[Federal Register Volume 81, Number 92 (Thursday, May 12, 2016)]
[Notices]
[Pages 29533-29550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11138]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Fair Lending Report of the Consumer Financial Protection Bureau, 
April 2016

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Fair Lending Report of the Consumer Financial Protection 
Bureau.

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SUMMARY: The Bureau of Consumer Financial Protection (CFPB or Bureau) 
is issuing its fourth Fair Lending Report of the Consumer Financial 
Protection Bureau (Fair Lending Report) to Congress. We are committed 
to ensuring fair access to credit and eliminating discriminatory 
lending practices. This report describes our fair lending activities in 
prioritization, supervision, enforcement, rulemaking, research, 
interagency coordination, and outreach for calendar year 2015.

DATES: The Bureau released the April 2016 Fair Lending Report on its 
Web site on April 29, 2016.

FOR FURTHER INFORMATION CONTACT: Anita Visser, Policy Advisor to the 
Director of Fair Lending, Office of Fair Lending and Equal Opportunity, 
Consumer Financial Protection Bureau, 1-855-411-2372.

SUPPLEMENTARY INFORMATION:

[1]. Fair Lending Report of the Consumer Financial Protection Bureau, 
April 2016

Message From Richard Cordray, Director of the CFPB

    When Congress established the Consumer Financial Protection Bureau, 
the goal was to shine a light on unfair and discriminatory practices in 
the financial system. The legislation specifically tasked the Office of 
Fair Lending and Equal Opportunity with this critical obligation, but 
our commitment to finding and eliminating these practices extends 
throughout the Bureau. Indeed, ensuring fair and nondiscriminatory 
access to credit goes to the core of the Bureau's mission: Protecting 
consumers and promoting openness in America's financial markets.
    The past year has been especially productive for the Office of Fair 
Lending. In the mortgage market, they teamed up with the Department of 
Justice to resolve the largest redlining case in history against Hudson 
City Savings Bank (since acquired by M&T Bank), which will pay nearly 
$33 million in direct loan subsidies, funding for community programs 
and outreach, and a civil penalty. In that case, which arose out of a 
fair lending supervisory review at Hudson City, the Bureau found that 
Hudson City provided unequal access to credit by structuring its 
business to avoid and thus discourage access to mortgages for residents 
in majority-Black-and-Hispanic neighborhoods \1\ in New York, New 
Jersey, Connecticut, and Pennsylvania. The Office of Fair Lending also 
resolved a significant discrimination case involving Provident Funding 
Associates based on our finding that over 14,000 African-American and 
Hispanic borrowers paid more in mortgage brokers' fees than did 
similarly-situated non-Hispanic White borrowers. The Office also helped 
revise the Home Mortgage Disclosure Act's Regulation C such that 
mortgage lenders will begin collecting a more comprehensive set of 
mortgage loan data starting in 2018, which will allow regulators, 
lenders, researchers, and the public to better pinpoint and address 
potential discrimination in the mortgage market, among other important 
goals.
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    \1\ ``Majority-Black-and-Hispanic neighborhoods'' or ``majority-
Black-and-Hispanic communities'' means census tracts in which more 
than 50 percent of the residents are identified in the 2010 U.S. 
Census as either ``Black or African American'' or ``Hispanic or 
Latino.''
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    The Office of Fair Lending also has continued to examine and 
investigate indirect auto lenders for compliance with the Equal Credit 
Opportunity Act. Last year brought two noteworthy results, with 
prominent consent orders issued for American Honda Finance Corporation 
and Fifth Third Bank. In both matters, the Bureau alleged that the 
lender's policy of discretionary dealer markup resulted in minority 
borrowers

[[Page 29534]]

paying more for loans without regard to their creditworthiness. The 
lenders agreed to reduce substantially the amount of discretion they 
permit dealers to mark up such loans and to pay a combined total of $42 
million in restitution to harmed consumers. Our supervisory and 
enforcement work remains ongoing, as shown by our recent similar action 
against Toyota Motor Credit, and I urge indirect auto lenders to 
carefully consider the terms of these orders as they evaluate 
compliance in their own lending programs.
    One tangible outcome of the Office of Fair Lending's dedication is 
the money they help return to harmed consumers. When an enforcement 
action is resolved, typically much more work must be done before 
consumers see the benefits. Last year, the Office worked with Synchrony 
Bank (formerly GE Capital Retail Bank) to complete payments of over 
$200 million to consumers who were excluded from debt relief offers 
because of their national origin. They also worked with PNC Bank 
(successor to National City Bank) to complete payments of over $35 
million to tens of thousands of African-American and Hispanic borrowers 
who were charged higher prices on their mortgage loans. Finally, they 
worked with Ally Financial Inc. and Ally Bank to complete payments of 
over $80 million to over 300,000 borrowers who experienced 
discrimination in the pricing of Ally's auto loans. In addition to 
money returned to consumers through public enforcement actions, we 
achieve additional redress for consumers through the supervisory 
process. These results demonstrate the Office of Fair Lending's 
commitment to bettering the lives of consumers by ensuring fair, 
nondiscriminatory access to credit.
    The list of fair lending successes is even longer, as this report 
attests. We share our work in many ways, including guidance through 
Supervisory Highlights, industry and consumer outreach, and productive 
discussions with policymakers, including members of Congress. We 
welcome such dialogue because an integral part of the Bureau's 
commitment to diversity and inclusion is engaging many different voices 
in a broad discussion of these critical issues. The pursuit of civil 
rights has always required perseverance, and I am proud of the work my 
Fair Lending colleagues do to move forward in this important area.
    We are proud of the Bureau's work in 2015 and the successes of our 
Fair Lending team. And we are thankful for the continued interest that 
so many people have in our fair lending work.

Sincerely,

Richard Cordray
Message from Patrice Alexander Ficklin
Director, Office of Fair Lending and Equal Opportunity

    This past year, 2015, has been one of tremendous growth and 
accomplishment for the CFPB's Office of Fair Lending and Equal 
Opportunity. From enforcement and supervision to outreach and 
rulemaking, our office is dedicated to using the tools Congress 
provided to achieve our mission: Fair, equitable, and nondiscriminatory 
credit for consumers.\2\ After the whirlwind of getting on our feet and 
``standing up'' the Bureau, we have continued to solidify our presence 
in now-familiar markets and explored new and emerging issues in other 
markets. This is an exciting new phase in the Bureau's tenure that 
promises to make lasting improvements in the lives of America's 
consumers.
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    \2\ Dodd-Frank Act, section 1013(c)(2)(A), Public Law 111-203, 
124 Stat. 1376 (2010) (codified at 12 U.S.C. 5493(c)(2)(A)).
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    As part of the Office of Fair Lending's statutory responsibility 
for oversight and enforcement of the Equal Credit Opportunity Act \3\ 
(ECOA) and the Home Mortgage Disclosure Act \4\ (HMDA), we carefully 
prioritize among market areas to best utilize our resources. The 
mortgage and auto markets represent two of the most significant 
consumer experiences with credit and weigh heavily in our 
prioritization process. Homes and cars are typically two of the largest 
and most important purchases for consumers, and the Bureau is committed 
to ensuring these transactions are fair and equitable for all 
consumers. Our efforts in 2015 have required approximately $108 million 
in restitution to consumers harmed by discrimination and additional 
monetary payments, including loan subsidies, increased consumer 
financial education, and civil money penalties. Our efforts have also 
resulted in heightened industry awareness and increased consumer 
financial education. This year, all four of our public enforcement 
actions related to these two markets, resulting in monetary remediation 
for harmed consumers and forward-looking mechanisms to prevent future 
discrimination. Mortgage and auto featured prominently in our non-
public supervisory work as well. Moreover, in January 2016, as a result 
of a settlement with Ally Financial Inc. and Ally Bank, the DOJ and the 
Bureau, a settlement administrator mailed $80 million plus accrued 
interest in checks to consumers harmed by discriminatory auto loan 
pricing policies.
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    \3\ 15 U.S.C. 1691 et seq.
    \4\ 12 U.S.C. 2801 et seq.
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    While our settlement administration and mortgage and auto work 
continue to be priorities for our office, we have made significant 
strides in expanding our efforts to help consumers in other priority 
markets. These priority markets include the credit card market, where 
we continue to engage in both supervisory and enforcement work related 
to fair lending risks in that market.
    Notably, we also added small business lending to our priorities to 
address fair lending risks in that market. Small businesses are a 
backbone of our nation's economy and access to credit is critical to 
their operation and growth. Unlike large businesses, many small 
businesses are sole proprietorships where the owner's personal credit--
and potentially that of family and friends--may be on the line.\5\ With 
so much at stake, and in light of the heightened fair lending risk 
acknowledged by the enactment of Section 1071 of the Dodd-Frank Act, we 
will continue to focus on small business lending in our Fair Lending 
work going forward. In addition, the Bureau's rulemaking required by 
the Dodd-Frank Act's small business data collection provision \6\ is 
now in the pre-rule stage.\7\ We look forward to developing additional 
subject-matter expertise in this market as we engage in dialogue with 
stakeholders, including industry, consumer advocates, and other market 
experts, conduct further examinations, and gather additional data and 
information in connection with the rulemaking.
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    \5\ See Office of Advocacy, Small Business Administration, 
Frequently Asked Questions (March 2014), available at https://www.sba.gov/sites/default/files/advocacy/FAQ_March_2014_0.pdf 
(according to the Small Business Administration, approximately 72.1% 
of all businesses are sole proprietorships).
    \6\ Dodd-Frank Act, section 1071(a) (codified at 15 U.S.C. 
1691c-2(a)).
    \7\ 80 FR 78055, 78058 (Dec. 15, 2015).
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    The Bureau also published its final rule implementing Dodd-Frank's 
amendments to HMDA's Regulation C. HMDA data are integral to the 
everyday work of our office and others within the Bureau. One of HMDA's 
primary purposes is identifying potential discrimination, and many 
other stakeholders will benefit from improved data, including other 
agencies, the public, consumer groups, researchers, and industry 
itself. The final rule reflects our practical experience

[[Page 29535]]

working with the data, as well as hundreds of comments from industry, 
consumer advocates, civil rights groups, and other stakeholders. These 
changes will undoubtedly enhance our work as we are able to analyze and 
act on this more robust information.
    The Dodd-Frank Act mandated the creation of the CFPB's Office of 
Fair Lending and Equal Opportunity and charged it with ensuring fair, 
equitable, and nondiscriminatory access to credit to consumers; 
coordinating our fair lending efforts with Federal and State agencies 
and regulators; working with private industry, fair lending, civil 
rights, consumer and community advocates to promote fair lending 
compliance and education; and annually reporting to Congress on our 
efforts.
    I am proud to say that the Office continues to fulfill our Dodd-
Frank mandate and looks forward to continuing to work together with all 
stakeholders in protecting America's consumers. To that end, I am 
excited to share our progress with this, our fourth, Fair Lending 
Report.\8\
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    \8\ See Dodd-Frank Act section 1013(c)(2)(D) (codified at 12 
U.S.C. 5493(c)(2)(D)).

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Sincerely,

Patrice Alexander Ficklin
Executive Summary

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank or Dodd-Frank Act) \9\ established the Bureau as the 
Nation's first federal agency with a mission focused solely on consumer 
financial protection and making consumer financial markets work for all 
Americans. Dodd-Frank established the Office of Fair Lending and Equal 
Opportunity within the CFPB, and charged it with ``providing oversight 
and enforcement of Federal laws intended to ensure the fair, equitable, 
and nondiscriminatory access to credit for both individuals and 
communities.'' \10\
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    \9\ Public Law 111-203, 124 Stat. 1376 (2010).
    \10\ Dodd-Frank Act, section 1013(c)(2)(A) (codified at 12 
U.S.C. 5493(c)(2)(A)).
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    The Bureau and the Office of Fair Lending and Equal Opportunity 
(the Office of Fair Lending) have taken important strides over the last 
year in our efforts to protect consumers from credit discrimination and 
broaden access to credit, as we identify new and emerging fair lending 
risks and monitor institutions for compliance. In 2015, our fair 
lending supervisory and public enforcement actions directed 
institutions to provide approximately $108 million in remediation and 
other monetary payments.\11\
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    \11\ Figures represent estimates of monetary relief for 
consumers ordered by the Bureau as a result of supervisory or 
enforcement actions on solely fair lending matters in 2015, as well 
as other monetary payments such as loan subsidies, increased 
consumer financial education, and civil money penalties. The Bureau 
also ordered institutions to provide non-monetary relief to 
consumers.
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     Supervision and enforcement priorities and activity. The 
Bureau's risk-based prioritization process allows the Office of Fair 
Lending to focus our supervisory and enforcement efforts on markets or 
products that represent the greatest risk for consumers.
    [cir] Mortgage lending. Mortgage lending continues to be a key 
priority for the Office of Fair Lending for both supervision and 
enforcement, with a focus on HMDA data integrity and potential fair 
lending risks in the areas of redlining, underwriting, and pricing. In 
2015, the Bureau resolved two public enforcement actions involving 
mortgage lending. Through 2015, our mortgage origination work has 
covered institutions responsible for close to half of the transactions 
reported pursuant to HMDA (and more than 60% of the transactions 
reported by institutions subject to the CFPB's supervision and 
enforcement authority).\12\ Moreover, our supervisory work on mortgage 
servicing has included use of the ECOA Baseline Review Modules, which 
help us to identify potential fair lending risk in mortgage servicing 
and inform our prioritization of mortgage servicers.
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    \12\ CFPB analysis of HMDA data for 2015.
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    [cir] Indirect auto lending. In 2015, the Bureau continued its work 
in overseeing and enforcing compliance with ECOA in indirect auto 
lending through both supervisory and enforcement activity, including 
monitoring compliance with our previous supervisory and enforcement 
actions. Our auto finance targeted ECOA reviews \13\ generally have 
included an examination of three areas: Credit approvals and denials, 
interest rates quoted by the lender to the dealer (the ``buy rates''), 
and any discretionary markup or adjustments to the buy rate. In 2015, 
the Bureau resolved two public enforcement actions involving 
discriminatory pricing and compensation structures in indirect auto 
lending. Our indirect auto work has covered more than 60% of the auto 
loan market share by volume.\14\
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    \13\ ECOA targeted reviews focus on a specific line of business, 
such as mortgages, credit cards, or auto finance and typically 
include statistical analysis and, in some cases, loan file reviews 
in order to evaluate an institution's compliance with ECOA and 
Regulation B within the specific business line selected.
    \14\ CFPB analysis of 2015 AutoCount data from Experian 
Automotive.
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    [cir] Credit cards. The Bureau also continued fair lending 
supervisory and enforcement work in the credit card market. We have 
focused in particular 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. Our work in this highly-concentrated market has covered 
institutions responsible for more than 75% of outstanding credit card 
balances in the United States.\15\
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    \15\ CFPB analysis of 3Q 2015 call reports.
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    [cir] Other product areas. The Bureau has focused supervision and 
enforcement work in other markets as well. For example, this year we 
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. We 
remain committed to assessing and evaluating fair lending risk in all 
credit markets under the Bureau's jurisdiction.
     Rulemaking. In October 2015, the Bureau published a final 
rule to amend Regulation C, the regulation that implements HMDA, to 
require covered lenders to report additional data elements, among other 
changes.\16\ In January 2016, in response to ongoing conversations with 
industry about compliance with Regulation C, the Bureau published a 
Request for Information (RFI) on the Bureau's HMDA data resubmission 
guidelines.\17\
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    \16\ See Home Mortgage Disclosure Act (Regulation C), 80 FR 
66128 (Oct. 28, 2015) (codified at 12 U.S.C. 1003 et. seq.), 
available at https://www.gpo.gov/fdsys/pkg/FR-2015-10-28/pdf/2015-26607.pdf.
    \17\ Consumer Financial Protection Bureau, Request for 
Information Regarding Home Mortgage Disclosure Act Resubmission 
Guidelines 2015-0058 (Jan. 12, 2016), available at http://files.consumerfinance.gov/f/201601_cfpb_request-for-information-regarding-home-mortgage-disclosure-act-resubmission.pdf.
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     Guidance. In May 2015, the Bureau issued a compliance 
bulletin on the Section 8 Housing Choice Voucher (HCV) Homeownership 
Program.\18\ The Bulletin reminds creditors of their obligations under 
ECOA \19\ and its implementing regulation, Regulation B,\20\ to provide 
non-discriminatory access to credit for mortgage applicants by 
considering income from the Section

