rule to specialty lenders and smaller lenders. The Bureau therefore is
excluding FCS lenders from the definition of covered financial
institution and is raising the origination threshold from 100 to 1,000
covered credit transactions to better ensure the smooth operation of
the initial period of data collection.
105(b) Covered Financial Institution--FCS Lenders
Proposed Rule
The Bureau proposed to exclude FCS lenders from the ``covered
financial institution'' definition in Sec. 1002.105(b). Consistent
with this exemption, the Bureau proposed to delete several references
to FCS lenders in commentary.
The CFPB sought comment on this proposed revision to the rule.
Comments Received
The Bureau received comments on this proposed exemption from
various financial institutions, trade associations, research and
business advocacy groups as well as community groups. Supporters of the
exclusion included FCS lenders, an advocacy group, and trade
associations representing small businesses and credit unions. An
advocacy group characterized the exclusion of FCS lenders as
acknowledging the specialized statutory oversight of agricultural
credit and recognizing that reporting obligations under section 1071
would duplicate or conflict with existing supervisory

[[Page 23550]]

frameworks. An FCS lender described the exclusion as a necessary and
practical limitation to the scope of the rule and stated that the
benefits outweigh any basis for including these transactions for FCS
borrower-owners. A trade association for small businesses asserted that
the FCS lender exemption avoids duplicative oversight and is justified
by FCS lenders' unique cooperative structure as well as existing FCA
reporting requirements.
A trade association for FCS lenders argued that FCS lenders are
different from other types of lenders and offered several rationales
for why FCS lenders should not be covered. First, the commenter argued
that FCS lenders are overseen solely by the FCA, and that Congress
explicitly decreed that the Bureau should not supervise or enforce laws
against FCS lenders, including requiring the reporting of data. Second,
the commenter argued that Federal law limits FCS lenders to providing
credit to ``eligible'' customers, and that therefore FCS lenders should
not be subject to a broad reporting regime like section 1071. Third,
the commenter asserted that FCS lenders are distinguishable from other
lenders because their cooperative structure limits how their net income
can be utilized, meaning that compliance costs would be passed onto to
its Farm Credit customers since many FCS lenders also lack the
compliance infrastructure of large commercial lenders. Fourth, FCS
lenders are already subject to an existing regulatory reporting
framework through the FCA. Lastly, the commenter asserted that FCS
lenders should be exempt from a generally applicable reporting regime
because their loan data would prove misleading. Specifically, the
actual cost to the Farm Credit borrowers is usually less than the
loan's contract pricing would indicate because FCS lenders provide
their borrower-owners with patronage dividends from the FCS lenders'
profits, unlike commercial banks and other lenders.
Community banks, trade associations, community groups, and an
independent office of a Federal agency opposed the proposed FCS lender
exemption. A number of banks and trade associations urged the Bureau to
cover FCS lenders to ensure coverage of functionally identical lending
and provide a level playing field. These commenters argued that such an
exemption would add to the tax, funding, and regulatory advantages that
FCS lenders, regardless of asset size, hold over banks. These
commenters noted community banks make over 75 percent of bank-
originated agricultural loans, and that imposing extensive reporting
obligations on community banks while exempting FCS lenders would create
a regulatory imbalance.
A trade association for community banks and a number of banks
argued that exempting FCS lenders would disadvantage community banks,
CDFIs, and other non-FCS agricultural lenders, and advocated for banks
and FCS lenders to receive the same treatment for offering farm credit.
These commenters stated that FCS lenders are able to provide more
favorable loan terms and flexible payment options than community banks,
and that FCS lenders are undermining their statutory mission and
harming rural banks by increasingly competing in non-agricultural
lending by operating as general-purpose lenders. A trade association
for banks asserted that FCS lenders should not be categorically exempt
and that both the agricultural lending exclusion and the 1,000-loan
origination threshold should apply equally to all lenders. A trade
association implied that an FCS lender originating more than 1,000 non-
agricultural loans has deviated from a focus on agricultural lending
and should be subject to reporting data related to those loans. This
commenter further argued that an FCS lender that originates more than
1,000 loans in the rural area it is serving is a primary contributor of
