The CFPB Just Admitted It Got Section 1071 Wrong. Here's What Changes, and What's Still Uncertain.

After years of litigation, industry pushback, and now a funding crisis, the Bureau is proposing to dramatically scale back its small business lending data collection rule. But will the agency even exist long enough to finalize it?

The Regulatory Reversal Nobody Saw Coming

Two years ago, the CFPB released what it called a landmark rule: a sweeping data collection mandate that would shine a light on small business lending the way the Home Mortgage Disclosure Act illuminated mortgage markets. The agency envisioned capturing 81 data points from thousands of lenders, covering everything from interest rates to whether business owners identified as LGBTQI+.

The lending industry responded with lawsuits. Three separate courts issued stays. And the rule sat in limbo.

Now, the CFPB is doing something regulators rarely do: admitting it overreached.

On November 13, 2025, the Bureau published a proposed rule that would fundamentally reshape Section 1071 implementation. The proposal doesn't just tweak compliance timelines; it redefines who's covered, what products count, what data gets collected, and when any of it takes effect.

But here's the twist that makes this story more complicated: the agency proposing these changes may run out of money before it can finalize them.

What Section 1071 Was Supposed to Do

Section 1071 of the Dodd-Frank Act, passed in 2010, amended the Equal Credit Opportunity Act to require lenders to collect and report data on small business credit applications. Congress had three goals: facilitating fair lending enforcement, identifying business and community development needs, and enabling communities to spot opportunities for women-owned, minority-owned, and small businesses.

The statute required 13 specific data points. The CFPB, exercising its discretionary authority, expanded that to 81.

The agency believed this comprehensive approach would create a dataset comparable to HMDA data for mortgages. Industry groups warned that the complexity would burden lenders, harm small businesses, and produce data of questionable utility.

Turns out, the industry had a point, at least according to the CFPB's new leadership.

What the Proposed Amendments Would Change

The Bureau's November 2025 proposal represents a philosophical U-turn. Where the 2023 rule cast a wide net, the new approach focuses on what the agency calls "core" lenders, products, and data.

Covered Institutions: From 100 Originations to 1,000

The 2023 rule used a three-tier system based on origination volume, with the lowest threshold set at 100 covered transactions. The proposal eliminates the tiers entirely and raises the threshold to 1,000 covered credit transactions in each of the two preceding calendar years.

For institutions originating loans in 2026 and 2027, the new compliance date would be January 1, 2028, with first filings due June 1, 2029.

This single change would remove thousands of smaller lenders from Section 1071 coverage entirely.

Small Business Definition: $5 Million Becomes $1 Million

The 2023 rule defined a small business as one with gross annual revenue of $5 million or less. The proposal slashes that to $1 million or less, with inflation adjustments in $100,000 increments every five years starting in 2035.

The Bureau says this aligns with the Community Reinvestment Act's longstanding "smaller business" revenue metric and Regulation B's adverse action notice thresholds.

New Product Exclusions: MCAs, Agricultural Lending, and Small-Dollar Loans

Perhaps the most significant coverage change: merchant cash advances would be excluded entirely.

The 2023 rule explicitly included MCAs, prompting the Revenue Based Finance Coalition to sue, arguing MCAs aren't "credit" under ECOA. A Florida magistrate judge had recommended upholding the rule in February 2025, but the CFPB is now reversing course voluntarily.

The Bureau's reasoning is notable. It acknowledges that MCAs are "structured differently from traditional lending products" and that concepts like "interest rate" don't fit MCA pricing models. More striking, the agency now says it "erred in prematurely determining that collection of data on MCA transactions would serve section 1071's statutory purposes."

The proposal also excludes:

• Agricultural lending (transactions funding crop production, livestock, farmland, and farm equipment)

• Farm Credit System lenders

• Loans under $1,000 (with inflation adjustments)

  
  

Data Points: From 81 to the Statutory Core

The 2023 rule required lenders to collect and report data including pricing information, denial reasons, application method, and whether businesses were LGBTQI+-owned. The proposal strips most of these discretionary additions.

Data points proposed for removal:

• LGBTQI+-owned business status

• Application method

• Application recipient

• Denial reasons

• Pricing information (interest rate, fees, origination charges, broker fees)

• Number of workers

What remains: The statutory data points plus a small set of discretionary fields the Bureau considers necessary for those statutory fields to be useful, including NAICS code, time in business, and number of principal owners.

The demographic collection for sex would change from a free-form text field to binary male/female checkboxes. The Bureau states this change responds to stakeholder feedback that a free-form field "would likely result in poor data quality."

Anti-Discouragement Provisions: Scaled Back

The 2023 rule contained detailed anti-discouragement provisions, including monitoring of low response rates as potential "indicia of discouragement." The proposal removes or recasts these as guidance rather than requirements, while maintaining that institutions must have procedures "reasonably designed to obtain a response."