[[Page 29536]]

8 HCV Homeownership Program. In addition, throughout the year, the 
Office of Fair Lending provided guidance and information on market 
trends through Supervisory Highlights.
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    \18\ Consumer Financial Protection Bureau, Section 8 Housing 
Choice Voucher Homeownership Program Bulletin 2015-02 (May 11, 
2015), available at http://files.consumerfinance.gov/f/201505_cfpb_bulletin-section-8-housing-choice-voucher-homeownership-program.pdf.
    \19\ 15 U.S.C. 1691 et seq.
    \20\ 12 CFR 1002 et seq.
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     Outreach to industry, advocates, consumers, and other 
stakeholders. 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 and collaboration. The Bureau 
continues to coordinate with the Federal Financial Institutions 
Examination Council (FFIEC) agencies,\21\ as well as the Department of 
Justice (DOJ), the Federal Trade Commission (FTC), and the Department 
of Housing and Urban Development (HUD), as we each play a role in 
enforcing our nation's fair lending laws and regulations. In 2015, the 
Office of Fair Lending 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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    \21\ The FFIEC member agencies are the Board of Governors of the 
Federal Reserve System (FRB), the Federal Deposit Insurance 
Corporation (FDIC), the National Credit Union Administration (NCUA), 
the Office of the Comptroller of the Currency (OCC), and the 
Consumer Financial Protection Bureau (CFPB). The State Liaison 
Committee was added to FFIEC in 2006 as a voting member.
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    This report generally covers the Bureau's fair lending work during 
calendar year 2015.

1. Fair Lending Prioritization

1.1 Risk-Based Prioritization: A Data-Driven Approach To Prioritizing 
Areas of Potential Fair Lending Harm to Consumers

    To use the CFPB's fair lending research, supervision, and 
enforcement resources most efficiently and effectively, the Office of 
Fair Lending, working with other offices in the Bureau, developed a 
fair lending risk-based prioritization approach that assesses and 
determines how best to address areas of potential fair lending harm to 
consumers in the entities, products, and markets under our 
jurisdiction.
    The Bureau considers both qualitative and quantitative information 
at the institution, product, and market levels to determine where 
potential fair lending harm to consumers may be occurring. This 
information includes: Consumer complaints; tips from advocacy groups, 
whistleblowers, and government agencies; supervisory and enforcement 
history; quality of lenders' compliance management systems; results 
from data analysis; and market insights. The Office of Fair Lending 
integrates all of this information into the fair lending risk-based 
prioritization process, which is incorporated into the Bureau's larger 
risk-based prioritization process, allowing the Bureau to efficiently 
allocate its fair lending resources to areas of greatest risk to 
consumers. We then coordinate with other regulators so that our focus 
and efforts may inform their work and vice versa.

1.1.1 Complaints and Tips

    The CFPB uses input from a variety of external and internal 
stakeholders to inform its fair lending prioritization process. We 
consider fair lending complaints handled by the Bureau's Office of 
Consumer Response and tips brought to the Office of Fair Lending's 
attention by advocacy groups, whistleblowers, and other government 
agencies (at the local, state, and federal levels). As part of the 
prioritization process the Office of Fair Lending also considers public 
and private fair lending litigation.

1.1.2 Supervisory and Enforcement History

    The Bureau considers information gathered from prior fair lending 
work of the Bureau and other regulators, including any supervisory or 
enforcement actions. At the institution level, the Bureau considers 
results from past reviews, including information the Bureau has 
gathered about the fair lending risk(s) presented by a lender's 
policies, procedures, practices, or business model; the extent and 
nature of any violations previously cited; and the institution's 
remediation efforts. Additionally, the Bureau considers self-identified 
issues and whether the institution took appropriate corrective action 
when it identified those issues. We also closely monitor institutions' 
compliance with orders arising from previous enforcement actions. 
Finally, we coordinate with other regulators to share and consider the 
results of our respective fair lending efforts.\22\
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    \22\ Other regulators may take into account the Bureau's fair 
lending findings in their evaluations of lender compliance with the 
Fair Housing Act, performance under the Community Reinvestment Act, 
or in conjunction with the review of merger/acquisition applications 
and other similar applications.
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1.1.3 Quality of Compliance Management Systems

    One critical piece of information the Bureau obtains through our 
supervisory work is the quality of an institution's fair lending 
compliance management system, which is a key factor considered in the 
fair lending prioritization process. The Bureau has previously 
identified common features of a well-developed fair lending compliance 
management system,\23\ though we recognize that the appropriate scope 
of an institution's fair lending compliance management system will vary 
based on its size, complexity, and risk profile.
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    \23\ See Fair Lending Report of the Consumer Financial 
Protection Bureau 13-14 (Apr. 2014), available at http://files.consumerfinance.gov/f/201404_cfpb_report_fair-lending.pdf.
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    Many CFPB-supervised institutions face similar fair lending risks, 
but they may differ in how they manage those risks, based on their 
size, complexity, and risk profile. A key consideration is that, the 
lower the quality of an institution's fair lending compliance 
management system, the less likely that the institution will identify 
and effectively address fair lending risks. As a result, a lower 
quality fair lending compliance management system generally indicates a 
higher fair lending risk to consumers.

1.1.4 Data Analysis

    The Bureau's fair lending prioritization process is also driven by 
quantitative data analysis that evaluates developments and trends at 
the institution and market levels. For example, in the housing finance 
marketplace, HMDA data allow regulators to assess a specific 
institution's risk as well as risk across the market in order to 
identify those institutions or segments that appear to present 
heightened fair lending risk to consumers. Such analyses can be 
particularly useful in identifying those lenders that appear to deviate 
significantly from their peers in, for example, the extent to which 
they provide access to credit in communities of color.

1.1.5 Market Insights

    The Office of Fair Lending works closely with all of the Bureau's 
markets offices, which monitor consumer financial markets to identify 
emerging developments and trends. These offices monitor key consumer 
financial products and services, including mortgages, credit cards, 
auto lending, consumer reporting, installment lending, student lending, 
and payday lending. The Bureau uses market

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intelligence and the trends identified by our markets offices to 
provide insight into the markets we oversee and to identify fair 
lending risks in a given market that may require further study or 
attention. For example, our work with the Office of Installment Lending 
and Collections Markets has assisted in our understanding of indirect 
auto lenders' business models and pricing policies. Information on fair 
lending risks in a market is then incorporated into our risk-based 
prioritization process to determine the level of attention needed in a 
market and our focus within that market.
    Based on our evaluation of the information and data gathered from 
the sources above, this year we identified mortgage lending (including 
both origination and servicing), auto finance, and credit cards as 
priority markets for our fair lending supervision and enforcement work. 
We also identified small business lending as a priority market in 
connection with the Bureau's exploration of the issues that will need 
to be addressed in the rulemaking required under Section 1071 of the 
Dodd-Frank Act, which amended ECOA to require financial institutions to 
collect and report data on lending to women-owned, minority-owned, and 
small businesses.\24\ We remain committed to assessing and evaluating 
fair lending risk in all credit markets under the Bureau's authority.
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    \24\ Dodd-Frank Act section 1071(a) (codified at 15 U.S.C. 
1691c-2(a)).
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1.1.6 Addressing Areas of Potential Fair Lending Harm

    Once fair lending risks are identified and prioritized through our 
risk-based prioritization process, the Office of Fair Lending 
considers, as part of its strategic planning process, how best to 
address those risks and which resources to dispatch to address the 
risks.
    The Bureau's fair lending risk-based prioritization is an ongoing 
rather than a static process. Even after priorities are identified and 
steps are taken to effectuate those priorities, we continue to receive 
and consider information relevant to prioritization. At an institution 
level, such information may include new whistleblower tips and leads; 
additional risks identified in ongoing supervisory and enforcement 
activities; and compliance issues identified and brought to our 
attention by institutions themselves.
    The Office of Fair Lending considers a number of factors in 
determining how best to address this new information. Such factors may 
include the nature and extent of the fair lending risk; the degree of 
consumer harm involved; whether the risk appears to be isolated or 
widespread within a market; whether the risk was self-identified and/or 
self-disclosed to the Bureau; and the nature and extent of an 
institution's remediation plans. Based on these and other factors, the 
Office of Fair Lending may decide to initiate supervisory or 
enforcement activity, conduct additional research or ongoing monitoring 
of particular issues or institutions, issue guidance, leverage outreach 
events, or engage in other activity within the Bureau's authority. Fair 
Lending takes account of responsible conduct as set forth in CFPB 
Bulletin 2013-06, Responsible Business Conduct: Self-Policing, Self-
Reporting, Remediation, and Cooperation.\25\
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    \25\ Consumer Financial Protection Bureau, Responsible Business 
Conduct: Self-Policing, Self-Reporting, Remediation, and Cooperation 
2013-06 (June 25, 2013), available at http://files.consumerfinance.gov/f/201306_cfpb_bulletin_responsible-conduct.pdf.
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2. Fair Lending Supervision

    The CFPB's Fair Lending Supervision program assesses compliance 
with Federal consumer financial laws and regulations at banks and 
nonbanks over which the Bureau has supervisory authority. Supervision 
activities range from assessments of institutions' fair lending 
compliance management systems to in-depth reviews of products or 
activities that may pose heightened fair lending risks to consumers. As 
part of its Fair Lending Supervision program, the Bureau continues to 
conduct three types of fair lending reviews at Bureau-supervised 
institutions: ECOA baseline reviews, ECOA targeted reviews, and HMDA 
data integrity reviews. Our supervisory work has focused in the 
priority areas of mortgage, auto lending, credit cards, and small 
business lending.
    When the CFPB identifies situations in which fair lending 
compliance is inadequate, it directs institutions to establish fair 
lending compliance programs commensurate with the size and complexity 
of the institution and its lines of business. When fair lending 
violations have been identified, the CFPB may direct institutions to 
provide remediation and restitution to consumers, and may pursue other 
appropriate relief. The CFPB also refers a matter to the Justice 
Department when it has reason to believe that a creditor has engaged in 
a pattern or practice of lending discrimination in violation of 
ECOA.\26\ The CFPB may also refer other potential ECOA violations to 
the Justice Department.
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    \26\ 15 U.S.C. 1691e(g).
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2.1 Fair Lending Supervisory Observations

    Although the Bureau's supervisory process is confidential, the 
Bureau publishes regular reports called Supervisory Highlights, which 
provide information on supervisory trends the Bureau observes without 
identifying specific entities. The Bureau may also draw on its 
supervisory experience to publish compliance bulletins in order to 
remind the institutions that we supervise of their legal obligations. 
Industry participants can use this information to inform and assist in 
complying with ECOA and HMDA. Throughout the year, the Office of Fair 
Lending, in coordination with other offices within the Division of 
Supervision, Enforcement and Fair Lending, engages in outreach to 
provide information on trends from the Bureau's supervisory experience 
as it relates to fair lending risk.