credit services, and that failing to collect data from that lender
would provide an inaccurate portrayal of the small business lending
market.
An employee from a community bank stated that all entities
providing credit should be included in the definition of a ``covered
financial institution,'' regardless of the credit's purposes or form,
or whether the transaction is subject to a finance charge. Commenters
argued that exempting FCS lenders is contrary to the congressional
intent of section 1071, would distort the lending landscape, inhibit
analysis of unmet credit needs, and lead to reputational risk for FCS
lenders.
In reference to the statement in the 2025 proposed rule that FCS
lenders already report certain data, including race, ethnicity, and
gender from applicants, a bank trade association, community group, and
trade association for farms stated that FCA does not publish applicant-
level data, any such data can only be accessed by a FOIA request, that
FCA does not collect demographic information, and that FCS lenders are
not required to collect and report the data points required by the
section 1071 rule. One of these commenters argued that section 1071
data will provide an incomplete picture of credit availability where
FCS lenders operate if FCS lenders are excluded from the rule. Another
commenter disagreed with the Bureau's statement that FCS lenders are
already subject to regulatory compliance under the FCA as reasoning for
exempting from section 1071 data collection and reporting requirements.
This commenter stated that the goal of FCA oversight is to ensure
compliance by FCS lenders with the unique rules governing the Farm
Credit System, whereas it described the goals of section 1071 as
disclosure and providing a complete view of the small business
financing landscape for the benefit of the public, small businesses,
and regulators. A community group suggested that since FCS lenders have
years of experience submitting required data to FCA, the Bureau and the
FCA could coordinate to eliminate duplicative data requirements.
Some community banks focused on the favorable and unique regulatory
framework under which FCS lenders operate. One commenter noted a
crucial difference between FCS lenders and other financial
institutions--that community banks, which must compete for higher cost
deposits in the private sector to fund their operations, must compete
directly with FCS lenders, which are funded at a significantly lower
cost by a government guarantee. The commenter also stated that the FCS
lenders operate outside of safety and soundness supervision and
examination by Federal prudential regulators and are subject to
oversight by agricultural, rather than financial, committees in
Congress. Lastly, the commenter asserted that the FCS is not
accountable for compliance with the same rules and regulations as
community banks, including the Community Reinvestment Act (CRA), and
that FCS lenders would not be accountable for section 1071 small
business data collection and reporting if exempted.
A trade association for community banks suggested covering FCS
lenders in the final rule with phased compliance or tailored guidance
as an alternative to exclusion if implementation challenges exist for
FCS lenders. An independent office of a Federal agency recommended
monitoring of the FCS lending market to assess whether coverage would
be suitable in the future as regulatory frameworks and products
develop.
Final Rule
For the reasons set forth herein, the Bureau is excluding FCS
lenders from the ``covered financial institution'' definition in Sec.
1002.105(b).\39\ Consistent

[[Page 23551]]

with this exemption, the Bureau is deleting several references to FCS
lenders in commentary. This revision will simplify the rule by
narrowing its scope to core small business lending practices and
lenders. The revision will also avoid imposing reporting requirements
on a category of specialized lenders that are already subject to a
separate regulatory reporting scheme. The Bureau finds that an
exemption for FCS lenders will advance the statutory purposes of
section 1071.\40\ FCS lenders have a unique mission-driven structure,
and they operate in a specific regulatory environment.
---------------------------------------------------------------------------

\39\ As discussed with respect to Sec. 1002.104(b)(8) above,
the Bureau is also excluding agricultural lending as a covered
credit product. To the extent that a given financial institution can
point to multiple reasons why it does not qualify as a ``covered
financial institution''--i.e., both because it no longer meets the
raised activity threshold for non-agricultural loans, and because it
is an FCS lender--either independent reason would suffice. The
overlap reflects the Bureau's intent to ensure that these lenders
are excluded from coverage.
\40\ Because the Bureau is excluding FCS lenders at this time,
it need not address a commenter's assertion that it lacks authority
to require FCS lenders to report data.
---------------------------------------------------------------------------

