The CFPB recently issued its fourth annual Fair Lending Report (“Report”) that provides an overview of the CFPB’s fair lending program as well as its rulemaking, supervisory and enforcement efforts during calendar year 2015. The Report covers multiple areas, including mortgage lending, auto finance, credit cards, and other product areas. Many of the findings and observations in the Report were previously released in the CFPB’s prior Supervisory Highlights.
The Report states that mortgage lending, including origination and servicing, continues to be a priority for the CFPB for both fair lending supervision and enforcement work. According to the Report, the CFPB’s areas of focus include HMDA data integrity and fair lending risks in redlining, underwriting, and pricing. The Report also notes that in 2015, the CFPB’s fair lending review efforts covered institutions responsible for close to half of the HMDA reportable transactions and more than 60% of the transactions reported by institutions subject to the CFPB’s supervision and enforcement authority.
With respect to fair lending supervision of mortgage lending, the Report describes certain examination observations where financial institutions failed to provide appropriate denial notices as set forth in Regulation B and failed to notify an applicant of the action taken within 30 days after receiving a completed application. The Report also notes violations of ECOA and Regulation B related to the treatment of protected sources of income. The CFPB reiterated its guidance that a blanket practice of denying applicants who rely on public assistance income, or a specific form of public assistance income, without an assessment of an applicant’s particular situation, may violate ECOA and Regulation B.
The Report also states that CFPB conducted targeted ECOA reviews to evaluate areas of heightened fair lending risk. These reviews focus on a specific line of business, including mortgages, and typically include a statistical analysis and also could include loan file reviews. According to the Report, in one or more examinations, the CFPB concluded that statistical disparities in underwriting outcomes resulted from illegal discrimination in violation of ECOA. In such instances, the Report notes that the CFPB will require the institution to pay remuneration to affected borrowers, which may include application or other fees, costs, and other damages. Institutions also may be required to re-offer credit.
With respect to fair lending enforcement, the Report indicates that in 2015, the CFPB announced four fair lending enforcement actions, including two in mortgage origination and two in indirect auto lending. With respect to mortgage origination, the Report provides a description of actions against Hudson City Savings Bank and Provident Funding Associates. The Hudson City Savings Bank matter involved a joint action by the CFPB and the DOJ alleging discriminatory redlining practices. The joint complaint alleged that the financial institution structured its business to avoid and thereby discourage residents in majority-Black-and-Hispanic neighborhoods from accessing mortgages. This matter resulted in a consent order that provides for payment of $25 million in direct loan subsidies to qualified borrowers in the affected communities, $2.25 million in community programs and outreach (including for targeted advertising to generate applications from affected neighborhoods, local partnerships with community-based or governmental organizations, and consumer education, credit counseling and financial literacy), and a $5.5 million penalty.
The Provident Funding Associates matter involved a joint action by the CFPB and the DOJ alleging discrimination in mortgage origination. The joint complaint alleged that from 2006 to 2011, the financial institution discriminated in violation of ECOA by charging African-American and Hispanic borrowers more in brokers’ fees than similarly-situated non-Hispanic White borrowers. The complaint alleged that the entity set risk-based interest rates and allowed brokers to charge a higher rate to consumers. The fees paid to brokers were made up of payments from increased interest revenue and through the direct fees paid by the borrower. The agencies alleged that the entity’s broker compensation policies caused unlawful discrimination against African-American and Hispanic borrowers in mortgage pricing. The consent order required the financial institution to pay $9 million to harmed borrowers.
The Report also notes that in 2015, the CFPB referred eight matters to the DOJ. The referrals covered a variety of practices, including discrimination in mortgage lending on the bases of the receipt of public assistance income, sex, marital status, race, color, and national origin, and discrimination in auto lending on the bases of age, receipt of public assistance income, sex, marital status, race, and national origin. In addition, the Report notes that at the end of 2015, the CFPB had a number of pending fair lending investigations and enforcement actions in settlement negotiations.
The CFPB’s Fair Lending Report is available at: http://files.consumerfinance.gov/f/documents/201604_cfpb_Fair_Lending_Report_Final.pdf.