2.1.1 Adverse Action Notice Deficiencies

    Regulation B requires a creditor to notify an applicant of an 
adverse action on the application taken within 30 days after receiving 
a completed application.\27\ The notice must be in writing and contain 
a statement of the action taken; the name and address of the creditor; 
a statement describing the provisions of section 701(a) of ECOA; the 
name and address of the Federal agency that administers compliance with 
respect to the creditor; and either a statement of the specific reasons 
for the action taken, or a disclosure of the applicant's right to a 
statement of specific reasons within 30 days, if the statement is 
requested within 60 days of the creditor's notification.\28\
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    \27\ 12 CFR 1002.9(a)(1)(i).
    \28\ 15 U.S.C. 1691 et seq.; 12 CFR 1002.9(a)(2).
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    In the Winter 2015 edition of Supervisory Highlights, the Office of 
Fair Lending described supervisory observations of instances in which 
supervised entities failed to provide the requisite information in 
denial notices as set forth in Regulation B and failed to notify an 
applicant of action taken within 30 days after receiving the completed 
application.\29\ These errors were attributed to weaknesses in the 
compliance audit programs and the monitoring and corrective action 
component of the compliance

[[Page 29538]]

programs.\30\ In instances where these violations have been observed, 
the Bureau has directed the supervised entities to conduct a review of 
all mortgage loan applications denied within the relevant time period 
and take appropriate corrective action, including providing corrected 
notices to applicants.\31\
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    \29\ Consumer Financial Protection Bureau, Supervisory 
Highlights Winter 2015 at 12 (March 11, 2015), available at http://files.consumerfinance.gov/f/201503_cfpb_supervisory-highlights-winter-2015.pdf.
    \30\ Id.
    \31\ Id.
---------------------------------------------------------------------------

2.1.2 Consideration of Protected Forms of Income

    In 2015, the Bureau published guidance in Supervisory Highlights 
and in a compliance bulletin to remind industry stakeholders and 
consumers of ECOA and Regulation B provisions regarding consideration 
of protected sources of income. ECOA forbids a creditor from 
discriminating against any applicant ``because all or part of the 
applicant's income derives from any public assistance program.'' \32\ 
Regulation B states that a creditor ``shall not . . . exclude from 
consideration the income of an applicant . . . because of a prohibited 
basis or because the income is derived from part-time employment or is 
an annuity, pension, or other retirement benefit . . . .'' \33\ 
Regulation B also states that a ``creditor shall not make any . . . 
written statement, in advertising or otherwise, to applicants or 
prospective applicants that would discourage on a prohibited basis a 
reasonable person from making or pursuing an application.'' \34\
---------------------------------------------------------------------------

    \32\ 15 U.S.C. 1691(a)(2).
    \33\ 12 CFR 1002.6(b)(5). Regulation B also states that ``[w]hen 
an applicant relies on alimony, child support, or separate 
maintenance payments in applying for credit, the creditor shall 
consider such payments as income to the extent that they are likely 
to be consistently made.'' Id.
    \34\ Id. at Sec.  1002.4(b).
---------------------------------------------------------------------------

    The Winter 2015 edition of Supervisory Highlights discussed 
supervisory observations during recent examinations of instances in 
which Bureau examination staff found one or more violations of ECOA and 
Regulation B related to the treatment of protected sources of 
income.\35\ Applicants were automatically declined if they sought to 
rely on income from a non-employment source, such as Social Security 
income or retirement benefits, in order to repay the loan. Marketing 
materials contained written statements regarding the prohibition and 
may have discouraged applicants who received public assistance or other 
protected sources of income from applying for credit.
---------------------------------------------------------------------------

    \35\ Consumer Financial Protection Bureau, Supervisory 
Highlights Winter 2015 at 13 (March 11, 2015), available at http://files.consumerfinance.gov/f/201503_cfpb_supervisory-highlights-winter-2015.pdf.
---------------------------------------------------------------------------

    While the general rules governing the prohibition against 
consideration of protected sources of income include narrow exceptions 
(e.g., while a creditor may not consider the fact that an applicant 
receives public assistance income, the creditor can consider ``[t]he 
length of time an applicant will likely remain eligible to receive such 
income'' \36\), for these exceptions to apply, an institution must 
analyze each applicant's particular situation.\37\ A blanket practice 
of denying any applicant who relies 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.
---------------------------------------------------------------------------

    \36\ See Official Interpretations, 12 CFR 1002, ] 6(b)(2)-6 
(Supp. I).
    \37\ See id. (``When considering income derived from a public 
assistance program, a creditor may take into account, for example: 
i. The length of time an applicant will likely remain eligible to 
receive such income. ii. Whether the applicant will continue to 
qualify for benefits based on the status of the applicant's 
dependents (as in the case of Temporary Aid to Needy Families, or 
social security payments to a minor).'').
---------------------------------------------------------------------------

    The relevant supervised entities were directed by examination staff 
to identify mortgage applicants who were wrongly denied on the basis of 
their protected income source, as well as prospective applicants who 
were discouraged by the marketing materials. Supervision also directed 
that remediation be made to harmed applicants and prospective 
applicants, including reimbursement of fees and interest; the 
opportunity to reapply; and additional remuneration for any consumers 
who were improperly denied and subsequently lost their homes.
    The Winter 2015 edition of Supervisory Highlights \38\ also 
emphasized guidance issued in the Bureau's November 18, 2014, bulletin 
on avoiding prohibited discrimination against consumers receiving 
Social Security disability income.\39\ The bulletin reminded lenders 
that requiring unnecessary documentation from consumers who receive 
Social Security disability income raises fair lending concerns, and 
called attention to standards and guidelines that may help lenders 
comply with the law.
---------------------------------------------------------------------------

    \38\ Consumer Financial Protection Bureau, Supervisory 
Highlights Winter 2015 at 18 (March 11, 2015), available at http://files.consumerfinance.gov/f/201503_cfpb_supervisory-highlights-winter-2015.pdf.
    \39\ See Consumer Financial Protection Bureau, Social Security 
Disability Income Verification Bulletin 2014-03 (November 18, 2014), 
available at http://files.consumerfinance.gov/f/201411_cfpb_bulletin_disability-income.pdf.
---------------------------------------------------------------------------

2.1.3 Consideration of Protected Forms of Income: Section 8 Housing 
Choice Voucher Homeownership Program

    The Summer 2015 edition of Supervisory Highlights \40\ and the CFPB 
bulletin issued on May 11, 2015, provide guidance to help lenders avoid 
prohibited discrimination against consumers receiving public assistance 
income.\41\ Specifically, the bulletin reminds creditors of their 
obligations under ECOA and Regulation B to provide non-discriminatory 
access to credit for mortgage applicants by considering income from the 
Section 8 Housing Choice Voucher (HCV) Homeownership Program.
---------------------------------------------------------------------------

    \40\ Consumer Financial Protection Bureau, Supervisory 
Highlights Summer 2015 at 20 (June 23, 2015), available at http://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf.
    \41\ Consumer Financial Protection Bureau, Section 8 Housing 
Choice Voucher Homeownership Program Bulletin 2015-02 (May 11, 
2015), available at http://files.consumerfinance.gov/f/201505_cfpb_bulletin-section-8-housing-choice-voucher-homeownership-program.pdf.
---------------------------------------------------------------------------

    The Section 8 HCV Homeownership Program was created to assist low-
income, first-time homebuyers in purchasing homes. The program is a 
component of the Department of Housing and Urban Development's (HUD) 
broader Section 8 Housing Choice Voucher Program, which also includes a 
rental assistance program.\42\ These programs are funded by HUD and 
administered by participating local Public Housing Authorities (PHAs). 
Through the Section 8 HCV Homeownership Program, the participating PHA 
may provide an eligible consumer with a monthly housing assistance 
payment to help pay for homeownership expenses associated with a 
housing unit purchased in accordance with HUD's regulations.\43\ In 
addition to HUD's regulations, the PHAs may also adopt additional 
requirements, including lender qualifications or terms of 
financing.\44\
---------------------------------------------------------------------------

    \42\ ``Section 8 Housing Choice Voucher Homeownership Program'' 
refers to the homeownership assistance program authorized by the 
Quality Housing & Work Responsibility Act of 1998 (Pub. L. 105-276, 
approved October 21, 1998; 112 Stat. 2461), and the applicable 
implementing regulations, 24 CFR 982.625-982.643. The program is 
also referred to as the Voucher Homeownership Program, the Housing 
Choice Voucher Homeownership Option, or the Section 8 Homeownership 
Program.
    \43\ 24 CFR 982.625(c).
    \44\ Id. at Sec.  982.632(a).
---------------------------------------------------------------------------

    As stated above, ECOA and Regulation B prohibit creditors from 
discriminating in any aspect of a credit transaction against an 
applicant ``because all or part of the applicant's income derives from 
any public

[[Page 29539]]

assistance program.'' \45\ ``Any Federal, state, or local governmental 
assistance program that provides a continuing, periodic income 
supplement, whether premised on entitlement or need, is `public 
assistance' for purposes of the regulation. The term includes (but is 
not limited to) . . . mortgage supplement or assistance programs . . . 
.'' \46\ As such, mortgage assistance provided under the Section 8 HCV 
Homeownership Program is income derived from a public assistance 
program under ECOA and Regulation B.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 1691(a)(2); 12 CFR 1002.2(z), 1002.4(a).
    \46\ Official Interpretations, 12 CFR 1002.2, ] 2(z)-3 (Supp. 
I).
---------------------------------------------------------------------------

    Regulation B further provides that ``[i]n a judgmental system of 
evaluating creditworthiness, a creditor may consider . . . whether an 
applicant's income derives from any public assistance program only for 
the purpose of determining a pertinent element of creditworthiness.'' 
\47\ However, ``[i]n considering the separate components of an 
applicant's income, the creditor may not automatically discount or 
exclude from consideration any protected income. Any discounting or 
exclusion must be based on the applicant's actual circumstances.'' \48\ 
Accordingly, a blanket practice of excluding or refusing to consider 
Section 8 HCV Homeownership Program vouchers as a source of income or 
accepting the vouchers only for certain mortgage loan products or 
delivery channels, without an assessment of an applicant's particular 
situation, may violate ECOA and Regulation B.
---------------------------------------------------------------------------

    \47\ 12 CFR 1002.6(b)(2)(iii).
    \48\ Official Interpretations, 12 CFR 1002.6 ] 6(b)(5)-3(ii) 
(Supp. I).
---------------------------------------------------------------------------

    Through the supervisory process, the Bureau has become aware of one 
or more institutions excluding or refusing to consider income derived 
from the Section 8 HCV Homeownership Program during the mortgage loan 
application and underwriting process. Some institutions have restricted 
the use of Section 8 HCV Homeownership Program vouchers to only certain 
home mortgage loan products or delivery channels. Supervision has 
required one or more institutions to update their policies and 
procedures to ensure that their practices concerning Section 8 HCV 
Homeownership Program vouchers comply with ECOA and its implementing 
regulation, Regulation B. In addition, Supervision has required one or 
more institutions to identify borrowers who, due to their reliance on 
Section 8 HCV Homeownership Program vouchers, were either denied loans, 
or discouraged from applying; and to provide those borrowers with 
financial remuneration and an opportunity to reapply.

2.1.4 Underwriting Disparity Findings and Remedial Actions

    The Fall 2015 edition of Supervisory Highlights detailed the 
Bureau's supervisory work on ECOA targeted reviews that analyze an 
institution's underwriting practices. It describes the Bureau's 
supervisory underwriting reviews, methodologies used to understand 
underwriting outcomes and identify potential disparities, file 
selection methods, and guidance to institutions on managing fair 
lending risks in underwriting.\49\
---------------------------------------------------------------------------

    \49\ Consumer Financial Protection Bureau, Supervisory 
Highlights Fall 2015 at 27 (November 3, 2015), available at http://files.consumerfinance.gov/f/201510_cfpb_supervisory-highlights.pdf.
---------------------------------------------------------------------------

    CFPB examination teams conduct targeted ECOA reviews to evaluate 
areas of heightened fair lending risk. These reviews generally focus on 
a specific line of business, such as mortgages, credit cards, 
automobile finance or small business lending. Our underwriting reviews 
typically include a statistical analysis, and in some cases a loan file 
review, that assess an institution's compliance with ECOA and its 
implementing regulation, Regulation B, within the specific business 
line selected.
    In each examination where a file review is conducted, the review is 
tailored to the specific heightened areas of risk that have previously 
been identified. If the examiners identify examples of files that may 
provide evidence of discrimination, they share the files with the 
institution to obtain the institution's explanation. If, following the 
statistical analysis and the file review, the examination team believes 
that there may be a violation of ECOA, the CFPB may share the findings 
with the institution in a Potential Action and Request for Response for 
Fair Lending letter (detailed below).
    We noted that CFPB examination teams have conducted numerous 
examinations to determine whether statistical disparities in 
underwriting outcomes attributable to race, national origin, or some 
other prohibited basis characteristic constituted a violation of ECOA. 
Many of these examinations have concluded without findings of 
discrimination. In one or more examinations, however, examiners 
concluded that the disparities resulted from illegal discrimination in 
violation of ECOA.
    When examiners identify underwriting disparities that violate ECOA, 
the Bureau 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. In 
addition, institutions must identify and address any underlying 
compliance management system (CMS) weaknesses that led to the 
violations.

2.2 Potential Action and Request for Response for Fair Lending (PARR-
FL) Letters

    In the event that the Bureau is considering formal action, the 
Bureau may send a Potential Action and Request for Response for Fair 
Lending (PARR-FL) letter to the institution.\50\ As part of the 
examination process, the Bureau sends a PARR-FL letter to provide the 
entity notice of preliminary findings of violation(s) of Federal 
consumer financial law. The PARR-FL letter also notifies the entity 
that the Bureau is considering taking supervisory action, such as a 
non-public memorandum of understanding, or a public enforcement action, 
based on the potential violations identified and described in the 
letter. If there is a potential ECOA violation that could be referred 
to the DOJ, the PARR-FL letter provides the entity notice of the 
potential for a referral.
---------------------------------------------------------------------------

    \50\ A recent issue of Supervisory Highlights described non-Fair 
Lending PARR letters and the ARC process. See Consumer Financial 
Protection Bureau, Supervisory Highlights Summer 2015 at 27 (June 
23, 2015), available at http://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf.
---------------------------------------------------------------------------

    Generally, a PARR-FL letter will:
     Identify the laws that the Bureau has preliminarily 
identified may have been violated and describe the possible illegal 
conduct;
     Generally describe the types of relief available to the 
Bureau;
     Inform the relevant institution of its opportunity to 
submit a written response presenting its positions regarding relevant 
legal and policy issues, as well as facts through affidavits or 
declarations;
     Describe the manner and form by which the institution 
should respond, if it chooses to do so, and provide a submission 
deadline, generally 14 calendar days, for timely consideration;
     Inform the relevant institution that the Bureau is 
considering recommending corrective action; and
     When appropriate, inform the relevant institution that the 
Office of Fair Lending is considering recommending that the Bureau 
refer the institution to the DOJ.
    Typically, when a PARR-FL letter results from supervisory activity, 
the

[[Page 29540]]

Bureau will send the PARR-FL letter prior to finalizing the examination 
report or supervisory letter. The Bureau carefully considers the 
institution's response before reaching a final decision about whether 
to cite an ECOA violation, what corrective action to take, and, as 
appropriate, whether to refer the matter to the DOJ. Depending on the 
response, the Bureau may determine that there is no violation of law, 
and that, therefore, neither corrective action nor a referral is 
appropriate. If the Bureau finds a violation, the examination report or 
supervisory letter will convey the final findings to the institution, 
the Bureau will seek appropriate corrective action, and the Bureau will 
inform the institution of any referral of the matter to the DOJ.