The Bureau disagrees with the argument by commenters that FCS
lenders engage in functionally identical lending as other types of
lenders and should be covered under section 1071 to provide a level
playing field. The comments further reinforced the several significant
differences between FCS lenders and traditional financial institutions.
The FCS comprises a nationwide network of borrower-owned, cooperative
institutions with a statutory mandate to provide the agricultural
sector with reliable credit. FCS borrowers include agricultural and
related businesses as well as rural homeowners. As owners of the FCS
lending associations, these borrowers can receive patronage dividends
that reduce borrowing costs and make FCS loans difficult to compare to
loans issued by non-FCS lenders. The FCS cooperatives, as comments
pointed out, face limitations on which borrowers they are permitted to
lend to. Commercial banks, by contrast, are owned by shareholders;
credit unions, while member-owned, serve a wide range of customers,
provide a wide range of products and services, and lack a specific
charter that is exclusively focused on agriculture. These differences
between FCS lenders and other types of lenders, which the Bureau did
not meaningfully address in the 2023 final rule, make it difficult to
easily compare loans made by FCS lenders with those of other non-
cooperative lenders.
In issuing the 2023 final rule, the Bureau explained the decision
not to categorically exempt any specific type of financial institution
from the rule's coverage, stating that such exemptions ``would create
significant gaps in the data and would create an uneven playing field
between different types of institutions.'' \41\ The Bureau did not
appear to meaningfully consider the extent to which FCS lending differs
in kind from general-purpose lending.
---------------------------------------------------------------------------

\41\ 88 FR 35150, 35258 (May 31, 2023).
---------------------------------------------------------------------------

However, after having reviewed the comments on the 2025 proposed
rule and with a renewed focus on ensuring the consistent and smooth
initial collection of data from core lenders and products, the Bureau
believes it will further the purposes of section 1071 to commence the
data collection without including FCS lenders.
The existing reporting requirements of FCS lenders further supports
excluding FCS lenders.\42\ While the FCA and USDA reporting
requirements are not identical to those of this rule, there is
meaningful overlap, and the purposes of section 1071 are not advanced
by requiring the duplicate reporting of such detailed data to other
agencies. Moreover, requiring compliance with a second set of
potentially redundant reporting obligations may put FCS lending at a
disadvantage relative to other lenders that are not subject to the
reporting requirements and oversight of the FCA. The Bureau believes
that the rule's application to FCS lenders risks imposing
disproportionate regulatory complexity on them, many of which are
small, rural cooperatives lacking the compliance infrastructure of
large commercial lenders, despite the claims of commenters concerned
about the exclusion of larger FCS lenders. This added complexity
imposed on such lenders risks diminishing the quality of the data they
report to Bureau. Adding potentially redundant reporting requirements
would do little to advance the goals of section 1071.
---------------------------------------------------------------------------

\42\ For instance, the FCA already tracks data on the credit
needs of young, beginning, and small (YBS) farmers and ranchers.
Farm Credit Admin., Young, beginning, and small farmer lending,
<a href="https://www.fca.gov/bank-oversight/young-beginning-and-small-farmer-lending">https://www.fca.gov/bank-oversight/young-beginning-and-small-farmer-lending</a> (last visited Apr. 7, 2026) (``[E]ach [FCS] institution is
required to report to FCA yearly on operations and achievements
under its YBS program and to disclose YBS data in its own annual
report.'').
---------------------------------------------------------------------------

