Today, in another legal blow to the CFPB, a federal court in Illinois dismissed the Bureau’s redlining lawsuit against Townstone Financial (“Townstone”) and its owner.

The Bureau made waves back in 2020 when it filed the lawsuit, which was the first public redlining action brought by the Bureau against a non-bank mortgage lender. While the case has been working its way through the judicial process, the CFPB, DOJ, OCC, and state attorneys general have racked up a number of large dollar redlining settlements with both bank and non-bank mortgage lenders using the same theory of liability.

In the lawsuit, the Bureau alleged that Townstone “redlined” majority-Black areas in Chicago and illegally “discouraged” prospective applicants in violation of ECOA. In its motion to dismiss, Townstone argued that, although ECOA prohibits discrimination against applicants, its scope does not extend to prospective applicants. In granting Townstone’s motion to dismiss, the court applied the Chevron standard and held that “[t]he plain text of the ECOA thus clearly and unambiguously prohibits discrimination against applicants, which the ECOA clearly and unambiguously defines as a person who applies to a creditor for credit. . . . The Court therefore finds that Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants.” The court went on to state that, because ECOA is unambiguous, it affords no deference to the language in Regulation B that would purport to prohibit discrimination against prospective applicants.

The court’s decision has wide-reaching ramifications for future fair lending examinations, enforcement actions and lawsuits, including the DOJ’s recently announced “Combatting Redlining Initiative.”

Stay tuned for a more detailed analysis of the decision and its ramifications for the mortgage industry.

High rates and a steep reduction in mortgage refinance applications have created stiff competition for the origination of purchase-money mortgages. Settlement service providers often seek creative strategic alliances to help secure more business. Companies can refer to recent informal guidance from the Consumer Financial Protection Bureau relating to marketing services agreements and other promotional opportunities.

Read more about the CFPB’s October 2020 guidance and other practical tips to assist in structuring new or existing marketing relationships in Mayer Brown’s Legal Updates.

Much has been written about Rohit Chopra’s tenure as Director of the Consumer Financial Protection Bureau (CFPB or Bureau). While many expected an aggressive enforcement posture, in part because of an aggressive hiring spree in enforcement, his tenure has been marked more by an aggressive use of guidance and exhortation. Recently released statistics bear this out. In response to a FOIA request, the CFPB released data about the number of enforcement investigations opened in Fiscal Year 2022, which is roughly equivalent to Chopra’s first full year as Director. (New enforcement investigations are non-public unless and until they blossom into enforcement actions, typically a year or more after they are opened. The data discussed here relate to the number of investigations opened, not the number of actions brought.) That data demonstrates that the Bureau opened only 25 new enforcement investigations in the last fiscal year—fewer than in any year since FY2019, when Mick Mulvaney and Kathleen Kraninger served as Directors. Below is a table showing the number of enforcement investigations opened in each Fiscal Year, according to data released by the CFPB.

Fiscal YearEnforcement Investigations OpenedDirector(s)
201763Cordray
201815Mulvaney
201920Mulvaney/Kraninger
202054Kraninger
202164Kraninger/Uejio
202225Chopra

Other data released by the CFPB shows a mild drop in the number and percent of supervisory matters referred to enforcement during the same time period. In FY2022, the CFPB referred 45 supervisory matters to its Action Review Committee (ARC) for consideration as to whether the matter should be referred to enforcement. Nine of those 45 matters—or 20%—were referred at least in part to enforcement. That is slightly lower than the agency’s historical average of referring about 29% of ARC matters at least in part to enforcement.  

It will be interesting to see if these trends continue or if the agency ramps up its enforcement activity in the coming years. We will continue to monitor and report on these issues.

State-chartered banks lending to Iowa residents will want to take note of an Assurance of Discontinuance entered into in December between the State of Iowa and an out-of-state bank to settle claims that the bank charged usurious rates of interest to Iowa consumers. The settlement also highlights the Iowa Attorney General’s interpretation of the state’s opt-out from the federal Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) — with the potential to impact loan eligibility parameters and enforcement risk for state-chartered banks and programs doing business in Iowa.

Mayer Brown’s Legal Update provides further detail.

New York Governor Kathy Hochul signed the Foreclosure Abuse Prevention Act on December 30, 2022. The new law, which takes effect immediately, threatens to significantly constrain the ability of lenders, servicers, and investors to foreclose and may jeopardize their recovery, including with regard to pending foreclosure actions.

Read more in Mayer Brown’s Legal Update.