2.3 ECOA Baseline Modules Update

    On October 30, 2015, the CFPB published an update to the ECOA 
Baseline Review Modules, which are part of the CFPB Supervision and 
Examination Manual. Examination teams use the ECOA Baseline Review 
Modules to conduct ECOA Baseline Reviews, which evaluate how well 
institutions' compliance management systems identify and manage fair 
lending risks. The revised Baseline Review modules better align in 
content and organization with the CFPB's examination procedures for 
CMS. The revised modules are consistent with the FFIEC Interagency Fair 
Lending Examination Procedures and organized by fair lending risk 
areas, such as origination and servicing. In addition, the fifth 
module, ``Fair Lending Risks Related to Models,'' is a new module that 
examiners will use to review empirical models that supervised financial 
institutions may use.
    When using the modules to conduct an ECOA Baseline Review, CFPB 
examination teams review an institution's fair lending supervisory 
history, including any history of fair lending risks or violations 
previously identified by the CFPB or any other federal or state 
regulator. Examination teams collect and evaluate information about an 
entity's fair lending compliance program, including board of director 
and management participation, policies and procedures, training 
materials, internal controls and monitoring and corrective action. In 
addition to responses obtained pursuant to information requests, 
examination teams may also review other sources of information, 
including any publicly-available information about the entity as well 
as information obtained through interviews with an institution's staff 
or supervisory meetings with an institution. Examiners may complete one 
or more modules as part of a broader review of compliance within an 
institution product line. For example, in order to evaluate fair 
lending risks related to mortgage servicing, examination teams may use 
Module IV, Fair Lending Risks Related to Servicing. This module 
includes questions on such topics as servicing consumers with Limited 
English Proficiency and policies and procedures related to the offering 
of hardship and/or loss mitigation options.
    The updated ECOA Baseline Review Modules and the CFPB Supervision 
and Examination Manual can be found on the Bureau's Web site at 
www.consumerfinance.gov.

3. Fair Lending Enforcement

    The Bureau conducts investigations of potential violations of HMDA 
and ECOA, and if it believes a violation has occurred, can file a 
complaint either through its administrative enforcement process or in 
federal court. Like the other federal bank regulators, the Bureau 
refers matters to the DOJ when it has reason to believe that a creditor 
has engaged in a pattern or practice of lending discrimination.\51\ 
However, when the Bureau makes a referral to the DOJ, the Bureau can 
still take its own independent action to address a violation. In 2015, 
the Bureau announced four fair lending enforcement actions, in mortgage 
origination and indirect auto lending. The Bureau also has a number of 
ongoing fair lending investigations and has authority to settle or sue 
in a number of matters.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 1691e(g).
---------------------------------------------------------------------------

3.1 Fair Lending Public Enforcement Actions

3.1.1 Mortgage

Hudson City Savings Bank
    On September 24, 2015, the CFPB and the DOJ filed a joint complaint 
against Hudson City Savings Bank (Hudson City) alleging discriminatory 
redlining practices in mortgage lending and a proposed consent order to 
resolve the complaint.\52\ The complaint alleges that from at least 
2009 to 2013 Hudson City illegally redlined by providing unequal access 
to credit to neighborhoods in New York, New Jersey, Connecticut, and 
Pennsylvania. Specifically, Hudson City structured its business to 
avoid and thereby discourage residents in majority-Black-and-Hispanic 
neighborhoods from accessing mortgages. The consent order requires 
Hudson City to pay $25 million in direct loan subsidies to qualified 
borrowers in the affected communities, $2.25 million in community 
programs and outreach, and a $5.5 million penalty. This represents the 
largest redlining settlement in history as measured by such direct 
subsidies. On October 30, 2015, Hudson City was acquired by M&T Bank 
Corporation, and Hudson City was merged into Manufacturers Banking and 
Trust Company (M&T Bank), with M&T Bank as the surviving institution. 
As the successor to Hudson City, M&T Bank is responsible for carrying 
out the terms of the Consent Order.
---------------------------------------------------------------------------

    \52\ Consumer Financial Protection Bureau v. Hudson City Savings 
Bank, F.S.B., No. 2:15-cv-07056-CCC-JBC (D.N.J. Sept. 24, 2015) 
(complaint), available at http://files.consumerfinance.gov/f/201509_cfpb_hudson-city-joint-complaint.pdf.
---------------------------------------------------------------------------

    Hudson City was a federally-chartered savings association with 135 
branches and assets of $35.4 billion and focused its lending on the 
origination and purchase of mortgage loans secured by single-family 
properties. According to the complaint, Hudson City illegally avoided 
and thereby discouraged consumers in majority-Black-and-Hispanic 
neighborhoods from applying for credit by:
     Placing branches and loan officers principally outside of 
majority-Black-and-Hispanic communities;
     Selecting mortgage brokers that were mostly located 
outside of, and did not effectively serve, majority-Black-and-Hispanic 
communities;
     Focusing its limited marketing in neighborhoods with 
relatively few Black and Hispanic residents; and
     Excluding majority-Black-and-Hispanic neighborhoods from 
its credit assessment areas.
    The consent order, which was entered by the court on November 4, 
2015,\53\ requires Hudson City to pay $25 million to a loan subsidy 
program that will offer residents in majority-Black-and-Hispanic 
neighborhoods in New Jersey, New York, Connecticut, and Pennsylvania 
mortgage loans on a more affordable basis than otherwise available from 
Hudson City; spend $1 million on targeted advertising and outreach to 
generate applications for mortgage loans from qualified residents in 
the affected majority-Black-and-Hispanic neighborhoods; spend $750,000 
on local partnerships with community-based or governmental 
organizations that provide assistance to residents in majority-Black-
and-Hispanic neighborhoods; and

[[Page 29541]]

spend $500,000 on consumer education, including credit counseling and 
financial literacy. In addition to the monetary requirements, the 
decree orders Hudson City to open two full-service branches in 
majority-Black-and-Hispanic communities, expand its assessment areas to 
include majority-Black-and-Hispanic communities, assess the credit 
needs of majority-Black-and-Hispanic communities, and develop a fair 
lending compliance and training program.
---------------------------------------------------------------------------

    \53\ Consumer Financial Protection Bureau v. Hudson City Savings 
Bank, F.S.B., No. 2:15-cv-07056-CCC-JBC (D.N.J. Sept. 24, 2015) 
(consent order), available at http://files.consumerfinance.gov/f/201511_cfpb_hudson-city-consent-order.pdf.
---------------------------------------------------------------------------

Provident Funding Associates
    On May 28, 2015, the CFPB and the DOJ filed a joint complaint 
against Provident Funding Associates (Provident) alleging 
discrimination in mortgage lending, along with a proposed order to 
settle the complaint.\54\ The complaint alleges that from 2006 to 2011, 
Provident discriminated in violation of ECOA by charging over 14,000 
African-American and Hispanic borrowers more in brokers' fees than 
similarly-situated non-Hispanic White borrowers on the basis of race 
and national origin. Provident is required under the order to pay $9 
million in damages to harmed African-American and Hispanic borrowers.
---------------------------------------------------------------------------

    \54\ United States and Consumer Financial Protection Bureau v. 
Provident Funding Associates, L.P., No. 3:15-cv-023-73 (N.D. Cal. 
May 28, 2015) (complaint), available at http://files.consumerfinance.gov/f/201505_cfpb_complaint-provident-funding-associates.pdf.
---------------------------------------------------------------------------

    Provident is headquartered in California and originates mortgage 
loans through its nationwide network of brokers. Between 2006 and 2011, 
Provident made over 450,000 mortgage loans through its brokers. During 
this time period, Provident's practice was to set a risk-based interest 
rate and then allow brokers to charge a higher rate to consumers. 
Provident would then pay the brokers some of the increased interest 
revenue from the higher rates--these payments are also known as yield 
spread premiums. Provident's mortgage brokers also had discretion to 
charge borrowers higher fees. The fees paid to Provident's brokers were 
thus made up of these two components: Payments by Provident from 
increased interest revenue and through the direct fees paid by the 
borrower.
    The CFPB and the DOJ alleged that Provident violated ECOA by 
charging African-American and Hispanic borrowers more in total broker 
fees than non-Hispanic White borrowers based on their race and national 
origin and not based on their credit risk. The DOJ also alleged that 
Provident violated the Fair Housing Act, which also prohibits 
discrimination in residential mortgage lending. The agencies alleged 
that Provident's discretionary broker compensation policies caused the 
differences in total broker fees, and that Provident unlawfully 
discriminated against African-American and Hispanic borrowers in 
mortgage pricing. Approximately 14,000 African-American and Hispanic 
borrowers paid higher total broker fees because of this discrimination.
    The consent order, which was entered by the court on June 18, 2015, 
requires Provident to pay $9 million to harmed borrowers, to pay to 
hire a settlement administrator to distribute funds to the harmed 
borrowers identified by the CFPB and the DOJ, and to not discriminate 
against borrowers in assessing total broker fees.\55\ Provident will 
maintain the non-discretionary broker compensation policies and 
procedures it implemented in 2014. Provident's current policy does not 
allow discretion in borrower- or lender-paid broker compensation 
because individual brokers are unable to charge or collect different 
amounts of fees from different borrowers on a loan-by-loan basis. The 
consent order also requires that Provident continue to have in place a 
fair lending training program and broker monitoring program.
---------------------------------------------------------------------------

    \55\ United States v. Provident Funding Associates, L.P., No. 
3:15-cv-02373 (N.D. Cal. June 18, 2015) (consent order), available 
at http://files.consumerfinance.gov/f/201505_cfpb_consent-order-provident-funding-associates.pdf.
---------------------------------------------------------------------------

    Provident must hire a settlement administrator to distribute the $9 
million to harmed borrowers.

3.1.2 Auto Finance

Fifth Third Bank
    On September 28, 2015, the CFPB resolved an action with Fifth Third 
Bank (Fifth Third) that requires Fifth Third to change its pricing and 
compensation system by substantially reducing or eliminating 
discretionary markups to minimize the risks of discrimination. On that 
same date, the DOJ also filed a complaint and proposed consent order in 
the U.S. District Court for the Southern District of Ohio addressing 
the same conduct. That consent order was entered by the court on 
October 1, 2015. Fifth Third's past practices resulted in thousands of 
African-American and Hispanic borrowers paying higher interest rates 
than similarly-situated non-Hispanic White borrowers for their auto 
loans. The consent orders require Fifth Third to pay $18 million in 
restitution to affected borrowers.\56\
---------------------------------------------------------------------------

    \56\ In re, Fifth Third Bank, No. 2015-CFPB-0024 (Sept. 28, 
2015) (consent order), available at http://files.consumerfinance.gov/f/201509_cfpb_consent-order-fifth-third-bank.pdf.
---------------------------------------------------------------------------

    As of the second quarter of 2015, Fifth Third was the ninth largest 
depository auto loan lender in the United States and the seventeenth 
largest auto loan lender overall. As an indirect auto lender, Fifth 
Third sets a risk-based interest rate, or ``buy rate,'' that it conveys 
to auto dealers. Fifth Third then allows auto dealers to charge a 
higher interest rate when they finalize the transaction with the 
consumer. As described above, this is typically called ``discretionary 
markup.'' Markups can generate compensation for dealers while giving 
them the discretion to charge similarly-situated consumers different 
rates. Fifth Third's policy permitted dealers to mark up consumers' 
interest rates as much as 2.5% during the period under review.
    From January 2013 through May 2013, the Bureau conducted an 
examination that reviewed Fifth Third's indirect auto lending business 
for compliance with ECOA and Regulation B. On March 6, 2015, the Bureau 
referred the matter to the DOJ. The CFPB found and the DOJ alleged that 
Fifth Third's indirect lending policies resulted in minority borrowers 
paying higher discretionary markups, and that Fifth Third violated ECOA 
by charging African-American and Hispanic borrowers higher 
discretionary markups for their auto loans than non-Hispanic White 
borrowers without regard to the creditworthiness of the borrowers. 
Fifth Third's discriminatory pricing and compensation structure 
resulted in thousands of minority borrowers paying, on average, over 
$200 more for their auto loans originated between January 2010 and 
September 2015.
    The CFPB's administrative consent order and the DOJ's consent order 
require Fifth Third to reduce dealer discretion to mark up the interest 
rate to a maximum of 1.25% for auto loans with terms of five years or 
less, and 1% for auto loans with longer terms, or move to non-
discretionary dealer compensation. Fifth Third is also required to pay 
$18 million to affected African-American and Hispanic borrowers whose 
auto loans were financed by Fifth Third between January 2010 and 
September 2015. The Bureau did not assess penalties against Fifth Third 
because of the bank's responsible conduct, namely the proactive steps 
the bank is taking that directly address the fair lending risk of 
discretionary pricing and compensation systems by substantially 
reducing or eliminating that discretion altogether. In addition, Fifth 
Third Bank must hire a settlement

[[Page 29542]]

administrator who will contact consumers, distribute the funds, and 
ensure that affected borrowers receive compensation.
American Honda Finance Corporation
    On July 14, 2015, the CFPB resolved an action with American Honda 
Finance Corporation (Honda) that, like Fifth Third Bank, requires Honda 
to change its pricing and compensation system by substantially reducing 
or eliminating discretionary markups to minimize the risks of 
discrimination.\57\ On that same date, the DOJ also filed a complaint 
and proposed consent order in the U.S. District Court for the Central 
District of California addressing the same conduct. That consent order 
was entered by the court on July 16, 2015. Honda's past practices 
resulted in thousands of African-American, Hispanic, and Asian and 
Pacific Islander borrowers paying higher interest rates than similarly-
situated non-Hispanic White borrowers for their auto loans. As part of 
the enforcement action, Honda is required to pay $24 million in 
restitution to affected borrowers.
---------------------------------------------------------------------------

    \57\ In re. American Honda Finance Corp., No. 2015-CFPB-0014 
(July 14, 2015) (consent order), available at http://files.consumerfinance.gov/f/201507_cfpb_consent-order_honda.pdf.
---------------------------------------------------------------------------

    Honda is wholly-owned by American Honda Motor Co., Inc. and as of 
the first quarter of 2015, Honda was the fourth largest captive auto 
lender in the United States and the ninth largest auto lender overall. 
As an indirect auto lender, Honda sets a risk-based interest rate, or 
``buy rate,'' that it conveys to auto dealers. Honda then allows auto 
dealers to charge a higher interest rate when they finalize the 
transaction with the consumer. As described above, this is typically 
called ``discretionary markup.'' The discretionary markups can generate 
compensation for dealers while giving them the discretion to charge 
similarly-situated consumers different rates. Honda permitted dealers 
to mark up consumers' risk-based interest rates as much as 2.25% for 
contracts with terms of five years or less, and 2% for contracts with 
longer terms.
    The enforcement action was the result of a joint CFPB and DOJ 
investigation that began in April 2013. The agencies investigated 
Honda's indirect auto lending activities' compliance with ECOA. The 
CFPB found and the DOJ alleged that Honda's indirect lending policies 
resulted in minority borrowers paying higher discretionary markups and 
that Honda violated ECOA by charging African-American, Hispanic, and 
Asian and Pacific Islander borrowers higher discretionary markups for 
their auto loans than similarly-situated non-Hispanic White borrowers. 
Honda's discriminatory pricing and compensation structure resulted in 
thousands of minority borrowers paying, on average, from $150 to over 
$250 more for their auto loans originated from January 2011 through 
July 14, 2015.
    The CFPB's administrative consent order and the DOJ's consent order 
require Honda to reduce dealer discretion to mark up the interest rate 
to a maximum of 1.25% for auto loans with terms of five years or less, 
and 1% for auto loans with longer terms, or move to non-discretionary 
dealer compensation. Honda is also required to pay $24 million to 
affected African-American, Hispanic, and Asian and Pacific Islander 
borrowers whose auto loans were financed by Honda between January 1, 
2011 and July 14, 2015. As in the case of Fifth Third, the Bureau did 
not assess penalties against Honda because of Honda's responsible 
conduct, namely the proactive steps the company took to directly 
address the fair lending risk of discretionary pricing and compensation 
systems by substantially reducing or eliminating that discretion 
altogether. In addition, Honda, through American Honda Motor Co., will 
contact consumers, distribute the funds, and ensure that affected 
borrowers receive compensation.