In response to comments that an exemption would permit FCS lenders
to compete unfairly--i.e., because they are beyond the oversight of
Federal banking regulators and related congressional committees, are
subject to a different regulatory regime (e.g., report to the FCA but
do not report under the Community Reinvestment Act), are the only
government-sponsored entity to compete directly with other lenders--the
Bureau observes that these provisions are by congressional design. As
other commenters noted, FCS lenders are subject to a separate
regulatory regime, subject to different incentives and strictures. All
of this appears to justify, rather than rebut, the rationale for
excluding FCS lenders, even the larger ones, from coverage under this
rule. In response to commenters arguing that FCS lenders should be
covered because they are providing non-agricultural credit beyond what
FCS rules permit, such comments appear to be anecdotal rather than
evidence of widespread practices. To the extent that such non-
agricultural lending actually violates laws or regulations that FCS
lenders are subject to, such concerns are within the purview of the
FCA. In any case, the Bureau intends to continue to monitor
developments in the FCS lending market to evaluate the appropriateness
of potentially including FCS lenders as covered financial institutions
in the future as products and regulatory frameworks evolve.
The Bureau is finalizing the revisions to Sec. 1002.105(b) to
exclude FCS lenders pursuant to its authority under ECOA section
704B(g)(2) to adopt exceptions to any requirement of section 1071 and,
conditionally or unconditionally, exempt any financial institution or
class of financial institutions from the requirements of section 1071,
as the Bureau deems necessary or appropriate to carry out the purposes
of section 1071.
105(b) Covered Financial Institution--Threshold Change
Proposed Rule
The 2023 final rule defined a covered financial institution as one
that has made at least 100 covered credit transactions to small
businesses in each of the two preceding calendar years.
The Bureau proposed to change this definition by increasing the
threshold from 100 covered credit transactions to 1,000 covered credit
transactions, explaining that it believed it would advance the
statutory purposes of section 1071 to commence the data collection
without including lower volume lenders under a 1,000-origination
threshold. The Bureau explained that the initial iterations of data
collection under the rule should focus on larger core lenders to better
ensure the smooth operation of the initial period of data collection.
Comments Received
The Bureau received many comments from banks and credit unions, as
well as

[[Page 23552]]

