Bankers in Iowa and across the country are closely watching whether Congress is successful in its efforts to repeal a portion of the Dodd-Frank Act that requires financial institutions to report detailed information included in loan applications submitted by owners of small businesses.

Bankers are also keeping tabs on the Consumer Financial Protection Bureau, which has said it is reviewing what’s known as Section 1071 of the act.

Opponents to Section 1071’s requirements have raised concerns about the amount of data required to be reported, the costs associated with installing a software system to collect the data, lack of privacy protections for applicants and the potential misuse of the data.

“We support the backbone of the rule, which is to root out discrimination and make sure that borrowers of all types are getting a fair shake,” said Scott Willman, vice president and compliance officer for Iowa State Bank in Fairfield. “I don’t think any bank would be against the purpose of the regulation.

“The concerns we have are based on privacy and in the [publication] of the information. … There are a lot of things that will make it easy to identify a business” if information in the loan application is made public.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, was passed by Congress in 2010 in response to financial industry behavior that led to the 2007-08 financial crisis. In the years leading up to the crisis, financial industry regulations were loosened, allowing institutions to take excessive risks in lending money. The act created several new government agencies tasked with overseeing parts of the law, which introduced stricter rules and regulations for financial institutions.

The act requires lenders to collect and disclose data on small business and small farm lending. When originally proposed, Section 1071 of the act required the collection of 13 data points including the date the application was filed, whether the loan was approved or denied and if denied, the reason why.

The Consumer Financial Protection Bureau, one of the agencies created by the act, made revisions to the rule that now requires the collection of 81 data points. Among the data required to be collected are detailed demographic information about the applicant including sexual orientation, detailed information about the applicant’s business including gross annual revenue and number of employees, and information about the loan including, purpose, interest rate, term and origination fees.   

Some financial institutions must begin collecting the data in July and file a report with the bureau by June 1, 2026.

Several lawsuits have been filed challenging Section 1071. Plaintiffs have argued that the bureau exceeded its authority under the Dodd-Frank Act by requiring the collection of more data than Congress originally authorized. Some lawsuits also argue that the bureau is underestimating the cost of compliance and that the established deadlines are not feasible to meet.

Some courts have granted stays on the compliance deadlines. On April 30, the bureau announced that it would not begin enforcing the regulation on entities that are not affected by a stay granted by one federal court. “The Bureau looks forward to resolving the status of this regulation and ensuring fair, consistent treatment for all entities impacted by the regulation,” the bureau wrote in a news release. 

Legislation has also been introduced in both the House and Senate to repeal Section 1071. In April, the House Financial Services Committee approved legislation to repeal the section. The legislation has not yet been voted on by the full House.

Willman is hopeful that Section 1071 won’t be implemented. The detailed information required to be reported will make it easy to identify applicants of small business loans, he said, especially in small communities like Fairfield.

“In small rural areas, you’ve got a small pool of businesses in any one field,” Willman said. “It would make it pretty easy to identify exactly what business is taking out that credit.”

Information that is reported about the loan including interest rates and loan term could provide competing, larger financial institutions with enough information to undercut community banks, Willman said. “Those banks could seek out prospects that they really want and put some pressure on us as far as rates and terms. [The rules] put a lot of things out in the open that otherwise wouldn’t be in the open.

“We fear that that could take some dollars out of our local community,” he said.

The Iowa Bankers Association also is hopeful that Section 1071 is either repealed or overhauled.

The regulations require lenders to “collect some unnecessarily invasive information about their borrowers,” said Adam Gregg, the association’s president and CEO. “These are questions that have nothing to do with [the applicant’s] credit worthiness. … These are questions that would be illegal to be asked in a job interview but yet the government is requiring banks to ask these questions of their borrowers.”

The bureau has said that information about individual borrowers will be kept confidential. However, security breaches are becoming increasingly common including at governmental agencies, Gregg said. “How well can the government actually secure that information?”

Gregg said he would like to see Section 1071 return to its original format of requiring 13 data points be collected. In addition, the section defines small businesses as those with revenues of up to $5 million annually. Revising the definition of a small business to include only those with annual revenue of up to $1 million would be helpful, he said.

“It would reduce the compliance burden,” Gregg said.