3.2 Implementing Public Consent Orders

    When an enforcement action is resolved through a public consent 
order, the Bureau (and the DOJ, where relevant) will take steps to 
ensure that the respondent or defendant complies with the requirements 
of the order. As appropriate to the specific requirements of individual 
public consent orders, the Bureau may take steps to ensure that 
borrowers who are eligible for compensation receive remuneration and 
that the defendant has implemented a comprehensive fair lending 
compliance management system. Throughout 2015, the Offices of Fair 
Lending and Supervision worked to implement and oversee compliance with 
three separate consent orders that were issued by Federal courts or the 
Bureau's Director in prior years. A description of these is included 
below.

3.2.1 Settlement Administration

Synchrony Bank, Formerly Known as GE Capital Retail Bank
    On June 19, 2014, the CFPB, as part of a joint enforcement action 
with the DOJ, ordered Synchrony Bank, formerly known as GE Capital, to 
provide $169 million in relief to about 108,000 borrowers excluded from 
debt relief offers because of their national origin.\58\
---------------------------------------------------------------------------

    \58\ In re. Synchrony Bank, f/k/a GE Capital Retail Bank, No. 
2014-CFPB-0007 (June 19, 2014) (consent order), available at http://files.consumerfinance.gov/f/201406_cfpb_consent-order_synchrony-bank.pdf.
---------------------------------------------------------------------------

    As previously reported, Synchrony Bank had two different promotions 
that allowed credit card customers with delinquent accounts to address 
their outstanding balances, one by paying a specific amount to bring 
their account current in return for a statement credit and another by 
paying a specific amount in return for waiving the remaining account 
balance. However, it did not extend these offers to any customers who 
indicated that they preferred to communicate in Spanish and/or had a 
mailing address in Puerto Rico, even if the customer met the 
promotion's qualifications. This practice denied consumers the 
opportunity to benefit from these promotions on the basis of national 
origin in direct violation of ECOA. This public enforcement action 
represented the federal government's largest credit card discrimination 
settlement in history.
    In the course of administering the settlement, Synchrony Bank 
identified additional consumers who were excluded from these offers and 
had a mailing address in Puerto Rico or indicated a preference to 
communicate in Spanish. Synchrony Bank provided a total of 
approximately $201 million in redress including payments, credits, 
interest, and debt forgiveness to approximately 133,463 eligible 
consumers. This amount includes approximately $4 million of additional 
redress based on its identification of additional eligible consumers. 
Synchrony completed redress to consumers as of August 8, 2015.
PNC Bank, as Successor to National City Bank
    As previously reported, on December 23, 2013, the CFPB and the DOJ 
filed a joint complaint against National City Bank for discrimination 
in mortgage lending, along with a proposed order to settle the 
complaint. Specifically, the complaint alleged that National City Bank 
charged higher prices on mortgage loans to African-American and 
Hispanic borrowers than similarly-situated non-Hispanic White borrowers 
between 2002 and 2008. The consent order, which was entered on January 
9, 2014, by the U.S. District Court for the Western District of 
Pennsylvania, required National City's successor, PNC Bank, to pay $35 
million in restitution to harmed African-American and Hispanic 
borrowers. The

[[Page 29543]]

consent order also required PNC to pay to hire a settlement 
administrator to distribute funds to victims identified by the CFPB and 
the DOJ.\59\
---------------------------------------------------------------------------

    \59\ Consumer Financial Protection Bureau v. National City Bank, 
No. 2:13-cv-01817-CB (W.D. Pa. Jan. 9, 2014) (consent order), 
available at http://files.consumerfinance.gov/f/201312_cfpb_consent_national-city-bank.pdf.
---------------------------------------------------------------------------

    In order to carry out the Bureau's and the DOJ's 2013 settlement 
with PNC, as successor in interest to National City Bank, the Bureau 
and the DOJ worked closely with the settlement administrator and PNC to 
distribute $35 million to harmed African-American and Hispanic 
borrowers. On September 16, 2014, the Bureau published a blog post 
(available in English \60\ and Spanish \61\) announcing the selection 
of the settlement administrator and providing information on contacting 
the administrator and submitting settlement forms. Under the 
supervision of the government agencies, the settlement administrator 
contacted over 90,000 borrowers who were eligible for compensation and 
made over 120,000 phone calls in an effort to ensure maximum 
participation. As of the participation deadline of February 17, 2015, 
borrowers on approximately 74% of the affected loans responded to 
participate in the settlement. The settlement administrator mailed 
checks to participating borrowers totaling $35 million plus accrued 
interest on May 15, 2015.
---------------------------------------------------------------------------

    \60\ Patrice Ficklin, Consumer Financial Protection Bureau, 
National City Bank Settlement Administrator Will Contact Eligible 
Borrowers Soon (Sept. 16, 2014), available at http://www.consumerfinance.gov/blog/national-city-bank-settlement-administrator-will-contact-eligible-borrowers-soon/.
    \61\ Patrice Ficklin, Consumer Financial Protection Bureau, El 
administrador de negociaci[oacute]n del National City Bank pronto se 
pondr[aacute] en contacto con los prestatarios elegibles (Sept. 16, 
2014), available at http://www.consumerfinance.gov/blog/el-administrador-de-negociacion-del-national-city-bank-pronto-se-pondra-en-contacto-con-los-prestatarios-elegibles/.
---------------------------------------------------------------------------

Ally Financial Inc. and Ally Bank
    On December 19, 2013, the CFPB and the DOJ entered into the federal 
government's largest auto loan discrimination settlement in history 
\62\ which required Ally Financial Inc. and Ally Bank (Ally) to pay $80 
million in damages to harmed African-American, Hispanic, and Asian and 
Pacific Islander borrowers. The CFPB found and the DOJ alleged that 
minority borrowers on more than 235,000 auto loans paid higher interest 
rates than similarly-situated non-Hispanic White borrowers between 
April 2011 and December 2013 because of Ally's discriminatory 
discretionary markup and compensation system.
---------------------------------------------------------------------------

    \62\ In re. Ally Financial Inc., No. 2013-CFPB-0010 (Dec. 20, 
2013) (consent order), available at http://files.consumerfinance.gov/f/201312_cfpb_consent-order_ally.pdf.
---------------------------------------------------------------------------

    Ally hired a settlement administrator to distribute the $80 million 
in damages to harmed borrowers. On June 15, 2015, the Bureau published 
a blog post announcing the selection of the settlement administrator 
and providing information on contacting the administrator and 
submitting settlement forms.\63\ On June 26, 2015, the settlement 
administrator sent letters to Ally borrowers identified as potentially 
eligible for remediation from the settlement fund. Consumers had until 
October 2015 to respond, after which the agencies determined the final 
distribution amount for each eligible borrower. Following the 
conclusion of the participation period, Ally's settlement administrator 
identified approximately 301,000 eligible, participating borrowers and 
co-borrowers--representing approximately 235,000 loans--who were 
overcharged as a result of Ally's discriminatory pricing and 
compensation structure during the relevant time period. On January 29, 
2016, the Ally settlement administrator mailed checks totaling $80 
million plus accrued interest to harmed borrowers participating in the 
settlement.\64\ In addition to the $80 million in settlement payments 
for consumers who were overcharged between April 2011 and December 
2013, Ally paid roughly $38.9 million to consumers that Ally determined 
were both eligible and overcharged on auto loans issued during 2014, 
pursuant to its continuing obligations under the terms of the orders.
---------------------------------------------------------------------------

    \63\ Patrice Ficklin, Consumer Financial Protection Bureau, Ally 
Settlement Administrator Will Contact Eligible Borrowers Soon (June 
15, 2015), available at http://www.consumerfinance.gov/blog/ally-settlement-administrator-will-contact-eligible-borrowers-soon/.
    \64\ Patrice Ficklin, Consumer Financial Protection Bureau, 
Harmed Ally Borrowers Have Been Sent $80 Million in Damages (January 
29, 2016), available at http://www.consumerfinance.gov/blog/harmed-ally-borrowers-have-been-sent-80-million-in-damages/.
---------------------------------------------------------------------------

3.3 Equal Credit Opportunity Act Referrals to the Department of Justice

    The CFPB must refer to the DOJ a matter when it has reason to 
believe that a creditor has engaged in a pattern or practice of lending 
discrimination in violation of ECOA.\65\ The CFPB also may refer other 
potential ECOA violations to the DOJ. In 2015, the CFPB referred eight 
matters to the DOJ. With respect to two of the eight matters referred 
to the DOJ, the DOJ declined to open an independent investigation and 
deferred to the Bureau's handling of the matter. The CFPB's referrals 
to the DOJ in 2015 covered a variety of practices, specifically 
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.
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 1691e(g).
---------------------------------------------------------------------------

3.4 Pending Fair Lending Investigations

    In 2015 the Bureau had a number of ongoing fair lending 
investigations and authorized enforcement actions against a number of 
institutions. In particular, as mortgage lending is among the Bureau's 
top priorities, the Bureau focused its fair lending enforcement efforts 
on addressing the unlawful practice of redlining. Redlining occurs when 
a lender provides unequal access to credit, or unequal terms of credit, 
because of the racial or ethnic composition of a neighborhood. At the 
end of 2015, the Bureau had a number of authorized enforcement actions 
in settlement negotiations and pending investigations.
    The Bureau is also focused on institutions' indirect auto lending, 
specifically discrimination resulting from lender compensation policies 
that give auto dealers discretion to set loan prices. In 2015, the 
Bureau investigated several indirect auto lenders and at the end of 
2015 had a number of authorized enforcement actions in settlement 
negotiations and pending investigations.
    Finally, the Bureau is also investigating other areas for potential 
discrimination. At the end of 2015, the Bureau had a number of pending 
investigations in other markets including credit cards.

4. Rulemaking and Related Guidance

4.1 Home Mortgage Disclosure Act (Regulation C)

    In October 2015, the Bureau issued and published in the Federal 
Register a final rule to implement the Dodd-Frank amendments to 
HMDA.\66\ The rule also finalizes certain amendments that the Bureau 
believes are necessary to improve the utility of HMDA data, further the 
purposes of HMDA, improve the quality of HMDA data, and create a more 
transparent mortgage market.
---------------------------------------------------------------------------

    \66\ 80 FR 66128 (Oct. 28, 2015), available at https://www.gpo.gov/fdsys/pkg/FR-2015-10-28/pdf/2015-26607.pdf; see 12 CFR 
part 1003.

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[[Page 29544]]

4.1.1 HMDA History

    HMDA was enacted 40 years ago to respond to redlining concerns and 
the effects of disinvestment in urban neighborhoods and to encourage 
reinvestment in the nation's cities. The statute, as implemented by 
Regulation C, is intended to provide the public with loan data that can 
be used to help determine whether financial institutions are serving 
the housing needs of their communities; to assist public officials in 
distributing public-sector investment to attract private investment in 
communities where it is needed; and to assist in identifying possible 
discriminatory lending patterns and enforcing anti-discrimination 
statutes.\67\ HMDA data are also used for a range of mortgage market 
monitoring purposes by community groups, public officials, the 
financial industry, economists, academics, social scientists, 
regulators, and the media. Bank regulators and other agencies use HMDA 
to monitor compliance with and enforcement of the Community 
Reinvestment Act (CRA) and federal anti-discrimination laws, including 
ECOA and the Fair Housing Act (FHA).
---------------------------------------------------------------------------

    \67\ 12 U.S.C. 2801 et seq.
---------------------------------------------------------------------------

    The Dodd-Frank Act transferred rulemaking authority for HMDA to the 
Bureau, effective July 2011. It also amended HMDA to require financial 
institutions to report new data points and authorized the Bureau to 
require financial institutions to collect, record, and report 
additional information.

4.1.2 Rule History

    On August 29, 2014, the Bureau published in the Federal Register a 
proposed rule to implement changes to Regulation C and sought public 
comment on the proposal.\68\ The comment period ran through the end of 
October 2014. The Bureau received approximately 400 comments on its 
HMDA proposal. Commenters included consumer advocacy groups; national, 
State, and regional industry trade associations; banks; credit unions; 
software providers; housing counselors; academics; and others. The 
Bureau also consulted with or offered to consult with the prudential 
regulators (the Federal Reserve Board (FRB), the Federal Deposit 
Insurance Corporation (FDIC), the National Credit Union Administration 
(NCUA), and the Office of the Comptroller of the Currency (OCC)), the 
DOJ, HUD, the Federal Housing Finance Agency, the Securities and 
Exchange Commission (SEC), and the FTC.
---------------------------------------------------------------------------

    \68\ 79 FR 51732 (Aug. 29, 2014), available at http://www.gpo.gov/fdsys/pkg/FR-2014-08-29/pdf/2014-18353.pdf.
---------------------------------------------------------------------------

    In adopting the final rule, the Bureau carefully reviewed and 
considered all of the comments it received, and published the final 
rule in the Federal Register on October 28, 2015 (the HMDA Rule). The 
Bureau has also issued a number of regulatory implementation tools and 
resources to assist industry in understanding and implementing the new 
rule's requirements, which are available at www.consumerfinance.gov/hmda.