trade associations representing banks, credit unions, nondepository
lenders, fintechs, and small businesses, and an independent office of a
Federal agency in support of the proposal. Many of these commenters
stated that a higher threshold would ease the complexity and cost of
both implementation and ongoing compliance for smaller community banks
and credit unions. An independent office of a Federal agency stated
that smaller lenders typically have limited resources for compliance
and would have disproportionately higher costs relative to their
lending volume if the Bureau did not raise the origination threshold.
Many commenters stated that at a 100-loan threshold, increased
operational and compliance costs would likely be passed on to borrowers
or would result in less credit availability for small businesses. One
trade association argued that the 100-loan threshold risks discouraging
small business lending by the institutions best placed to offer
relationship-based credit. Other commenters predicted that some
institutions may reduce lending to stay under the threshold and to
avoid spending on compliance systems.
An advocacy group commented that the higher proposed threshold
promotes what it called regulatory equity, explaining that lenders just
above or below the threshold would have materially different compliance
burdens despite a small difference in loan volume. Two commenters
argued that a low threshold would limit the growth of smaller lenders,
while a higher one would foster competition, as community banks and
nonbanks typically are willing to extend credit to applicants that do
not meet conventional underwriting criteria, and might not do so if
faced with the cost and complexity of complying with this rule. The
advocacy group also stated that a higher threshold lowers compliance
costs for local lenders and allows them to provide more credit to small
businesses, including minority-owned, startup, and rural businesses.
Many commenters--including individuals, banks, credit unions, trade
associations, and advocacy groups--argued that a higher loan threshold
would still allow for the collection of accurate and robust data. An
independent office of a Federal agency, citing data in the proposed
rule, stated that the 1,000-loan threshold would still permit the
collection of data on 92 to 93 percent of the number of small business
loans and 60.3 to 62.0 percent of the dollar volume of such lending.
According to the independent office of a Federal agency, only smaller
institutions accounting for approximately 5.0 to 5.7 percent of
originations, and 24.1 to 26.1 percent of the dollar volume of small
business lending, would be excluded.
A trade association for nondepository lenders agreed with the
proposal's initial focus on core lenders, which it said would allow for
reporting infrastructure to develop in a stable and orderly manner that
promotes data integrity and consistency. Another commenter stated that
more accurate data collection would result from a focus on larger
lenders, which have more standardized data collection and reporting
systems, allowing the Bureau to draw meaningful insights before
collecting data from smaller lenders. Another commenter noted that
collecting data initially from core lenders would generate
statistically meaningful data from which to draw analyses about fair
lending patterns.
A number of commenters--including individuals, lenders, trade
associations for banks, fintechs, and other nondepository lenders--
suggested thresholds even higher than the proposal, ranging from 2,000
to 10,000 loans. One trade association stated that raising the
threshold further would reduce unnecessary regulatory burden while
still achieving the statute's purpose of monitoring small businesses
lending.
A few commenters noted that even many smaller lenders that do not
reach the new origination threshold will still be subject to fair
lending requirements by other regulatory agencies, including fair
lending oversight by Federal prudential regulators, through regulatory
programs such as the Community Reinvestment Act, and by State
regulatory bodies.
Finally, a few commenters supported the proposed origination
threshold, but sought further clarification from the Bureau on several
issues. One commenter sought clarification on how the effective date
applied to lenders under the 1,000 covered transactions as of January
1, 2028, whether lenders that later exceed the 1,000-transaction
threshold will receive a ramp-up period before having to comply fully
with the rule, whether the Bureau intended to maintain the two-year
look-back in the 2023 rule; how the Bureau expects lenders to monitor
their activity and prepare for potential future coverage; and tailored
expectations for institutions close to the 1,000-originations
threshold.
A number of other commenters, including many community groups,
advocacy groups, trade associations for small businesses, and two trade
associations for larger lenders opposed the proposal to raise the
origination threshold. Many of these commenters argued that raising the
threshold would encourage regulatory evasion, distort data sets, and
obscure risks to small business borrowers. A number of other commenters
argued that the increased origination thresholds, in conjunction with
the lowered small business revenue threshold, would create a strong
regulatory disincentive to serve the smallest businesses. By rendering
these loans unprofitable for banks to pursue, this dynamic would drive
small businesses to turn to more predatory loans, increasing
discriminatory behavior at local levels. Other commenters suggested
that raising the threshold and collecting less comprehensive data would
hinder fair lending enforcement and the identification of community
development needs, contrary to Congress's intent in enacting section
1071.
Several community groups and two trade associations for larger
lenders urged the Bureau to adopt a threshold below 1,000 loan
originations. Some recommended a 25-loan threshold, while others
recommended up to 500 loans as an appropriate threshold. One community
group argued that the loan threshold for this rule should be lower than
the threshold for loans under HMDA because mortgages are more common
than small business loans, and a lower threshold would more accurately
capture necessary data.
A community group and two trade associations for small farms
opposed the proposed 1,000-loan threshold disagreed with concerns about
the costs of data collection for smaller lenders. They argued that some
smaller lenders, such as CDFIs and farm lenders, are calling for robust
section 1071 data collection, noting that many of these lenders report
much of this data already. One trade association for small farms argued
that a higher threshold would result in a far less accurate picture of
the farm sector's credit needs, and that many lenders collect the data
required by the rule already. One community group stated that many
smaller lenders have already invested significant resources to comply
with the 2023 final rule. It also argued that lowering the threshold
would disproportionately hurt lenders that have already made efforts to
comply with the rule, and would also frustrate oversight and
enforcement of the CRA. Finally, an advocacy group and a coalition of
lenders and community groups argued that raising the origination
threshold was arbitrary and capricious. The coalition argued

