publicly available. That’s on purpose, as the ultimate reason for
this new requirement is stated right in the first section of the
The purpose of this section is to facilitate enforcement of
fair lending laws and enable communities, governmental
entities, and creditors to identify business and community
development needs and opportunities of women-owned,
minority-owned, and small businesses. 8
Just like HMDA, this information will be utilized to ensure fair
lending laws and regulations are followed. The regulatory agencies
(along with community groups and the public) will be provided
with new hard data on where some commercial applications and
loans came from and what the characteristics of the applicants
and borrowers are.
This will be much more than an operational requirement. Count
on this information being crunched much like HMDA data is
today, with statistical and regression testing being performed by
regulators and community groups alike. The examination process
will also likely be very HMDA-like, with data integrity, distributions, disparities, and file reviews being chosen as focal points
in future fair lending exams. As mentioned above, regulators are
already conducting commercial fair lending examinations.
For banks, analyzing small business lending will be easier since
there will be data on both minority- and non-minority loans. Right
now proxy data must be created, which is inherently unreliable.
But since demographic data will be available, reliable comparisons
(through disparities, comparative file review, regression, and so
forth) can be made. It will be more difficult for women- and
minority-owned larger businesses, since data will be collected
only for them and not for control group applications and loans
(to male- or nonminority-owned larger businesses).
But in the end, this means the bank’s responsibilities will be
much like HMDA: know your data and know your bank’s small
business, minority-owned business, and women-owned business situation.
The operational requirements of these new rules will be difficult to
implement, especially since there are few regulatory requirements
(especially like this) in the commercial loan environment. Some
lenders are likely to resist due to the time and hassle involved,
with no associated value added. And it’s never easy to institute a
brand-new set of information collection requirements anywhere,
with system and technology hurdles to overcome.
It’s in each bank’s best interests to start the planning process
now. We have a very good idea what is coming (at least the big
picture items) and since we don’t know whether the implementation period will be long or short, better to start now. Ask yourself
the following questions:
■ ■ ■ Do you have an application for small business loans? For larger
■ ■ ■ What is your definition of a “small business”?
■ ■ ■ Are you able to identify an application date?
■ ■ ■ Where might the required data points come from? Do you
collect them now? If not, what system or technology work
will need to be done to get them?
■ ■ ■ Where will you store the required data items, and can you keep
them separate from other data?
■ ■ ■ Will you be able to overcome any cultural obstacles to these
requirements within the bank?
■ ■ ■ Do you have the capabilities to analyze commercial fair lending data?
There is always the chance this section of Dodd-Frank could
be eliminated by Congress, or the Bureau could take an extremely
long time to implement it into a regulation. But don’t forget the
ultimate reason we have these new requirements: regulators are
concerned about fair lending risk in commercial lending.
Incorporate analysis of this new data into your fair lending
program as soon as you’re required to start collecting it. Don’t
wait for the examiners to tell you that you have a fair lending issue
with your commercial loans. ■
ABOUT THE AUTHOR
CARL G. PRY, CRCM, CRP, is managing director for
Treliant Risk Advisors in Washington, D.C., where he
advises clients on a wide variety of compliance, fair
lending, corporate treasury, and risk management
issues. Over the last 18 years, Pry has held senior
leadership positions including senior vice president and
compliance manager for Compliance and Control Department at
Key Bank in Cleveland, Ohio; vice president of regulatory services
at Kirchman Corp. in Orlando, Fla.; and manager in the Finance
and Performance Management Service Line at Accenture in
Chicago, Ill. He also serves on the ABA Bank Compliance magazine
Editorial Advisory Board. Reach him via email at firstname.lastname@example.org
or by telephone at (440) 320-4662.
1 Dodd-Frank Act section 1071(a), adding ECOA section 704B(g)( 2), ( 12
USC 1691 et. seq.).
2 Dodd-Frank Act section 1071(a), adding ECOA section 704B(b), ( 12 USC
1691 et. seq.).
3 12 CFR 202.2(f)
4 Comment 2 to 12 CFR 202.2(f)
5 Dodd-Frank Act section 1071(a), adding ECOA section 704B(h)( 4),
( 12 USC 1691 et. seq.), referencing section 1204(c)( 3) of the Financial
Institution Reform, Recovery, and Enforcement Act of 1989.
6 Dodd-Frank Act section 1071(a), adding ECOA section 704B(h)( 3), ( 12
USC 1691 et. seq.).
7 Dodd-Frank Act section 1071(a), adding ECOA section 704B(b)( 1), ( 12
USC 1691 et. seq.).
8 Dodd-Frank Act section 1071(a), adding ECOA section 704B(a), ( 12 USC
1691 et. seq.).
But don’t forget the ultimate reason we have
these new requirements: regulators are concerned
about fair lending risk in commercial lending.