The implementation of Section 1071 of the Dodd-Frank Act: the legal exposure of banking

Purpose This study aims to determine whether implementation of the Consumer Financial Protection Bureau’s (CFPB) rule will achieve the goal of providing data for preliminary analysis of banks compliance with fair lending regulations. Design/methodology/approach Empirical analysis of the CFPB’s implementation of Dodd–Frank Section 1071. Findings The data available under the CFPB’s rule will suggest that banks provide less access to minority borrowers, which would be a violation of fair lending regulations. The authors show that the addition of a simple credit risk variable shows that community banks provide fair access for minority borrowers to loans. Research limitations/implications The analysis is limited to one year of the Fed’s Small Business Credit Survey (2017). Also, the authors are limited to the data collected by the survey. Practical implications Bank regulations tend to be one size fits all, which creates high compliance costs for small (community) banks with questionable benefits. The implementation of Section 1071 appears to be another example of this pattern, as the results suggest that the implementation of the CFPB’s rule for Section 1071 is unlikely to achieve its goals. Social implications The results have significant public policy implications for the design and implementation of banking regulations. Originality/value To the best of the authors’ knowledge, this study is the first research project on the topic.