[[Page 23553]]

that there was no empirical justification for abandoning the 100 loan
threshold, and that the proposed change was an arbitrary departure from
the prior rulemaking record.
Final Rule
For the reasons set forth below, the Bureau is finalizing the
proposed revisions to Sec. 1002.105(b) with respect to the requisite
loan origination threshold for being a covered lender. In the 2023
final rule, the Bureau explained its belief that a 100-loan origination
threshold would best address widespread industry concerns regarding
compliance burdens for the smallest financial institutions while also
capturing the overwhelming majority of the small business lending
market. It noted that while its original proposal in 2021 of a 25-loan
threshold would have yielded more data than a 100-loan threshold, the
100-loan origination threshold ``massively expands data availability
relative to the status quo.'' \43\ The Bureau also noted that a number
of commenters on the 2021 proposed rule requested a higher threshold,
such as 1,000 covered credit transactions but did not include an
analysis of the coverage that would result from such a threshold. At
that time, the Bureau received comments requesting thresholds higher
than 100 originations. The Bureau now agrees with commenters that
decreasing the number of covered financial institutions can still lead
to the collection of robust, accurate, and representative information.
The Bureau estimates that this final rule, at an originations threshold
of 1,000, will still cover the vast majority of small business loan
originations made by depository institutions (approximately 92 to 93
percent), compared with a 100-origination threshold (94 to 95 percent).
---------------------------------------------------------------------------

\43\ 88 FR 35150 at 35257.
---------------------------------------------------------------------------

The revised 1,000-loan origination threshold is justified for
several independent reasons. First, the Bureau believes that at the
onset of the data collection under section 1071 the focus should be on
core lenders and products before the Bureau considers whether it would
be appropriate to expand the scope of the rule. The Bureau believes
that larger volume lenders are core to small business lending. Indeed,
Sec. 1002.114(b) under the 2023 final rule prioritized the collection
of data from the largest volume lenders first because they have more
resources, and because they account for the bulk of small business
lending volume.\44\
---------------------------------------------------------------------------

\44\ See id. at 35438-40.
---------------------------------------------------------------------------

Second, the Bureau believes that the revised provision is
responsive to feedback received from stakeholders following publication
of the 2023 final rule and better aligns with E.O. 14192,\45\ which
directs the Federal agencies to review regulations for regulatory
burden. The Bureau believes that changing the originations threshold to
1,000 strikes a better balance at the onset of this rulemaking, as the
industry as a whole learns to grapple with compliance, by minimizing
complexity for smaller volume lenders while still collecting data on a
large proportion of small business credit applications; indeed, as the
Bureau observed with respect to the 100-loan threshold in the 2023
final rule, a 1,000-loan threshold will substantially increase data
availability as compared to the status quo. The Bureau recognizes that
the costs of implementation and compliance shared by small community
financial institutions can be significant and could potentially impact
their small business lending activity. Starting with data collection
from the core lenders will help the Bureau determine the appropriate
next steps with respect to community banks and other smaller volume
financial institutions.
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\45\ 90 FR 9065 (Feb. 6, 2025).
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The Bureau is not persuaded that a higher threshold will promote
regulatory equity for financial institutions. The Bureau does not
believe that it is possible to resolve this question of regulatory
equity at any threshold; whether the threshold is set at 100 loans or
1,000, there will always be lenders just above or just below the
threshold, resulting in differing compliance obligations.
The Bureau disagrees that the loan threshold should be raised even
higher, such as at thresholds of 2,000 to 10,000 loans. The Bureau
believes, based on experience with small business lending markets, that
thresholds much higher than 1,000 may lead to a decline in the
collection of data from mostly larger financial institutions that are
better able to comply with the cost and complexity of this rule. The
Bureau believes a threshold of 1,000 originations, instead of 100, is
more congruent with the statutory purposes of section 1071. The Bureau
does not believe that commenters have provided evidence to the
contrary.
The Bureau disagrees with commenters who posit that the threshold
should be lower, such as 25 or 500. The change to a 1,000-loan
origination threshold will result in a reduction in the number of
smaller institutions covered by the rule without a proportionately
large reduction in the volume of loan application-level data collected
by the rule.\46\ While the 1,000-origination threshold will carve out a
large number of mostly smaller depository institutions, the rule will
still cover the vast majority of small business loan originations
(approximately 92 to 93 percent) from such institutions. For that
reason, the Bureau disagrees with commenters expressing concern that
raising the threshold will lead to the collection of less robust and
accurate data, therefore not fulfilling 1071's statutory purposes. The
Bureau believes that the onset of data collection should commence with
core products and lenders, as larger lenders are better resourced and
can better sustain the complexities and cost of compliance with the
rule. The Bureau believes that it should work with larger lenders to
better understand potential difficulties associated with collecting
data before considering whether to expand the rule to require that
smaller lenders comply with the rule.
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\46\ See part V.D, tables 1 and 2 below.
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The Bureau is not convinced by the argument that the loan threshold
for this rule should be lower than the threshold for loans under HMDA.
Even assuming that mortgages are more common than small business loans,
and there may be reason to believe that they are not, a lower threshold
would not more accurately capture ``necessary'' data under this rule.
Necessity, in this context, is driven by the specific statutory
requirements of section 1071, not those of HMDA. Further, the argument
concerning the HMDA threshold does not address the core proposition of
this rulemaking--that at the onset of a data collection regime that the
focus should be on core lenders.
The Bureau believes that the commenters disagreeing with concerns
about the costs of data collection may be correct to observe that
certain lenders are calling for robust section 1071 data collection and
already collect such data. However, the Bureau has received statements
to the contrary in comment letters from a great number of other smaller
lenders and trade associations representing them. In short, while some
smaller lenders, including CDFIs and farm lenders, are eager for
section 1071 data collection and already collect and report much of
this data already, many other lenders have taken the contrary position
and have stated clearly that they are not ready to collect section 1071
data. The Bureau is not persuaded by the comment that raising the
origination threshold will disproportionately hurt lenders that have
already made efforts to comply with the rule. The Bureau acknowledges

