Texas Tech University

Could the Dodd-Frank Act Put Rural Communities at Risk?

Elyssa Sanders

January 4, 2022

The implementation of Section 1071 of the Dodd-Frank Act could have disastrous consequences for small banks and the communities they serve.


With a comment deadline of Thursday (Jan. 6) and final regulations due shortly thereafter, Section 1071 of the Dodd-Frank Act (DFA) is intended to “facilitate enforcement of fair lending laws and enable creditors to identify business and community development needs and opportunities of women-owned, minority-owned and small businesses.” However, this new regulation could potentially hurt the very people it's designed to help. The increased data collection and reporting demands will place undue burden on small banks, which make the largest percentage of small business loans and are integral to the functioning of rural communities.  

Mike Mauldin
Mike Mauldin

According to Mike Mauldin, director of the Excellence in Banking Program in the Jerry S. Rawls College of Business at Texas Tech University, the data collection and reporting stipulated by Section 1071 will have little impact on perceived discriminatory lending because those data points are already accessible to banking regulators. Furthermore, without knowing borrowers' complete financial circumstances, it is impossible to determine whether lending discrimination has taken place, Mauldin said.

Additionally, because Section 1071 stipulates that “the data shall be made available to any member of the public upon request,” Mauldin predicts that community banks will be targeted by costly and time-consuming frivolous lawsuits and the disclosures could infringe on customer privacy and expose customers to fraud.


Mike Mauldin, director of Texas Tech University's Excellence in Banking Program, (806) 834-8851 or mike.mauldin@ttu.edu

Talking points

  • While big banks largely rely on transactional lending, small regional banks practice relationship-driven lending within their communities, building mutual trust and granting financial opportunities to customers who might be disqualified on the basis of credit score alone. Small banks grant the majority of small business loans and thus power the engine of rural America.
  • DFA Section 1071 will disproportionately burden community banks, which lack the resources and the staff to comply with these new data collection and reporting requirements, disincentivizing small banks from granting loans and increasing the cost of the loans they make.
  • While DFA Section 1071 aims to create more opportunities for minority-owned and small businesses, it will have the opposite effect by crippling the banks most willing to extend those opportunities.
  • DFA Section 1071 takes an ineffective one-size-fits-all approach to a heterogenous industry. Establishing a threshold, such as $100 billion in assets, for the implementation of the proposed regulation would help preserve the community-centered relationship lending that gives small businesses a fighting chance.


  • “DFA Section 1071 will ultimately be detrimental to what legislators are trying to accomplish. If you want to address community needs and development, you should do something, like curtailing compliance costs, to slow mergers and acquisitions of small banks and afford those banks more opportunities to lend.”
  • “Diversity, equity and inclusion (DEI) are very important. Bankers in local communities get business by making themselves accessible to the entire population and building relationships with each and every customer. But DFA Section 1071 will have the opposite effect of promoting DEI. We applaud the intent, but based on the research, it's the wrong methodology.”
  • “This bleeding has to stop or we're not going to have any locally-focused lenders left in rural America.” 

More Resources

Mauldin co-authored the article, “A Comment on Implementing Section 1071 of the Dodd-Frank Act,” with Drew Winters, a professor of finance in the Jerry S. Rawls College of Business, and Texas Tech graduate student Bailey Allen. The article was published in Bankers Digest last month.