Small Business Funders Must Stay Ahead of State Transparency Laws

We’re witnessing a regulatory pause right now, not a full stop. Section 1071 of the Dodd-Frank Act, which mandates demographic and lending data reporting from small business lenders and funders, may be effectively frozen at the federal level under the Trump administration.

But its implications are far from settled. Funders and counsel alike should use this moment to prepare.

Freeze Adds Complexity

President Donald Trump’s Jan. 20 executive order halted pending regulations, including Section 1071. But ambiguity reigns, thanks to the Consumer Financial Protection Bureau’s parting shot at the financial industry before its changeover of leadership.

The CFPB issued a report on Jan. 14 titled “Strengthening State-Level Consumer Protections.” The report contains recommendations to the states to update their financial protection laws, increase the enforcement authority of state attorneys general, and bolster private plaintiffs in lawsuits against industry participants.

Certain states have started to jump on the bandwagon. While enforcement of Section 1071 has been stayed at the federal level, states can still introduce and enforce their own legislation that mirrors aspects of Dodd-Frank. For example, jurisdictions such as New York may pursue state-level regulations aimed at similar goals of transparency and fairness in small business lending.

The patchwork regulatory reality means funders must navigate dual tracks: preparing for a potential federal revival while watching for state-specific mandates. Attorneys advising clients in the business lending or alternative financing space should flag this as a live compliance concern, even in the absence of an active federal requirement.

One of the most important developments came this spring when New York introduced legislation modeled directly after Title X of Dodd-Frank, dubbed the FAIR Business Practices Act. In many ways, it would do what Section 1071 and the CFPB sought to do—but faster, broader, and with higher stakes.

The proposal includes provisions that would extend state unfair, deceptive, and abusive practices laws, creating stricter enforcement mechanisms for small business financing practices. It would also include hefty civil penalties, transparency mandates, and class action power.

New York is effectively stepping into a federal vacuum, and it’s not alone. Pennsylvania and California are also deploying CFPB-like departments staffed by former federal enforcement attorneys. With these new laws on the horizon, funders need to be prepared for greater state-level scrutiny of their practices.

Recommendations for Practitioners

Even if Section 1071 is delayed—or reversed entirely via H.R. 976—the regulatory appetite for transparency and fair lending is unlikely to vanish. States may take it as a green light to accelerate oversight. This uncertainty calls for proactive steps from funders and their legal advisers.

Practitioners should advise clients to:

• Audit current data practices before collection and reporting becomes mandatory
• Closely monitor New York’s Fair Business Practices Act and similar efforts in Pennsylvania, California, and Illinois
• Coordinate compliance policies across jurisdictions to avoid a fragmented, state-by-state approach that leads to operational inefficiency or legal exposure

Federal Oversight’s Future

The freeze on Section 1071 is significant but not necessarily permanent. If political winds shift again, so could the regulatory landscape.

A new administration in 2028 could reinstate or modify Section 1071 enforcement. Practitioners should treat it as a dormant rule, not a dead one. The infrastructure and intent behind 1071—more data, transparency, and accountability—remain priorities for many policy makers.

Rather than wait for the rule to be resurrected in full force, legal and compliance teams should plan for a phased return of similar federal oversight.

Data Transparency Strategies

Waiting for a final mandate at either the federal or state level is a risky strategy. Forward-thinking funders are taking steps today to align operations with what tomorrow’s regulatory expectations might be.

Building out systems to collect pricing, demographic, and decision-making data—regardless of whether it’s yet required—is smart risk mitigation and can improve internal reporting, investor relations, and reputational strength.

Start by identifying your data blind spots:

• Can you consistently track key borrower characteristics?
• Are your underwriting decisions well documented and easily auditable?
• Is your pricing rationale transparent?

Work with counsel to formalize internal reporting policies, document data handling procedures, and audit tech tools for readiness. The CFPB maintains a sample demographic questionnaire form to help get started.

Transparency shouldn’t be treated as a compliance burden but as a long-term value driver. Funders who embrace this mindset early will be better equipped to respond to future regulation and gain trust in a market that’s becoming more data-driven by the day.

Outlook

Section 1071 may be on hold, but its spirit is very much alive—just shifting arenas. Regulatory uncertainty shouldn’t lead to inaction.

For legal and compliance professionals, this is a narrow but vital window to help clients future-proof their operations. Transparency is no longer optional—it is the direction the industry is heading.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jeffrey S. Paige is chief legal officer of CapFlow Funding Group and CFG Merchant Solutions Group.

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