[[Page 23554]]

that some lenders may have sunk costs that they are unable to recoup
despite no longer being covered. For additional information on the
Bureau's assumptions regarding this cost, see part VI.E.1. However, the
Bureau believes that lenders, in general, will experience longer-term
cost savings from being excluded from coverage. Further, the Bureau
does not believe that change in loan threshold would frustrate
oversight and enforcement of the Community Reinvestment Act.
The Bureau disagrees with the assertion by several commenters that
increasing the origination threshold is arbitrary and capricious. The
2025 proposed rule, as well as this final rule, clearly identified
reasoning and evidence in support of the change in loan origination
threshold. This reasoning and evidence is further supported by a range
of other comments received, and the analysis in this final rule. The
move to a 1,000-loan threshold, according to undisputed Bureau data,
will result in the collection of 92 to 93 percent of loan volume while
significantly reducing the cost to smaller volume lenders of complying
with the rule. Further, the comments received do not grapple with the
core proposition set out in the 2025 proposed rule--that as a practical
matter, it is more prudent at the onset of this data collection regime
to collect data from larger lenders that are better resourced and
better able to sustain the complexities and cost of compliance with the
rule, and that the Bureau can work with larger volume lenders to better
understand potential difficulties associated with collecting data
before considering whether to expand the rule to require that lower
volume lenders comply with the rule. Given this, the Bureau believes
increasing the threshold will remove regulatory burden from small
entities, and therefore the change is responsive to E.O. 14192.
The Bureau believes that increasing the threshold is necessary or
appropriate to carry out the purposes of section 1071 because the
complexity of compliance poses difficulties for lower volume lenders,
many of which have no previous experience at all with data collection
rules such as HMDA or CRA. The Bureau also recognizes commenters'
arguments that notwithstanding, these smaller entities will still be
subject to other fair lending requirements and examinations under State
law. The compliance complexity of the rule may result in decreased data
quality for those institutions, which would not advance the statutory
purposes of section 1071.
The Bureau also recognizes that, commenters' arguments
notwithstanding, these smaller entities that may no longer be subject
to this rule will still be subject to other fair lending requirements
and examinations under State law.
The revision in Sec. 1002.105(b) requires other changes. Section
1002.112(b) provides that a bona fide error is not a violation of ECOA
or Regulation B, subpart B. The provision cross-references numerical
error thresholds in appendix F. Under appendix F, a financial
institution is presumed to maintain procedures reasonably adapted to
avoid errors with respect to a given data field if the number of errors
found in a random sample of a financial institution's data submission
for a given data field do not equal or exceed the threshold in column C
of table 1 of appendix F.
The Bureau is finalizing the changes to appendix F as proposed to
conform to the changes to Sec. 1002.105(b), defining ``covered
financial institution,'' based on a revised origination threshold of
1,000 covered credit transactions. Specifically, column A of existing
appendix F lists ranges of small business lending application register
counts. The Bureau is eliminating the rows in table 1 associated with
application counts under 1,000, and revising the count in what was the
4th row to be ``1,000-100,000'' rather than ``500-100,000.''
105(b) Covered Financial Institution--Other Requests for Exemptions
Proposed Rule
