The Section 1071 small business lending reporting rule takes effect on June 30, 2026, with compliance beginning January 1, 2028. Recent amendments significantly narrow the scope of the rule by reducing the number of covered financial institutions, excluding several categories of transactions, eliminating a number of reporting requirements, and simplifying demographic data collection. The amendments reflect the Consumer Financial Protection Bureau's stated intent to launch the Section 1071 reporting regime with a more limited set of covered institutions, products, and data points. While the rule is substantially less burdensome than the version finalized in 2023, larger small-business lenders should continue preparing for the January 1, 2028, compliance date.
Narrower Institutional Coverage
The amendments substantially raise the threshold for determining whether a lender is a covered financial institution. Instead of applying to institutions that originated at least 100 covered credit transactions for small businesses in each of the two preceding calendar years, the rule now applies only to institutions that originated at least 1,000 covered credit transactions in each of the two preceding calendar years. The amendments also exclude Farm Credit System lenders from coverage.
This change removes many lower-volume small-business lenders from the reporting regime. Institutions approaching the 1,000-origination threshold, however, should continue developing reliable processes for identifying and counting covered transactions because those calculations determine whether the rule applies.
Smaller Definition of "Small Business"
The amendments also narrow the definition of "small business." Under the revised rule, a business generally qualifies as a small business only if it had $1 million or less in gross annual revenue during its preceding fiscal year, replacing the prior $5 million threshold.
Lenders that previously designed systems, forms, and policies around the higher-revenue threshold should review and update those processes accordingly.
Narrower Transactional Coverage
The amended rule excludes several categories of transactions from the definition of a covered credit transaction, including:
- Merchant cash advances
- Agricultural lending and
- Business credit transactions of $1,000 or less
The exclusion of merchant cash advances is particularly notable because the 2023 rule expressly covered those products. The CFPB explained that additional evaluation of the MCA market is appropriate before determining whether and how those products should ultimately become part of the federal reporting framework.
The Bureau also concluded that agricultural lending is already subject to other reporting regimes and that requiring reporting for very small business credit transactions would impose compliance burdens disproportionate to the value of the resulting data.
Reduced Data Points
The amendments eliminate several discretionary reporting requirements. Covered financial institutions will no longer be required to collect or report:
- Application method
- Application recipient
- Denial reasons
- Pricing information
- Number of workers or
- LGBTQI+-owned business status
The removal of pricing information represents one of the most significant reductions in the compliance burden. Under the 2023 rule, institutions would have been required to report interest rates, origination charges, broker fees, annual charges, merchant cash advance costs, prepayment penalties, and other pricing information.
Covered financial institutions must still collect and report the core Section 1071 data set, including the application date, credit type, credit purpose, amounts applied for and approved, action taken, census tract, gross annual revenue, NAICS code, time in business, minority-owned and women-owned business status, principal owners' demographic information, and the number of principal owners.
Changes to Demographic Data Collection
The amendments simplify demographic data collection.
Covered financial institutions are no longer required to ask whether an applicant is an LGBTQI+-owned business. In addition, institutions now collect principal owners' race and ethnicity using aggregate categories only (e.g., Asian), rather than both aggregate and disaggregated categories (e.g., Asian, Chinese). For principal owners' sex, the rule requires the use of male/female response options.
Applicants retain the right to decline to provide demographic information. Institutions should update customer-facing forms, electronic interfaces, and internal procedures to reflect the revised requirements.
Compliance Date and Look-Back Period
Although the rule becomes effective on June 30, 2026, all covered financial institutions must begin complying on January 1, 2028.
Coverage generally will be determined based on whether a financial institution originated at least 1,000 covered credit transactions for small businesses during both calendar years 2026 and 2027. The rule also includes an optional transition provision allowing institutions to use calendar years 2025 and 2026 for the initial coverage determination, if they choose.
Grace Period
The CFPB retained a 12-month grace period for the first year of data collection. From January 1, 2028, through December 31, 2028, the Bureau generally does not intend to assess penalties for unintentional, good-faith reporting errors or require resubmission unless errors are material.
Key Takeaway
The amendments substantially reduce the scope of the Section 1071 rule. Many institutions that would have been covered under the original 100-origination threshold are no longer subject to the reporting requirements, and covered institutions will collect and report a significantly smaller set of data.
The rule, however, remains in effect. Financial institutions that may approach the new 1,000-origination threshold should continue preparing for compliance by confirming which products remain covered, updating revenue-screening and demographic data collection processes, and monitoring CFPB filing instructions and technical guidance as the January 1, 2028, compliance date approaches.
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