[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
[[Page 29537]]
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.
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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\
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\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).
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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.
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\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.
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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.
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\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.
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\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.
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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.
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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\
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\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).
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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.
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\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).
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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).
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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\
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\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.
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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.
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\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.
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\51\ 15 U.S.C. 1691e(g).
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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\
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\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.
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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\
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\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.
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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.
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\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/.
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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.
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\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.
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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.
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\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/.
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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.
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\65\ 15 U.S.C. 1691e(g).
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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.
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\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).
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\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.
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\68\ 79 FR 51732 (Aug. 29, 2014), available at http://www.gpo.gov/fdsys/pkg/FR-2014-08-29/pdf/2014-18353.pdf.
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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\
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\69\ These resources are available at http://www.consumerfinance.gov/regulatory-implementation/hmda/.
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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:
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\70\ See http://www.consumerfinance.gov/newsroom/cfpb-seeks-public-input-on-mortgage-lending-information-resubmission-guidelines/.
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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.
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\71\ 81 FR 1405 (Jan. 12, 2016).
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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.
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\72\ Dodd-Frank Act, section 1071 (codified at 15 U.S.C. 1691c-
2).
\73\ 80 FR 78055, 78058 (Dec. 15, 2015).
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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\
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\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.
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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/.
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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.
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\79\ Available at http://files.consumerfinance.gov/f/201504_cfpb_fair_lending_report.pdf.
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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\
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\80\ Available at http://www.consumerfinance.gov/reports/using-publicly-available-information-to-proxy-for-unidentified-race-and-ethnicity/.
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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.
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\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.
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\83\ Exec. Order No. 13519, 74 FR 60123 (Nov. 17, 2009).
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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.
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\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.
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\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.
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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\
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\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:
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\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\
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\98\ 12 U.S.C. 2807.
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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.
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\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.
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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.
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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