Equity in Lending: The Consequences and Challenges of Section 1071's Amendments for Financial Institutions and Diverse Business Owners

Abstract

This paper delves into the ramifications of the Dodd-Frank Wall Street Reform and Consumer Protection Act's (``DFA'') Section 1071 amendments, as interpreted and implemented by the Consumer Financial Protection Bureau (CFPB) in 2023. Using new survey data of 2,996 respondents, I analyze the sentiments and comfort levels of borrowers, specifically minority, women, and LGBTQI+ owned small businesses, in sharing sensitive personal information (racial/ethnic identity and sexual orientation) with financial institutions. I find a pronounced reluctance among these groups, with significant implications for both the intended objectives of the legislation and the operational frameworks of covered financial institutions. I investigate the dichotomy between the legislative aim to enhance transparency and fair lending practices and the apprehension of borrowers towards disclosing personal information, exacerbated by heightened awareness of data security incidents. The results underscore the need for a nuanced approach to implementing Section 1071, balancing the pursuit of transparency and fairness with the legitimate privacy and security concerns of borrowers.

Keywords: Consumer protection; Dodd-Frank Act; regulation

JEL Classification: C93, G21, G28, G41