4.1.3 Summary of Regulation C Changes

    The rule modifies the types of institutions and transactions 
subject to Regulation C, adds new data reporting requirements, 
clarifies several existing data reporting requirements and modifies the 
processes for reporting and disclosing the required data.
    The HMDA Rule changes institutional coverage in two phases. First, 
to reduce burden on industry, certain lower-volume depository 
institutions will no longer be required to collect and report HMDA data 
beginning in 2017. A bank, savings association, or credit union will 
not be subject to Regulation C in 2017 unless it meets the asset-size, 
location, federally related, and loan activity tests under current 
Regulation C and it originates at least 25 home purchase loans, 
including refinancings of home purchase loans, in both 2015 and 2016. 
Second, effective January 1, 2018, the HMDA Rule adopts a uniform loan-
volume threshold for all institutions. Beginning in 2018, an 
institution will be subject to Regulation C if it originated at least 
25 covered closed-end mortgage loan originations in each of the two 
preceding calendar years or at least 100 covered open-end lines of 
credit in each of the two preceding calendar years. Other applicable 
coverage requirements will apply, depending on the type of covered 
entity.
    The Rule also modifies the types of transactions covered under 
Regulation C. In general, the HMDA Rule adopts a dwelling-secured 
standard for transactional coverage. Beginning on January 1, 2018, 
covered loans under the HMDA Rule generally will include closed-end 
mortgage loans and open-end lines of credit secured by a dwelling and 
will not include unsecured loans.
    For HMDA data collected on or after January 1, 2018, covered 
institutions will collect, record, and report additional information on 
covered loans. New data points include those specifically identified in 
Dodd-Frank as well as others the Bureau determined will assist in 
carrying out HMDA's purposes. The HMDA Rule adds new data points for 
applicant or borrower age, credit score, automated underwriting system 
information, debt-to-income ratio, combined loan-to-value ratio, unique 
loan identifier, property value, application channel, points and fees, 
borrower-paid origination charges, discount points, lender credits, 
loan term, prepayment penalty, non-amortizing loan features, interest 
rate, and loan originator identifier as well as other data points. The 
HMDA Rule also modifies several existing data points.
    For data collected on or after January 1, 2018, the HMDA Rule 
amends the requirements for collection and reporting of information 
regarding an applicant's or borrower's ethnicity, race, and sex. First, 
a covered institution will report whether or not it collected the 
information on the basis of visual observation or surname. Second, 
covered institutions must permit applicants to self-identify their 
ethnicity and race using disaggregated ethnic and racial subcategories. 
However, the HMDA Rule will not require or permit covered institutions 
to use the disaggregated subcategories when identifying the applicant's 
or borrower's ethnicity and race based on visual observation or 
surname.
    The Bureau is developing a new web-based submission tool for 
reporting HMDA data, which covered institutions will use beginning in 
2018. Regulation C's appendix A is amended effective January 1, 2018 to 
include new transition requirements for data collected in 2017 and 
reported in 2018. Covered institutions will be required to 
electronically submit their loan application registers (LARs). 
Beginning with data collected in 2018 and reported in 2019, covered 
institutions will report the new dataset required by the HMDA Rule, 
using revised procedures that will be available at 
www.consumerfinance.gov/hmda.
    Beginning in 2020, the HMDA Rule requires quarterly reporting for 
covered institutions that reported a combined total of at least 60,000 
applications and covered loans in the preceding calendar year. An 
institution will not count covered loans that it purchased in the 
preceding calendar year when determining whether it is required to 
report on a quarterly basis. The first quarterly submission will be due 
by May 30, 2020.
    Beginning in 2018, covered institutions will no longer be required 
to provide a disclosure statement or a modified LAR to the public upon 
request. Instead, in response to a request, a covered institution will 
provide a notice that its disclosure

[[Page 29545]]

statement and modified LAR are available on the Bureau's Web site. 
These revised disclosure requirements will apply to data collected on 
or after January 1, 2017 and reported in or after 2018.
    For data collected in or after 2018 and reported in or after 2019, 
the Bureau will use a balancing test to determine whether and, if so, 
how HMDA data should be modified prior to its disclosure in order to 
protect applicant and borrower privacy while also fulfilling HMDA's 
disclosure purposes. At a later date, the Bureau will provide a process 
for the public to provide input regarding the application of this 
balancing test to determine the HMDA data to be publicly disclosed.

4.1.4 Reducing Industry Burden

    The Bureau took a number of steps to reduce industry burden while 
ensuring HMDA data are useful and reflective of the current housing 
finance market. A key part of this balancing is ensuring an adequate 
implementation period. Most provisions of the HMDA Rule go into effect 
on January 1, 2018--more than two years after publication of the Rule--
and apply to data collected in 2018 and reported in 2019 or later 
years. At the same time, an institutional coverage change that will 
reduce the number of depository institutions that need to report is 
effective earlier: On January 1, 2017. Institutions subject to the new 
quarterly reporting requirement will have additional time to prepare: 
That requirement is effective on January 1, 2020, and the first 
quarterly submission will be due by May 30, 2020.
    As with all of its rules, the Bureau continues to look for ways to 
help the mortgage industry implement the new mortgage lending data 
reporting rules, and has created regulatory implementation resources 
that are available online. These resources include an overview of the 
final rule, a plain-language compliance guide, a timeline with various 
effective dates, a decision tree to help institutions determine whether 
they need to report mortgage lending data, a chart that provides a 
summary of the reportable data, and a chart that describes when to 
report data as not applicable. The Bureau will monitor implementation 
progress and will be publishing additional regulatory implementation 
tools and resources on its Web site to support implementation 
needs.\69\
---------------------------------------------------------------------------

    \69\ These resources are available at http://www.consumerfinance.gov/regulatory-implementation/hmda/.
---------------------------------------------------------------------------

4.1.5 HMDA Data Resubmission RFI

    In response to dialogue with industry and other stakeholders, the 
Bureau is considering modifications to its current resubmission 
guidelines. In comments on the Bureau's proposed changes to Regulation 
C, some stakeholders asked that the Bureau adjust its existing HMDA 
resubmission guidelines to reflect the expanded data the Bureau will 
collect under the HMDA Rule.
    Accordingly, on January 7, 2016, the Bureau published on its Web 
site a Request for Information (RFI) asking for public comment on the 
Bureau's HMDA resubmission guidelines.\70\ Specifically, the Bureau 
requested feedback on the Bureau's use of resubmission error 
thresholds; how they should be calculated; whether they should vary 
with the size of the HMDA submission or kind of data; and the 
consequences for exceeding a threshold, among other topics. Some 
examples of questions posed to the public include:
---------------------------------------------------------------------------

    \70\ See http://www.consumerfinance.gov/newsroom/cfpb-seeks-public-input-on-mortgage-lending-information-resubmission-guidelines/.
---------------------------------------------------------------------------

     Should the Bureau continue to use error percentage 
thresholds to determine the need for data resubmission? If not, how 
else may the Bureau ensure data integrity and compliance with HMDA and 
Regulation C?
     If the Bureau retains error percentage thresholds, should 
the thresholds be calculated differently than they are today? If so, 
how and why?
     If the Bureau retains error percentage thresholds, should 
it continue to maintain separate error thresholds for the entire HMDA 
LAR sample and individual data fields within the LAR sample? If not, 
why?
    The RFI was published in the Federal Register on January 12, 
2016.\71\ The 60-day comment period ended on March 14, 2016. As of this 
report's publication date, the Bureau was reviewing the comments 
received in response to the RFI.
---------------------------------------------------------------------------

    \71\ 81 FR 1405 (Jan. 12, 2016).
---------------------------------------------------------------------------

4.2 Small Business Data Collection

    Section 1071 of Dodd-Frank requires financial institutions to 
compile, maintain, and submit to the Bureau certain data on credit 
applications for women-owned, minority-owned, and small businesses.\72\ 
Congress enacted Section 1071 for the purpose of facilitating 
enforcement of fair lending laws and identifying business and community 
development needs and opportunities for women-owned, minority-owned, 
and small businesses. In December 2015, the Bureau updated its Unified 
Agenda and Regulatory Plan to reflect that rulemaking pursuant to 
Section 1071 is now in the pre-rule stage.\73\ The first stage of the 
Bureau's work will be focused on outreach and research, after which the 
Bureau 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.
---------------------------------------------------------------------------

    \72\ Dodd-Frank Act, section 1071 (codified at 15 U.S.C. 1691c-
2).
    \73\ 80 FR 78055, 78058 (Dec. 15, 2015).
---------------------------------------------------------------------------

    The Bureau has begun to explore some of the issues involved in the 
rulemaking, including engaging numerous stakeholders about the 
statutory reporting requirements. The Bureau is also considering how 
best to work with other agencies to, in part, gain insight into 
existing small business data collection efforts and possible ways to 
cooperate in future efforts. In addition, current and future small 
business lending supervisory activity will help expand and enhance the 
Bureau's knowledge in this area, including the credit process; existing 
data collection processes; and the nature, extent, and management of 
fair lending risk.

4.3 Amicus Program

    The Bureau's Amicus Program files amicus, or friend-of-the-court, 
briefs in court cases concerning the federal consumer financial 
protection laws that the Bureau is charged with implementing, including 
ECOA. These amicus briefs provide the courts with our views on 
significant consumer financial protection issues and help ensure that 
consumer financial protection statutes and regulations are correctly 
and consistently interpreted by the courts.
    On May 28, 2015, the Bureau with the Solicitor General of the 
United States filed an amicus brief in Hawkins v. Community Bank of 
Raymore addressing the question whether Regulation B permissibly 
interprets ECOA's definition of ``applicant'' to encompass 
guarantors.\74\ Regulation B forbids creditors from requiring one 
spouse to guarantee the other spouse's debt obligation solely because 
the couple is married. The regulation further defines the 
``applicants'' protected from that discriminatory practice to include 
any such guarantor. The amicus brief argues that this interpretation of 
``applicant'' is a

[[Page 29546]]

permissible interpretation of ECOA that is entitled to deference and 
should be upheld.\75\ In an equally divided 4-4 decision that lacks 
precedential effect, the Supreme Court affirmed the decision of the 
Court of Appeals for the Eighth Circuit.\76\
---------------------------------------------------------------------------

    \74\ Brief for the United States as Amicus Curiae Supporting 
Petitioners, Hawkins v. Community Bank of Raymore, 135 S.Ct. 1492 
(2015) (granting cert.) (No. 14-520), available at http://www.consumerfinance.gov/amicus/.
    \75\ Id. at 11.
    \76\ Hawkins v. Community Bank of Raymore, 577 U.S. (2016), 2016 
WL 1092416.
---------------------------------------------------------------------------

    In 2015, the Bureau also began the process of working on an amicus 
brief in Alexander v. Ameripro Funding, Inc., appealing the United 
States District Court for the Southern District of Texas's dismissal of 
an ECOA complaint alleging discrimination because all or part of the 
applicants' income derives from a public assistance program. The 
District Court held that the allegations in the complaint failed to 
state a prima facie claim of discrimination and to allege direct 
evidence of discrimination because the allegations were ``conclusory'' 
and failed to allege hostility or animus.\77\ The Bureau filed its 
amicus brief on February 23, 2016, and argued that allegations that 
creditors refused to consider public assistance income state a claim 
under ECOA sufficient to survive a motion to dismiss. The brief also 
argued that hostility and animus are not elements of a discrimination 
claim under ECOA.\78\
---------------------------------------------------------------------------

    \77\ Alexander v. Ameripro Funding, Inc., 2015 WL 4545625 at *4 
(S.D. Tex. 2015).
    \78\ Brief of Amicus Curiae Consumer Financial Protection Bureau 
in Support of Appellants and Reversal, Alexander, et al. v. Ameripro 
Funding, Inc., et al., No. 15-20710 (5th Cir. Feb. 23, 2016), 
available at http://www.consumerfinance.gov/amicus/.
---------------------------------------------------------------------------

    The Bureau's Amicus Program is ongoing and we welcome suggestions 
of pending cases that might make good candidates for the program.

5. Research

    As part of the Bureau's commitment to transparency and to being a 
data-driven agency, we continue to evaluate and share our fair lending 
methodologies and analytical approaches. In the Bureau's 2015 Fair 
Lending Report to Congress,\79\ we discussed our evaluation of our 
proxy methodology, and responded to feedback from stakeholders. During 
the past year we have engaged in further dialogue around the Bureau's 
proxy methodology. We have also described the Bureau's approach to 
analyzing underwriting outcomes.
---------------------------------------------------------------------------

    \79\ Available at http://files.consumerfinance.gov/f/201504_cfpb_fair_lending_report.pdf.
---------------------------------------------------------------------------

5.1 Proxy Methodology

    On September 17, 2014, the Bureau published a white paper, titled 
Using Publicly Available Information to Proxy for Unidentified Race and 
Ethnicity, that details the Bayesian Improved Surname Geocoding (BISG) 
methodology the Bureau uses to calculate the probability that an 
individual is of a specific race and ethnicity based on his or her last 
name and place of residence.\80\
---------------------------------------------------------------------------

    \80\ Available at http://www.consumerfinance.gov/reports/using-publicly-available-information-to-proxy-for-unidentified-race-and-ethnicity/.
---------------------------------------------------------------------------

    The analysis in the white paper showed that, compared to the 
distribution of self-reported race and ethnicity in a sample of 
mortgage applicants, the BISG proxy underestimated the percentage of 
non-Hispanic White mortgage applicants and overestimated the percentage 
of minority applicants. The analysis suggested that this pattern of 
under- and over-estimation is likely more pronounced for mortgage 
applicants, who tend to be disproportionately more non-Hispanic White 
than the U.S. adult population, and that in other settings, such as 
auto lending, the pattern may be less pronounced.
    Subsequent analysis of auto loan originations reported in the 
Consumer Expenditure Survey (CEX), a publicly-available survey of U.S. 
consumer expenditures conducted by the Bureau of Labor Statistics,\81\ 
and mortgage originations reported in the 2012 HMDA data supports this 
point. For instance, 12% of the U.S. adult population is African 
American, and in 2012 African-American consumers received 10% of auto 
loan originations compared to 4% of mortgage loan originations. The 
general pattern of the percentage of auto loan originations being 
closer to the corresponding population percentage holds for non-
Hispanic White, Asian and Pacific Islander, and Hispanic borrowers. 
This evidence suggests that for a nationally representative sample of 
consumers, the distribution of race and ethnicity for auto loan 
borrowers more closely approximates the distribution of race and 
ethnicity in the U.S. adult population than does the distribution of 
race and ethnicity for mortgage borrowers.
---------------------------------------------------------------------------

    \81\ See United States Department of Labor, Bureau of Labor 
Statistics, Consumer Expenditure Survey, public-use microdata 
available at http://www.bls.gov/cex/pumdhome.htm.

