CFPB Proposes Narrowed Small Business Lending Rule to Implement Section 1071 of the Dodd-Frank Act

On November 13, 2025, the Consumer Financial Protection Bureau (CFPB) issued a “reconsideration rule” that proposes significant revisions to its rule to implement Section 1071 of the Dodd-Frank Act (DFA). Section 1071 requires financial institutions to collect and report data on credit applications for women-owned, minority-owned and small businesses to enforce fair lending laws and identify community development needs.  

Based on stakeholder feedback, ongoing litigation and recent executive directives, the CFPB now proposes a narrower, incremental approach in its rulemaking. The CFPB cited several reasons for this newest proposal, including: (i) narrowing the scope of the rule to focus on core lending products and to reduce complexity and errors, thus improving reliability and data quality; (ii) reducing compliance burden for smaller institutions that may lack infrastructure for complex reporting; (iii) providing greater market stability by avoiding chilling effects on small business lending caused by high compliance costs; (iv) mirroring existing data collecting regimes, such as that of the Home Mortgage Disclosure Act, by adopting an incremental data collection approach; and (v) streamlining the regulation to align with recent executive orders issued by the Trump administration.

Key Proposed Changes

1. Reduces the Scope of “Covered Credit Transactions”

The CFPB intends to limit the types of transactions subject to reporting in order to focus data collection efforts on core lending products—loans, lines of credit and credit cards—that are most utilized by small businesses:

• Excludes Merchant Cash Advances (MCAs): Previously included under the broad definition of “credit,” MCAs will now be excluded due to their structural differences from traditional loans and evolving state-level regulation that may govern these products as being distinct from credit products. CFPB argues that MCA data would not meaningfully advance Section 1071’s purposes and could introduce complexity and poor-quality data.
• Excludes Agricultural Lending: Loans for crop production, livestock, farmland and farm equipment will be exempt. Agricultural lending is highly specialized, already subject to Farm Credit Administration oversight and differs significantly from general small business lending.
• Excludes Small-Dollar Business Credit: Transactions of $1,000 or less will be excluded. CFPB believes these loans are rare and that collecting data on them would add complexity without providing meaningful benefit.

2. Narrows Definition of “Covered Financial Institutions”

The rule narrows institutional coverage such that smaller lenders will be exempt, thus significantly reducing compliance costs and complexity:

• Raises Origination Threshold from 100 to 1,000: The proposal would raise the origination threshold under the rule such that a lender will only be covered if it originated 1,000 or more covered credit transactions in each of the two preceding calendar years. This change focuses on larger lenders with greater resources and reduces burden on smaller institutions, while still capturing over 90% of small business loan originations.
• Excludes Farm Credit System Lenders: These types of lenders operate under a separate regulatory framework and already report demographic data to the Farm Credit Administration.

3. Revises Definition of “Small Business”

The gross annual revenue threshold will drop from $5 million to $1 million, allowing the rule to focus on collecting data related to micro and small enterprises, which are most relevant to Section 1071’s goals:

• Aligns with Community Reinvestment Act standards and existing Regulation B adverse action notice requirements.
• Better reflects “truly small businesses” and reduces regulatory burden.

4. Reduces the Number of Collected Data Points

The CFPB proposes to remove several discretionary data points adopted in 2023, and instead focus on the collection of data points specifically set out in the DFA and only a few essential discretionary points (e.g., NAICS code, time in business, number of principal owners), with the goal of improving data quality and reducing operational burden:

• Eliminated:
  • Application method (in-person, online, etc.)
  • Application recipient (direct vs. third-party submission)
  • Denial reasons
  • Pricing information (interest rates, fees, prepayment penalties)
  • Number of workers
  • LGBTQI+-owned business status
• Modified:
  • Demographic data collection will comply with Executive Order 14168, requiring binary sex categories (male/female) and removing gender identity references.
  • CFPB seeks comment on whether to eliminate disaggregated race/ethnicity categories and collect only aggregate categories to reduce complexity.

5. Simplifies Time and Manner of Data Collection

The CFPB proposes the following procedural requirements which would allow institutions flexibility in how they comply with statutory requirements:

• Removes anti-discouragement provisions and monitoring obligations (e.g., tracking low response rates).
• Eliminates prescriptive rules on timing and manner of collection, replacing them with flexible guidance.
• Maintains applicant rights to refuse demographic questions and requires institutions to inform applicants of these rights clearly.

6. Extends and Adopts Uniform Compliance Date

The rule proposes a uniform compliance date that would provide clarity and also provide additional time for institutions to adjust systems and processes:

• Single compliance date of January 1, 2028, for all covered institutions, with coverage based on an institution’s originations in 2026 and 2027.
• Eliminates tiered compliance dates and transitional options.

Next Steps

The CFPB has proposed a 30-day public comment period with comments due to the agency by December 15, 2025. We note, however, that several commenters have already requested that CFPB extend the comment period by an additional 60 days, citing the need for more time to analyze the breadth of the proposed 1071 changes and highlighting that with the same 30-day deadline.

Please reach out to any of the authors or the Manatt professional with whom you work if you have questions about this rule or would like assistance with providing commentary on these proposed changes.