On July 28, 2020, the Consumer Financial Protection Bureau (CFPB or the Bureau) published a request for information (RFI) on opportunities for the Bureau to clarify the Equal Credit Opportunity Act’s (ECOA) implementing regulation, Regulation B, in a way that prevents credit discrimination and promotes credit access and innovation. The Bureau seeks feedback on a diverse set of topics, though the request is not limited to the below topics. Commenters are encouraged to address any aspects of ensuring fair access to credit and promoting innovation.
Arguably the most controversial topic in the RFI is the Bureau’s request for feedback on the appropriate framework for assessing disparate impact claims under ECOA. In 2019, the Department of Housing and Urban Development (HUD) published a proposed disparate impact rule that purports to align HUD’s 2013 disparate impact rule with the Supreme Court’s 2015 decision in Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc., a landmark Fair Housing Act case. HUD’s proposed rule has been the subject of significant controversy, with consumer advocacy groups arguing that it goes beyond the Supreme Court’s decision and that the heightened pleading standards outlined in the proposed rule would impermissibly extinguish the viability of disparate impact claims in the future. And recently, several of the largest banks and non-bank mortgage lenders, along with several trade associations, have asked HUD to hold off on finalizing the rule and bring key stakeholders together to discuss the disparate impact framework. Nevertheless, HUD has indicated that it plans to move forward with the implementation of the rule. If the CFPB outlines a framework for assessing disparate impact claims under ECOA that is different than the framework HUD ultimately implements, this could lead to significant uncertainty for the mortgage industry, because it is subject to both ECOA and the Fair Housing Act.
The RFI also seeks comments on whether and how the Bureau should clarify its interpretation of ECOA and Regulation B to facilitate innovation in the context of Artificial Intelligence (AI) and machine learning (ML), such as by modifying adverse action notice requirements in connection with credit underwriting decisions based in part on models using AI or ML. This request comes just weeks after the CFPB published a blog post addressing how adverse action notice requirements under ECOA and Regulation B apply to AI-driven credit decisions. The blog post suggests that the existing official commentary to the Regulation B allows for some flexibility in how creditors explain decisions to applicants. But the CFPB is interested in understanding how creditors are determining the “principal reasons” for a denial, and how to best convey those reasons. Accordingly, in the blog post, the CFPB encouraged institutions to use its regulatory sandbox, trial disclosure program, and no-action letter process to explore creative ways of informing consumers of the reasons for denial when using complex AI/ML algorithms. The RFI is an opportunity for entities to suggest other ways for the Bureau to clarify its interpretation of ECOA.
In addition to those topics, the RFI seeks feedback on whether and how the Bureau:
- Can address regulatory uncertainty with respect to serving limited English proficiency populations;
- Should clarify the Special Purpose Credit Program provisions in Regulation B;
- Can provide additional guidance regarding affirmative advertising to disadvantaged groups;
- Can support small business lending, particularly to minority- and women-owned businesses;
- Can or should, in interpreting ECOA, look to the Supreme Court’s recent ruling that the prohibition against sex discrimination under Title VII applies to discrimination on the basis of sexual orientation and gender identity;
- Should provide additional guidance on whether state laws are preempted by ECOA and/or Regulation B, as well as examples of potential conflicts or intersections between state laws and regulations and ECOA and/or Regulation B;
- Should clarify ECOA’s restrictions on the use of public assistance income, including whether and how creditors can ascertain the probability that public assistance income will continue in making underwriting decisions;
- Should clarify adverse action notice requirements regarding providing a statement of the specific reasons for the adverse action.
These are all areas that have been subject to regulatory uncertainty in recent years, particularly as financial services products and services evolve and institutions seek new ways to reach traditionally underserved populations.
The RFI will be open to comment for 60 days after the date it is published in the Federal Register. The RFI has not yet been published in the Federal Register.