By Andrew A. Turner, J.D.
The Consumer Financial Protection Bureau has released its fourth Fair Lending Report to Congress describing the bureau’s fair lending activities in supervision, enforcement, rulemaking, interagency coordination, outreach, and interagency reporting. The report covers the bureau’s fair lending work during calendar year 2015. During that year, the bureau’s fair lending supervisory and public enforcement actions directed institutions to provide approximately $108 million in remediation and other monetary payments. Looking ahead, the CFPB has begun to explore some of the issues involved in a small business data collection rulemaking, including consideration of statutory reporting requirements.
Cordray message. According to the CFPB Director Richard Cordray, the past year was especially productive for its Office of Fair Lending and Equal Opportunity, including the resolution of the largest redlining case in history, as well as a significant discrimination case. The Office’s continued examination and investigation of indirect auto lenders for compliance with the Equal Credit Opportunity Act resulted in the issuance of two prominent consent orders. In addition, the Office helped revise the Home Mortgage Disclosure Act’s Regulation C.
Ficklin message. Patrice Alexander Ficklin, Director of Fair Lending and Equal Opportunity, added that while the Office’s settlement administration, and mortgage and auto work continue to be priorities, there were significant strides in expanding efforts to assist consumers in other priority areas, including the credit card market. She also pointed out that the Office added small business lending to its priorities in order to address fair lending risks in that market.
Rulemaking. In October 2015, the bureau published a final rule to amend Regulation C, which implements HMDA. Among other changes, the final rule requires covered lenders to report additional data elements. In response to ongoing conversations with industry about compliance with Regulation C, the bureau, in January 2016, published a Request for Information on its HMDA data resubmission guidelines.
Small business data collection. Section 1071 of Dodd-Frank requires financial institutions to submit to the CFPB data on credit applications for women-owned, minority-owned, and small businesses. After outreach and research, the CFPB “will begin developing proposed rules concerning the data to be collected and determining the appropriate procedures and privacy protections needed for information-gathering and public disclosure.” The CFPB anticipates that small business lending supervisory activity will provide insight into “the credit process; existing data collection processes; and the nature, extent, and management of fair lending risk.”
Small-business lending. The report affirmed the bureau’s commitment to assessing and evaluating fair lending risk in all credit markets under its jurisdiction. In that regard, the bureau recently began targeted ECOA reviews of small-business lending, focusing in particular on the quality of fair lending compliance management systems and on fair lending risks in underwriting, pricing, and redlining.
Mortgage lending. The report stated that mortgage lending supervision and enforcement remains a key priority, with the Office focusing on Home Mortgage Disclosure Act data integrity and potential fair lending risks in the areas of redlining, underwriting, and pricing. In addition to resolving two public enforcement actions, the bureau’s mortgage origination work has covered institutions responsible for close to half of the transactions reported pursuant to HMDA. The Office’s supervisory work on mortgage servicing has included use of the ECOA Baseline Review Modules that help identify potential fair lending risk in mortgage servicing and inform prioritization of mortgage servicers.
Indirect auto lending. The bureau continued to oversee and enforce compliance with ECOA in indirect auto lending through both supervisory and enforcement activity, including monitoring compliance with previous supervisory and enforcement actions. According to the report, the bureau’s auto finance targeted ECOA reviews generally included an examination of three areas: (1) credit approvals and denials; (2) “buy rates”—the interest rates quoted by a lender to a dealer; and (3) any discretionary markup or adjustments to buy rates. The bureau’s indirect auto work has covered more than 60 percent of the auto loan market share by volume and, as noted in Cordray’s message, resulted in two public enforcement actions involving discriminatory pricing and compensation structures.
Credit cards. The bureau’s fair lending supervisory and enforcement work in the credit card market focused mostly on the quality of fair lending compliance management systems and on fair lending risks in underwriting, line assignment, and servicing, including the treatment of consumers residing in Puerto Rico or who indicate that they prefer to speak in Spanish. The work covered institutions responsible for more than 75 percent of outstanding credit card balances in the U.S.
Guidance. In May 2015, the bureau issued a compliance bulletin on the Section 8 Housing Choice Voucher (HCV) Homeownership Program. The bulletin reminded creditors of their obligations under the ECOA and Regulation B to provide non-discriminatory access to credit for mortgage applicants by considering income from the Section 8 HCV Homeownership Program. The Office also provided guidance and information on market trends through its Supervisory Highlights.
Outreach. According to the report, the bureau continues to initiate and encourage industry and consumer engagement opportunities to discuss fair lending compliance and access to credit issues, including through speeches, presentations, blog posts, webinars, rulemaking, public comments, and communication with Members of Congress.
Interagency coordination, collaboration. The bureau also continues to coordinate with the Federal Financial Institutions Examination Council agencies, as well as the Department of Justice, Federal Trade Commission, and Department of Housing and Urban Development, to enforce fair lending laws and regulations. In 2015, for example, the Office entered into a Memorandum of Understanding with HUD to formalize information-sharing between our agencies and maximize opportunities for joint investigations, when possible.
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