Section 1002.105(b) in the 2023 final rule did not provide
exemption to any specific categories or types of financial institutions
from the definition of covered financial institution. The Bureau in the
2025 proposed rule also did not propose any revisions that would add
exemptions for specific categories or types of financial institutions
to the definition of covered financial institutions. The 2025 proposed
rule did not solicit comment on any such exemptions.
Comments Received
Asset-size exemption. Numerous banks, credit unions, and trade
associations urged the Bureau to adopt an asset-based, rather than an
originations-based, threshold to determine coverage. Two banks
suggested that an asset-based exemption would align with how other
regulatory thresholds are structured and would provide more
predictability for smaller lenders because, they said, loan volume can
fluctuate dramatically from year to year. Several banks and bank
employees noted that basing coverage on loan originations rather than
asset size could discourage smaller lenders from engaging in long-term
compliance planning because they could never be certain of their
coverage under the rule. These commenters further suggested that a loan
originations threshold could decrease credit availability for small
businesses because, in order to avoid costly compliance systems,
smaller lenders might alter their lending to avoid exceeding an
originations-based threshold.
Some commenters argued that an asset-size threshold would be better
tailored to the level of resources available to smaller lenders.
Several banks stated that smaller lenders do not have the operational
capacity to comply with the section 1071 rule and would need to adopt
costly new technology, staff, and resources. One trade association
suggested that the limited amount of data generated by smaller lenders
does not justify imposing these compliance costs.
Many commenters requested an exemption for financial institutions
with less than $10 billion in assets. One bank requested such an
exemption because, it said, such banks are relationship-based lenders
with limited market share, lower risk profiles, and business models
that differ fundamentally from larger core lending institutions. The
commenter added that this exemption would preserve competitiveness and
stability for community lenders, and preserve access to credit for
small businesses, while still allowing for the meaningful collection of
data to fulfill statutory objectives.
A community group rejected an asset-based approach to defining
``covered financial institutions,'' preferring a loan origination
threshold to an asset-based threshold because many small business loans
are made by smaller lenders, and also because asset size is not a
meaningful metric for nondepository institutions. The commenter added
that small businesses in smaller, rural communities are more likely to
seek credit from smaller banks and nonbanks because of a lack of larger
lenders, and that excluding banks based on asset-size would result in
an incomplete picture of small business lending in the United States.
FHLBs. A trade association for credit unions and a group of
government-sponsored enterprise (GSE) lenders requested an exemption
for Federal Home Loan Banks (FHLBs). The trade association argued that
FHLBs should be exempt because they are GSEs that

[[Page 23555]]

provide wholesale funding to their member financial institutions (such
as credit unions, community banks, and CDFIs) that, in turn, provide
credit to small businesses. FHLBs, according to this commenter, do not
lend to small businesses, and should be exempt because FHLBs do not
provide the type of lending contemplated by the 1071 rule.
The group of GSE lenders argued that FHLBs already are subject to
comprehensive regulations and oversight, and that the requirements of
the 1071 rule would be unnecessary and duplicative. They stated that
FHLBs

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