Why the CFPB Changed Its Mind

The preamble to the proposed rule offers unusual candor about the agency's reassessment.

The Bureau now "preliminarily believes that [the] reaction to the 2023 final rule, practically speaking, was in part based on its expansive approach, appearing to seek broad coverage of lenders, products, and information collected."

The agency also acknowledges compliance with "recent executive directives" as a factor in the revision, a reference to the Trump administration's regulatory reform agenda.

The Bureau frames the new approach as incremental: focus on core lending products and larger lenders first, ensure data quality, then potentially expand later based on experience.

The Litigation Backdrop

The proposed amendments don't exist in a vacuum. Three separate lawsuits challenged the 2023 rule, and each court stayed compliance deadlines.

Texas Bankers Association v. CFPB: Filed in April 2023 by the Texas Bankers Association, Rio Bank, and later joined by the American Bankers Association. A district court granted CFPB summary judgment in August 2024, but the Fifth Circuit granted a stay pending appeal in February 2025. The plaintiffs argued the rule exceeded statutory authority and was arbitrary and capricious.

Revenue Based Finance Coalition v. CFPB: Filed in December 2023, challenging the inclusion of MCAs. With the proposed amendments now excluding MCAs, this case may become moot.

Additional litigation: A consumer advocacy group sued to force faster implementation, but the CFPB's new rulemaking may affect that case's trajectory as well.

The Bureau expects litigation activity to pause during the rulemaking process, though how courts respond remains to be seen.

The Elephant in the Room: Will the CFPB Exist to Finalize This Rule?

Here's where the story takes a dramatic turn.

On November 11, 2025—two days before publishing the Section 1071 proposal—the Department of Justice notified federal courts that the CFPB anticipates exhausting its available funds in early 2026.

The Bureau's unique funding mechanism allows it to draw from the "combined earnings of the Federal Reserve System" rather than congressional appropriations. The DOJ's Office of Legal Counsel has now concluded that "combined earnings" means profits, not revenue. Since the Federal Reserve has operated at a net loss since 2022, there are currently no earnings from which the CFPB can legally draw.

The Bureau has enough money to operate through December 31, 2025. After that, absent congressional appropriation, it would face Antideficiency Act constraints, meaning most rulemaking, examinations, and enforcement would pause.

Comments on the Section 1071 proposal are due December 15, 2025. The agency may have only two weeks of normal operations remaining after the comment period closes.

Acting Director Russell Vought has stated his intention to wind down the agency. The CFPB has already transferred its remaining litigation to the Department of Justice and announced plans to furlough much of its workforce by year's end.

Whether a final Section 1071 rule ever emerges—and in what form—depends on factors far beyond the rulemaking record.

What This Means for Lenders

If You're Below 1,000 Originations

The proposed amendments would move you out of Section 1071 coverage entirely. No data collection, no reporting, no compliance build-out required.

However, don't dismantle your compliance planning yet. This is a proposed rule, not a final one. The agency's future is uncertain. And state regulators often increase activity when federal oversight recedes.

If You're Above 1,000 Originations

Plan for a January 1, 2028, compliance date under this proposal's framework. Consider beginning limited demographic collection 12 months prior to test systems and processes.

Conduct a gap assessment comparing your current Section 1071 build against the proposed changes. Key areas to evaluate:

• Removal of pricing components and denial reasons

• Revised demographic formats (binary sex field, potential aggregate-only race/ethnicity)

• Narrowing to core loan products

If You're an MCA Provider

The proposed exclusion of merchant cash advances is significant. If finalized, MCA providers would have no Section 1071 obligations.

That said, the Bureau states it "will continue to monitor developments in the markets for MCAs and other sales-based financing to determine whether over time a subset might be appropriately included." And state regulatory frameworks for MCAs continue evolving—New York, California, Utah, Virginia, and other states have enacted or are considering disclosure requirements.

If You're in Agricultural Lending

Farm Credit System lenders and agricultural credit products would be excluded under the proposal.

Key Dates to Watch

• December 15, 2025: Comment deadline for proposed amendments

• December 31, 2025: CFPB's expected funding exhaustion date

• January 1, 2028: Proposed compliance date (if rule is finalized)

• June 1, 2029: Proposed first filing deadline

The Bottom Line

The CFPB's proposed Section 1071 amendments represent a remarkable regulatory retreat. An agency that two years ago believed broad coverage would advance fair lending goals now acknowledges that approach may have been counterproductive.

For lenders, the practical question isn't just what the rule says, it's whether the agency will exist to enforce it.

Submit comments by December 15 if you have views on the proposal. Monitor the Bureau's funding situation. Watch for state-level activity that may fill any federal enforcement gap.

And prepare for continued uncertainty. In small business lending regulation, the only constant right now is change.