Finance term
Regulation B (Reg B)
Also known as: Reg B
Definition
Regulation B is the CFPB rule implementing ECOA. It sets the operational requirements for credit application data collection, adverse action notices, record retention, and — through Section 1071 — small-business lending data reporting.
Detailed explanation
Regulation B (12 CFR Part 1002) is the operational counterpart to ECOA, just as Regulation Z is to TILA. While ECOA establishes the legal prohibition on credit discrimination, Reg B defines the mechanics: when lenders must send adverse action notices, what information they must collect on applications, how long records must be kept, and what credit evaluation criteria are permissible.
For small-business lenders, the most significant Reg B development in recent years is the Section 1071 amendment. The CFPB's 1071 rulemaking updated Reg B to require covered lenders to collect data on small-business applications — including the race, sex, and ethnicity of principal owners — and report that data to the CFPB annually. The goal is to surface lending disparities that might indicate discriminatory patterns.
For business owners interacting with the credit system, Reg B is most practically relevant through adverse action notices. If you're denied a business loan from a covered lender, Reg B governs your right to a written explanation. It also prohibits lenders from asking for information about marital status or spouse's income in most business credit contexts.
◈ Worked example
- A bank denies your SBA loan application. Under Reg B, you're entitled to a written adverse action notice listing specific reasons — 'insufficient cash flow' and 'insufficient collateral' are compliant reasons; 'business owner's ethnicity' is an ECOA/Reg B violation.
- Section 1071 (Reg B amendment) requires large lenders to start collecting small-business applicant demographic data. This means your lender may ask for principal owner race/sex voluntarily — they're required to collect it but cannot use it to decide your loan.
- A lender can ask for revenue, time in business, and credit score. They cannot ask marital status or require information about a spouse's finances for a business credit application unless the spouse is a co-applicant.
Common questions
The most-asked questions about Regulation B (Reg B) — answered straightforwardly.
Is Reg B the same as ECOA? +
No, but they work together. ECOA (15 USC 1691) is the federal statute — the law passed by Congress. Regulation B (12 CFR Part 1002) is the CFPB rule that implements ECOA, setting the specific operational requirements. Think of ECOA as the 'what' and Reg B as the 'how.'
What does Reg B require lenders to do when declining a business loan? +
For commercial credit, the lender must provide an adverse action notice within a reasonable time (or 30 days). The notice must state the specific reasons for the adverse action or inform the applicant they have the right to request the reasons within 60 days. Unlike consumer credit, for business credit the applicant must specifically request the reason statement.
What is the Section 1071 rule and when does it take effect? +
The CFPB finalized its Section 1071 small-business lending data rule in 2023. It requires lenders who originate above threshold volumes of small-business credit to collect and report applicant demographic data. Implementation is phased by lender size, starting with the largest lenders first. Check the CFPB website for current compliance deadlines.
Further reading
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