                           Table 1--Comparison of Distributions of Race and Ethnicity
----------------------------------------------------------------------------------------------------------------
                                                                       Adult         Auto loan     Mortgage loan
                                                                    population     originations    originations
                         Race/ethnicity                            (census 2010)    (CEX 2012)      (HMDA 2012)
                                                                     (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Non-Hispanic White..............................................              67              73              82
African American................................................              12              10               4
Asian and Pacific Islander......................................               5               4               7
Hispanic........................................................              14              11               7
----------------------------------------------------------------------------------------------------------------

    The Bureau's methodology is designed to arrive at the best 
estimate, based on publicly available data, of the total number of 
harmed borrowers and to accurately identify the full scope of harm. The 
Bureau makes final determinations regarding discriminatory outcomes and 
their scope in dialogue with individual lenders, and carefully 
considers every argument lenders make about alternative ways to 
identify the number of harmed borrowers and the amount of harm. These 
alternative methods do not typically suggest an absence of 
discrimination or consumer harm, but rather a lower level than the 
Bureau's original estimates. In some instances, as a result of dialogue 
with institutions, the Bureau has adopted changes to our analyses and 
reduced our estimates in response to specific alternatives offered by 
individual lenders with regard to their specific loan portfolios. In 
other instances, the Bureau has retained its original estimates, for 
example, where we have concluded that the proffered alternatives would 
underestimate the level of discrimination and harm without an adequate 
basis.
    As we stated in our white paper, the Bureau is committed to 
continuing our dialogue with other federal agencies,

[[Page 29547]]

lenders, industry groups, consumer advocates, and researchers regarding 
the Bureau's methodology, the importance of fair lending compliance, 
and the use of proxies when self-reported race and ethnicity is 
unavailable. We expect the methodology will continue to evolve as 
enhancements are identified that further increase accuracy and 
performance.

5.2 Methodologies That Can Be Used To Understand Underwriting 
Disparities

    As noted above, the Fall 2015 edition of Supervisory Highlights 
detailed the Bureau's supervisory work on ECOA targeted reviews that 
analyze an institution's underwriting practices, including 
methodologies used to understand underwriting outcomes and identify 
potential disparities.
    In CFPB underwriting reviews, which typically evaluate potential 
disparities in denial rates, Bureau economists and analysts may rely on 
various methods to measure whether outcomes differ based on race, 
national origin, sex, or other prohibited bases.
    One traditional method involves odds ratios, which measure the 
ratio of the odds of two different events. In the context of an 
underwriting analysis, the ratio reflects the odds of a loan 
application denial between groups of borrowers.
    However, the Bureau may use other methods of analysis, including 
marginal effects, to gain a better understanding of the nature and 
relative magnitude of any underwriting disparities. In contrast to odds 
ratios, the marginal effect expresses the absolute change in denial 
probability associated with being a member of a prohibited basis group. 
For example, a marginal effect of 0.10 in an underwriting analysis 
means the probability of denial for the test group is 10 percentage 
points higher than the probability of denial for the control group. 
When the CFPB calculates marginal effects, it also considers a 
conditional marginal effect, which provides the increased chances of 
denial for a group holding all other factors constant, and thus 
controls for other, legitimate credit characteristics that may affect 
the probability of denial.
    An additional benefit of marginal effects is that they can be 
compared across groups and institutions, and to the institution's 
overall approval and denial rates in the specific product reviewed. In 
this manner, the CFPB can contextualize the disparity to determine 
whether it warrants additional inquiry. In a number of instances, our 
review of marginal effects data has allowed us to decide that a 
particular disparity does not merit additional inquiry.

6. Interagency Coordination

6.1 Interagency Coordination and Engagement

    The Office of Fair Lending regularly coordinates the CFPB's fair 
lending efforts with those of other federal agencies and state 
regulators to promote consistent, efficient, and effective enforcement 
of federal fair lending laws.\82\ Through our interagency engagement, 
we work to address current and emerging fair lending risks.
---------------------------------------------------------------------------

    \82\ Dodd-Frank Act, section 1013(c)(2)(B) (codified at 12 
U.S.C. 5493(c)(2)(B)).
---------------------------------------------------------------------------

6.1.1 Financial Fraud Enforcement Task Force's Non-Discrimination 
Working Group

    The Financial Fraud Enforcement Task Force was established in 
November 2009 by an Executive Order aimed at strengthening the efforts 
of the DOJ and federal, state, and local agencies ``to investigate and 
prosecute significant financial crimes and other violations relating to 
the current financial crisis and economic recovery efforts, recover the 
proceeds of such financial crimes and violations, and ensure just and 
effective punishment of those who perpetuate financial crimes and 
violations.'' \83\ The Non-Discrimination Working Group focuses on and 
monitors financial fraud or other unfair practices and emerging trends 
in order to proactively address emerging discriminatory practices 
directed at people or neighborhoods based on race, color, religion, 
national origin, gender, age, disability, or other bases prohibited by 
law.
---------------------------------------------------------------------------

    \83\ Exec. Order No. 13519, 74 FR 60123 (Nov. 17, 2009).
---------------------------------------------------------------------------

6.1.2 Interagency Task Force on Fair Lending

    The CFPB, along with the FTC, DOJ, HUD, FDIC, FRB, NCUA, OCC, and 
the Federal Housing Finance Agency, comprise the Interagency Task Force 
on Fair Lending. The Task Force meets regularly to discuss fair lending 
enforcement efforts, share current methods of conducting supervisory 
and enforcement fair lending activities, and coordinate fair lending 
policies.

6.1.3 Interagency Working Group on Fair Lending Enforcement

    The CFPB belongs to a standing working group of Federal agencies--
with the DOJ, HUD, and FTC--that meets regularly to discuss issues 
relating to fair lending enforcement. The agencies use these meetings 
to discuss fair lending developments and trends, methodologies for 
evaluating fair lending risks and violations, and coordination of fair 
lending enforcement efforts. In addition to these interagency working 
groups, we meet periodically and on an ad hoc basis with the prudential 
regulators to coordinate our fair lending work.

6.1.4 FFIEC HMDA/Community Reinvestment Act Data Collection 
Subcommittee

    The CFPB takes part in the FFIEC HMDA/Community Reinvestment Act 
Data Collection Subcommittee, which is a subcommittee of the FFIEC Task 
Force on Consumer Compliance, as its work relates to the collection and 
processing of HMDA data jurisdiction.

6.2 CFPB-HUD Memorandum of Understanding

    To increase efficiency and reduce industry burden where 
appropriate, the Bureau and HUD frequently collaborate and share 
information when there is overlapping authority. On September 2, 2015, 
the Bureau and HUD entered into a Memorandum of Understanding (MOU) 
delineating how each agency will use and properly share information to 
enhance fair lending compliance and interagency collaboration around 
institutions and issues over which the two agencies share jurisdiction. 
The MOU further extends the Bureau's robust working relationship with 
HUD. In particular, HUD can now access the Bureau's Government Portal, 
allowing HUD to view the Bureau's consumer complaints. HUD, in turn, 
provides to the Bureau reports describing the fair lending complaints 
that it has received. Additionally, the agencies have agreed to 
coordinate joint fair lending investigations to minimize duplication of 
efforts; meet quarterly to discuss current fair lending investigations 
of entities within the jurisdiction of both Agencies; coordinate 
action(s) in a manner consistent and complementary to each agency's 
actions, including determining whether multiple or joint actions are 
necessary and appropriate; notify each agency of relevant information 
under specified circumstances; and meet annually to assess the 
implementation of the MOU.

7. Outreach: Promoting Fair Lending Compliance and Education

    Pursuant to Dodd-Frank,\84\ the Office of Fair Lending regularly 
engages in outreach with Members of Congress, industry, bar 
associations, consumer advocates, civil rights organizations, other 
government agencies, and other stakeholders to help educate and inform

[[Page 29548]]

about fair lending. The Bureau is committed to communicating directly 
with all stakeholders on its policies, compliance expectations, and 
fair lending priorities. As part of this commitment to outreach and 
education in the area of fair lending, equal opportunity and ensuring 
fair access to credit, Bureau personnel have engaged in dialogue with 
stakeholders on issues including the use of public assistance income in 
underwriting, disparate impact, HMDA data collection and reporting, 
indirect auto financing, the use of proxy methodology, and the unique 
challenges facing limited English proficient (LEP) and lesbian, gay, 
bisexual and transgender (LGBT) consumers in accessing credit. Outreach 
is accomplished through issuance of Interagency Statements, Supervisory 
Highlights, Compliance Bulletins, and blog posts, speeches and 
presentations at conferences and trainings, interaction with Members of 
Congress and their staff, and participating in convenings to discuss 
fair lending and access to credit matters.
---------------------------------------------------------------------------

    \84\ Dodd-Frank Act, section 1013(c)(2)(C) (codified at 12 
U.S.C. 5493(c)(2)(C)).
---------------------------------------------------------------------------

7.1 Section 8 HCV Homeownership Compliance Bulletin

    When the Bureau becomes aware of compliance issues that may be 
widespread, it works to share information with industry stakeholders 
and consumers to address the concerns. On May 11, 2015, the Bureau 
issued a compliance bulletin on the Section 8 Housing Choice Voucher 
(HCV) Homeownership Program.\85\ The Bulletin reminds creditors of 
their obligations under ECOA \86\ and Regulation B \87\ to provide non-
discriminatory access to credit for mortgage applicants using income 
from the Section 8 HCV Homeownership Program. In addition to publishing 
the Bulletin on its Web site, the Bureau published a blog post to raise 
consumer awareness of the Bulletin and the issues it addresses.\88\
---------------------------------------------------------------------------

    \85\ Consumer Financial Protection Bureau, Section 8 Housing 
Choice Voucher Homeownership Program Bulletin 2015-02 (May 11, 
2015), available at http://files.consumerfinance.gov/f/201505_cfpb_bulletin-section-8-housing-choice-voucher-homeownership-program.pdf.
    \86\ 15 U.S.C. 1691 et seq.
    \87\ 12 CFR part 1002 et seq.
    \88\ Patrice Ficklin & Daniel Dodd-Ramirez, Income from the 
Section 8 Housing Choice Voucher Homeownership Program Shouldn't 
Mean You Don't Qualify for a Mortgage (May 11, 2015), available at 
http://www.consumerfinance.gov/blog/income-from-the-section-8-housing-choice-voucher-homeownership-program-shouldnt-mean-you-dont-qualify-for-a-mortgage/.
---------------------------------------------------------------------------

    The Bureau became aware of circumstances where institutions were 
excluding or refusing to consider income derived from the Section 8 HCV 
Homeownership Program during mortgage loan application and underwriting 
processes. Some institutions have restricted the use of Section 8 HCV 
Homeownership Program vouchers to only certain home mortgage loan 
products or delivery channels. Our reminder to mortgage lenders, in the 
form of the compliance bulletin, should help consumers who receive 
Section 8 HCV Homeownership Program vouchers receive fair and equal 
access to credit and will help industry comply with current law.

7.2 HMDA Rule and RFI

    As explained more fully earlier in this report, the Bureau 
published its final rule implementing the Dodd-Frank Act's amendments 
to HMDA and Regulation C in October 2015. Prior to publishing its final 
rule, the Bureau received and reviewed approximately 400 comments in 
response to its proposed rule. Additionally, the Bureau, in accordance 
with its obligation under the Dodd-Frank Act to consult with the 
appropriate prudential regulators and other Federal agencies prior to 
proposing a rule and during the comment process,\89\ proactively met 
with regulators throughout the rulemaking process to seek and consider 
their feedback.
---------------------------------------------------------------------------

    \89\ Dodd-Frank Act, section 1022(b)(2)(B) (codified at 12 
U.S.C. 5512(b)(2)(B)).
---------------------------------------------------------------------------

    In conjunction with the HMDA Rule, the Bureau published a Web page 
dedicated to HMDA to consolidate resources for consumers, industry, 
academia, the media and other stakeholders. The HMDA Web page contains 
the new rule, materials for better understanding the rule and its 
requirements, a tool to explore HMDA data, helpful facts and figures 
about HMDA data, and more. The Web page can be accessed at 
www.consumerfinance.gov/hmda.
    In addition, on January 12, 2016, the Bureau published in the 
Federal Register a Request for Information (RFI) on possible 
modifications to the HMDA data resubmission guidelines.\90\ More 
information on both the HMDA Rule and the HMDA resubmission RFI may be 
found in Section 4.1 of this Report.
---------------------------------------------------------------------------

    \90\ Consumer Financial Protection Bureau, Request for 
Information Regarding Home Mortgage Disclosure Act Resubmission 
Guidelines 2015-0058 (Jan. 12, 2016), available at http://files.consumerfinance.gov/f/201601_cfpb_request-for-information-regarding-home-mortgage-disclosure-act-resubmission.pdf.
---------------------------------------------------------------------------

7.3 Blog Posts

    The Bureau firmly believes that an informed consumer is the best 
defense against predatory lending practices. When issues arise that 
consumers need to know about, the Bureau uses many tools to spread the 
word. The Bureau regularly uses its blog as a tool to communicate 
effectively to consumers on timely issues, emerging areas of concern, 
Bureau initiatives, and more. In 2015 we published several blog posts 
related to fair lending, including announcement of the Hudson City 
redlining settlement, published in both English \91\ and Spanish; \92\ 
updates on the Ally settlement, published in both English \93\ and 
Spanish; \94\ information about income from the Section 8 Housing 
Choice Voucher Homeownership Program; \95\ and, a summary of the 2014 
Annual Report.\96\
---------------------------------------------------------------------------

    \91\ Patrice Ficklin, Consumer Financial Protection Bureau, 
Hudson City Savings Bank to Pay $27 million to Increase Access to 
Credit in Black and Hispanic Neighborhoods it Discriminated against 
(September 24, 2015), available at http://www.consumerfinance.gov/blog/hudson-city-savings-bank-to-pay-27-million-to-increase-access-to-credit-in-black-and-hispanic-neighborhoods-it-discriminated-against/.
    \92\ Patrice Ficklin, Consumer Financial Protection Bureau, El 
Banco de Ahorros Hudson City pagar[aacute] $27 millones para 
aumentar el acceso al cr[eacute]dito en vecindarios mayormente 
afroamericanos e hispanos que discriminaba (October 21, 2015), 
available at http://www.consumerfinance.gov/blog/el-banco-de-ahorros-hudson-city-pagara-27-millones-para-aumentar-el-acceso-al-credito-en-vecindarios-mayormente-afroamericanos-e-hispanos-que-discriminaba/.
    \93\ Patrice Ficklin, Consumer Financial Protection Bureau, Ally 
Settlement Administrator Will Contact Eligible Borrowers Soon (June 
15, 2015), available at http://www.consumerfinance.gov/blog/ally-settlement-administrator-will-contact-eligible-borrowers-soon/.
    \94\ Patrice Ficklin, Consumer Financial Protection Bureau, Un 
administrador del acuerdo de Ally en breve estar[aacute] en contacto 
con prestatarios elegibles (June 15, 2015), available at http://www.consumerfinance.gov/blog/un-administrador-del-acuerdo-de-ally-en-breve-estara-en-contacto-con-prestatarios-elegibles/.
    \95\ Patrice Ficklin & Daniel Dodd-Ramirez, Consumer Financial 
Protection Bureau, Income from the Section 8 Housing Choice Voucher 
Homeownership Program Shouldn't Mean You Don't Qualify for a 
Mortgage (May 11, 2015), available at http://www.consumerfinance.gov/blog/income-from-the-section-8-housing-choice-voucher-homeownership-program-shouldnt-mean-you-dont-qualify-for-a-mortgage/.
    \96\ Patrice Ficklin, Consumer Financial Protection Bureau, 
We're Making Progress toward Ensuring Fair Access to Credit (April 
28, 2015), available at http://www.consumerfinance.gov/blog/were-making-progress-toward-ensuring-fair-access-to-credit/.
_____________________________________-

    The blog may be accessed any time at www.consumerfinance.gov/blog.