Small business lenders hoping for federal intervention will be disappointed to learn that the Consumer Financial Protection Bureau (CFPB) has reached a preliminary determination that New York’s new commercial financing disclosure law is not preempted by the federal Truth in Lending Act (TILA). The CFPB’s public notice indicates that it initially takes the same view on similar laws recently enacted in California, Utah and Virginia—that these state laws are not preempted by TILA because they do not apply to the same types of transactions regulated by TILA.

Mayer Brown’s Legal Update provides background and further detail on the CFPB’s initial determination and notes next steps for industry.

The Consumer Financial Protection Bureau issued its latest set of Supervisory Highlights and reminded us that “unforeseen” means “unforeseen.”

The CFPB’s regulations generally prohibit reducing a loan originator’s compensation in selective cases. While lower compensation sounds good for consumers, the CFPB asserts that allowing loan originators to decrease their compensation in selective cases is actually harmful at the macro level, because it incentivizes them to offer most consumers higher-priced loans at the outset. However, the CFPB determined that allowing compensation concessions to cover unforeseen increases in closing costs does not raise concerns about improper incentives, so long as those instances are truly unforeseen and are documented for the examiners.

According to the Supervisory Highlights, the CFPB found that certain loan originators received lower compensation to cover closing costs that were not unforeseen. The agency’s examiners found that the loan originators disclosed to consumers certain costs that were either known to be inaccurate or that resulted from clerical errors. Those amounts were covered by lender credits initially, but then recouped from the loan originators’ compensation. While it may seem reasonable to make a loan originator pay for his/her mistakes, the CFPB found that the mistakes did not come within the “unforeseen” exception. Accordingly, the loan originator must receive his/her standard compensation, and the lender must generally absorb those costs.

The only concrete example of an “unforeseen” cost that the CFPB has provided is a rate lock extension fee when closing is delayed due to an unforeseen title issue. The CFPB has otherwise explained that the “unforeseen” exception does not apply to events that are within a loan originator’s control or when the loan originator knows or reasonably is expected to know the amount of the closing cost in advance. If a loan originator makes repeated pricing concessions for the same categories of closing costs across multiple transactions, the CFPB continues to insist that the lender, and not the loan originator, must pay the price.

As we previously predicted, the Consumer Financial Protection Bureau (CFPB) has asked the Supreme Court to reverse the recent Fifth Circuit decision finding that the agency’s funding is unconstitutional. In a petition for certiorari filed less than a month after the Fifth Circuit decision, the CFPB asks the Supreme Court to hear the case and decide it this term. The CFPB’s petition argues that the Fifth Circuit’s conclusion that the agency’s funding violates the Appropriations Clause was wrong for numerous reasons. In the CFPB’s words:

The court of appeals relied on an unprecedented and erroneous understanding of the Appropriations Clause to hold the CFPB’s statutory funding mechanism unconstitutional. Congress enacted a statute explicitly authorizing the CFPB to use a specified amount of funds from a specified source for specified purposes. The Appropriations Clause requires nothing more. The court of appeals’ novel and ill-defined limits on Congress’s spending authority contradict the Constitution’s text, historical practice, and this Court’s precedent. And the court of appeals compounded its error by adopting a sweeping remedial approach that calls into question virtually every action the CFPB has taken in the 12 years since it was created.

As the last sentence suggests, in addition to arguing that the Fifth Circuit’s Appropriations Clause analysis was erroneous, the CFPB argues that the Fifth Circuit’s remedy analysis—which struck down the CFPB’s Payday Lending Rule and suggested that all of the agency’s actions were similarly subject to challenge—was also wrong.

Given the implications of the Fifth Circuit’s ruling, we expect the Supreme Court to grant cert and decide the case this term—that is, by June 2023.

In a consequential decision, a panel of the Fifth Circuit Court of Appeals last week ruled that the US Consumer Financial Protection Bureau (“CFPB”) is unconstitutionally funded and that its promulgation of a Payday Lending Rule—and presumably all of its actions—are therefore invalid. Read our summary of the opinion and discussion of its likely implications here.

On August 10, 2022, the Consumer Financial Protection Bureau (“CFPB”) issued an interpretive rule clarifying its position that digital marketers providing consumer financial services companies with customer targeting and advertisement delivery services are subject to the Consumer Financial Protection Act as “service providers.” Critically, the rule takes the position that tech companies offering such marketing services fall within the scope of the CFPB’s unfair, deceptive, and abusive acts or practices (“UDAAP”) enforcement authority. Read our recent Legal Update for more details.