CA To Mandate State Fair Lending Examinations

The California Fair Lending Examination Act (CFLEA) will require the Department of Financial Protection and Innovation (DFPI) to conduct examinations for compliance with nondiscrimination laws applicable to mortgage lending.  The law will apply to three types of financial institutions: (i) banks subject to the California Banking Law that meet either of the loan volume thresholds in HMDA’s Regulation C; (ii) credit unions subject to the California Credit Union Law (CCUL) that meet either of the loan volume thresholds in HMDA’s Regulation C; and (iii) mortgage lenders or servicers licensed under the California Residential Mortgage Lending Act (CRMLA).

Banks and credit unions will be examined under the CFLEA at least once every four years with the possibility of obtaining an exemption or reduction in frequency of examination if the latest CFLEA exam results showed full compliance with applicable nondiscrimination laws. CRMLA licensees will be examined at least once every 48 months, or more frequently if DFPI deems it necessary and appropriate with no opportunity for an exemption.

During a CFLEA examination, DFPI will review the entity for compliance with any nondiscrimination law applicable to mortgage lending, including ECOA, the federal Fair Housing Act, the California Fair Employment and Housing Act (CFEHA), the Holden Act, and the Unruh Civil Rights Act.  Upon completion, the DFPI will issue a written statement of findings to the financial institution’s principals, officers, or directors and take steps to require corrections of any violations cited in the exam report.  For banks and credit unions, this includes correcting any violations of the CFEHA that are not attributable to a legitimate business interest of the bank or credit union.  Subject to limited exceptions, the CFLEA exam reports are confidential.

A violation of an applicable nondiscrimination law could result in an enforcement action under the Banking Law, CCUL, CRMLA, or the California Consumer Financial Protection Law.

The law will become effective on January 1, 2027.