7.4 Fair Lending Webinar

    On October 15, 2015, along with federal partners from the FRB, the 
DOJ, the FDIC, the OCC, HUD, and the NCUA, the Office of Fair Lending 
staff participated in and presented at the 2015 Federal Interagency 
Fair Lending Hot Topics webinar. The webinar covered several fair 
lending topics,

[[Page 29549]]

including the use of data in evaluating fair lending risk, compliance 
management, maternity leave discrimination, post-origination risks, and 
auto lending settlements. The webinar was viewed by more than 6,000 
registrants.

7.5 Supervisory Highlights

    Supervisory Highlights publications anchor the Bureau's efforts to 
communicate with supervised entities about supervisory findings. 
Because the Bureau's supervisory process is confidential, Supervisory 
Highlights reports provide information to all market participants on 
broad supervisory and market trends that the Bureau observes. In 2015, 
Supervisory Highlights covered many topical issues pertaining to fair 
lending, including an overview of Bureau underwriting reviews, 
discussion of mortgage origination policies that violate ECOA and 
Regulation B by failing to consider public assistance income, and 
settlement updates for recent enforcement actions that were originated 
in the supervisory process.
    More information about the topics discussed this year in 
Supervisory Highlights can be found in Section 2.1 of this Report. As 
with all Bureau resources, all editions of Supervisory Highlights are 
available on www.consumerfinance.gov/reports.

8. Interagency Reporting

    Pursuant to ECOA, the CFPB is required to file a report to Congress 
describing the administration of its functions under ECOA, providing an 
assessment of the extent to which compliance with ECOA has been 
achieved, and giving a summary of public enforcement actions taken by 
other agencies with administrative enforcement responsibilities under 
ECOA.\97\ This section of this report provides the following 
information:
---------------------------------------------------------------------------

    \97\ 15 U.S.C. 1691f.
---------------------------------------------------------------------------

     A description of the CFPB's and other agencies' ECOA 
enforcement efforts; and
     an assessment of compliance with ECOA.
    In addition, the CFPB's annual HMDA reporting requirement calls for 
the CFPB, in consultation with HUD, to report annually on the utility 
of HMDA's requirement that covered lenders itemize certain mortgage 
loan data.\98\
---------------------------------------------------------------------------

    \98\ 12 U.S.C. 2807.
---------------------------------------------------------------------------

8.1 Equal Credit Opportunity Act Enforcement

    The enforcement efforts and compliance assessments made by all the 
agencies assigned enforcement authority under Section 704 of ECOA are 
discussed in this section.

8.1.1 Public Enforcement Actions

    In addition to the CFPB, the agencies charged with administrative 
enforcement of ECOA under Section 704 include: The FRB, the FDIC, the 
OCC, and the NCUA (collectively, the FFIEC agencies); \99\ the FTC, the 
Farm Credit Administration (FCA), the Department of Transportation 
(DOT), the SEC, the Small Business Administration (SBA), and the Grain 
Inspection, Packers and Stockyards Administration (GIPSA) of the 
Department of Agriculture.\100\ In 2015, CFPB had four public 
enforcement actions for violations of ECOA, and the FDIC issued one 
public enforcement action for violations of ECOA and/or Regulation B.
---------------------------------------------------------------------------

    \99\ The FFIEC is a ``formal interagency body empowered to 
prescribe uniform principles, standards, and report forms for the 
federal examination of financial institutions'' by the member 
agencies listed above and the State Liaison Committee ``and to make 
recommendations to promote uniformity in the supervision of 
financial institutions.'' Federal Financial Institutions Examination 
Council, http://www.ffiec.gov (last visited Jan. 26, 2016).
    \100\ 15 U.S.C. 1691c.
---------------------------------------------------------------------------

8.1.2 Violations Cited During ECOA Examinations

    Among institutions examined for compliance with ECOA and Regulation 
B, the FFIEC agencies reported that the most frequently cited 
violations were:

     Table 2--Most Frequently Cited Regulation B Violations by FFIEC
                             Agencies: 2015
------------------------------------------------------------------------
     FFIEC Agencies reporting           Regulation B violations: 2015
------------------------------------------------------------------------
CFPB, FDIC, FRB, NCUA, OCC........  12 CFR 1002.4(a): Discrimination on
                                     a prohibited basis in a credit
                                     transaction.
                                    12 CFR 1002.5(b), (d): Improperly
                                     requesting information about an
                                     applicant's race, color, religion,
                                     national origin, sex, marital
                                     status or source of income.
                                    12 CFR 1002.6(b)(1), (b)(2), (b)(5),
                                     (b)(9): Improperly considering age,
                                     receipt of public assistance,
                                     certain other income, or another
                                     prohibited basis in a system of
                                     evaluating applicant
                                     creditworthiness.
                                    12 CFR 1002.7(a), (d)(1): Refusing
                                     to grant an individual account to a
                                     creditworthy applicant on a
                                     prohibit basis; improperly
                                     requiring the signature of an
                                     applicant's spouse or other person.
                                    12 CFR 1002.9(a)(1), (a)(2), (b)(1),
                                     (b)(2), (c): Failure to timely
                                     notify an applicant when an
                                     application is denied; failure to
                                     provide sufficient information in
                                     an adverse action notification,
                                     including the specific reasons the
                                     application was denied; failure to
                                     timely and/or appropriately notify
                                     an applicant of either action taken
                                     or of incompleteness after
                                     receiving an application that is
                                     incomplete.
                                    12 CFR 1002.12(b)(1), (b)(3):
                                     Failure to preserve records on
                                     actions taken on an application or
                                     of incompleteness, and on adverse
                                     actions regarding existing
                                     accounts.
                                    12 CFR 1002.13(a) and (b): Failure
                                     to request and collect information
                                     about the race, ethnicity, sex,
                                     marital status, and age of
                                     applicants seeking certain types of
                                     mortgage loans.
                                    12 CFR 14(a): Failure to provide an
                                     applicant with a copy of all
                                     appraisals and other written
                                     valuations developed in connection
                                     with an application for credit that
                                     is to be secured by a first lien on
                                     a dwelling, and/or failure to
                                     provide an applicant with a notice
                                     in writing of the applicant's right
                                     to receive a copy of all written
                                     appraisals developed in connection
                                     with the application.
------------------------------------------------------------------------


  Table 3--Most Frequently Cited Regulation B Violations by Other ECOA
                             Agencies, 2015
------------------------------------------------------------------------
        Other ECOA agencies             Regulation B violations: 2015
------------------------------------------------------------------------
FCA...............................  12 CFR 1002.9: Failure to timely
                                     notify an applicant when an
                                     application is denied; failure to
                                     provide sufficient information in
                                     an adverse action notification,
                                     including the specific reasons the
                                     application was denied.
                                    12 CFR 1002.13: Failure to request
                                     and collect information about the
                                     race, ethnicity, sex, marital
                                     status, and age of applicants
                                     seeking certain types of mortgage
                                     loans.
------------------------------------------------------------------------


[[Page 29550]]

    The GIPSA, the SEC, and the SBA reported that they received no 
complaints based on ECOA or Regulation B in 2015. In 2015, the DOT 
reported that it received a ``small number of consumer inquiries or 
complaints concerning credit matters possibly covered by ECOA,'' which 
it ``processed informally.'' The FTC is an enforcement agency and does 
not conduct compliance examinations.

8.2 Referrals to the Department of Justice

    In 2015, the FFIEC agencies including the CFPB referred a total of 
16 matters to the DOJ. The FDIC referred four matters to the DOJ. These 
matters alleged discriminatory treatment of persons in credit 
transactions due to protected characteristics, including race, national 
origin, marital status and receipt of public assistance income. The FRB 
referred four matters to the DOJ. These matters alleged discriminatory 
treatment of persons in credit transactions due to protected 
characteristics, including race, national origin, and marital status. 
The CFPB referred eight matters to the DOJ during 2015, finding 
discrimination in credit transactions on the following prohibited 
bases: Race, color, national origin, age, receipt of public assistance 
income, sex, and marital status.

8.3 Reporting on the Home Mortgage Disclosure Act

    The CFPB's annual HMDA reporting requirement calls for the CFPB, in 
consultation with the Department of Housing and Urban Development 
(HUD), to report annually on the utility of HMDA's requirement that 
covered lenders itemize in order to disclose the number and dollar 
amount of certain mortgage loans and applications, grouped according to 
various characteristics.\101\ The CFPB, in consultation with HUD, finds 
that itemization and tabulation of these data further the purposes of 
HMDA. For more information on the Bureau's proposed amendments to 
HMDA's implementing regulation, Regulation C, please see the Rulemaking 
section of this report (Section 4).
---------------------------------------------------------------------------

    \101\ See 12 U.S.C. 2807.
---------------------------------------------------------------------------

9. Conclusion

    In this, our fourth Fair Lending Report to Congress, we outline our 
work in furtherance of our Congressional mandate to ensure fair, 
equitable, and nondiscriminatory access to credit. Our multipronged 
approach uses every tool at our disposal--supervision, enforcement, 
rulemaking, outreach, research, data-driven prioritization, interagency 
coordination, and more. We are proud to present this report as we 
continue to fulfill our Congressional mandate as well as the Bureau's 
mission to help consumer finance markets work by making rules more 
effective, by consistently and fairly enforcing these rules, and by 
empowering consumers to take more control over their economic lives.

Appendix A: Defined Terms

------------------------------------------------------------------------
               Term                              Definition
------------------------------------------------------------------------
Bureau............................  The Consumer Financial Protection
                                     Bureau.
CFPB..............................  The Consumer Financial Protection
                                     Bureau.
CMS...............................  Compliance Management System.
Dodd-Frank Act....................  The Dodd-Frank Wall Street Reform
                                     and Consumer Protection Act.
DOJ...............................  The U.S. Department of Justice.
DOT...............................  The U.S. Department of
                                     Transportation.
ECOA..............................  The Equal Credit Opportunity Act.
FCA...............................  Farm Credit Administration.
FDIC..............................  The U.S. Federal Deposit Insurance
                                     Corporation.
Federal Reserve Board.............  The U.S. Board of Governors of the
                                     Federal Reserve System.
FFIEC.............................  The U.S. Federal Financial
                                     Institutions Examination Council--
                                     the FFIEC member agencies are the
                                     Board of Governors of the Federal
                                     Reserve System (FRB), the Federal
                                     Deposit Insurance Corporation
                                     (FDIC), the National Credit Union
                                     Administration (NCUA), the Office
                                     of the Comptroller of the Currency
                                     (OCC), and the Consumer Financial
                                     Protection Bureau (CFPB). The State
                                     Liaison Committee was added to
                                     FFIEC in 2006 as a voting member.
FRB...............................  The U.S. Board of Governors of the
                                     Federal Reserve System.
FTC...............................  The U.S. Federal Trade Commission.
GIPSA.............................  Grain Inspection, Packers and
                                     Stockyards Administration (GIPSA)
                                     of the U.S. Department of
                                     Agriculture.
HMDA..............................  The Home Mortgage Disclosure Act.
HUD...............................  The U.S. Department of Housing and
                                     Urban Development.
LEP...............................  Limited English Proficiency.
LGBT..............................  Lesbian, gay, bisexual and
                                     transgender.
NCUA..............................  The National Credit Union
                                     Administration.
OCC...............................  The U.S. Office of the Comptroller
                                     of the Currency.
SBA...............................  Small Business Administration.
SEC...............................  U.S. Securities and Exchange
                                     Commission.
------------------------------------------------------------------------

[2]. Regulatory Requirements

    This Fair Lending Report of the Consumer Financial Protection 
Bureau summarizes existing requirements under the law, and summarizes 
findings made in the course of exercising the Bureau's supervisory and 
enforcement authority. It is therefore exempt from notice and comment 
rulemaking requirements under the Administrative Procedure Act pursuant 
to 5 U.S.C. 553(b). Because no notice of proposed rulemaking is 
required, the Regulatory Flexibility Act does not require an initial or 
final regulatory flexibility analysis. 5 U.S.C. 603(a), 604(a). The 
Bureau has determined that this Fair Lending Report does not impose any 
new or revise any existing recordkeeping, reporting, or disclosure 
requirements on covered entities or members of the public that would be 
collections of information requiring OMB approval under the Paperwork 
Reduction Act, 44 U.S.C. 3501, et seq.

     Dated: April 29, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-11138 Filed 5-11-16; 8:45 am]
 BILLING CODE 4810-AM-P