On July 30, 2020, the National Community Reinvestment Coalition (“NCRC”) and several other consumer advocacy organizations filed suit against the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”), claiming that the Bureau’s recent Home Mortgage Disclosure Act (“HMDA”) rulemaking violates the Administrative Procedure Act (“APA”). The challenged rule increases the loan-volume reporting thresholds under Regulation C, which implements HMDA. Under the new rule, entities that originate fewer than 100 qualifying closed-end mortgage loans or fewer than 200 qualifying open-end lines of credit would not be required to collect and report data regarding their mortgage lending activities. The plaintiffs filed the complaint in the U.S. District Court for the District of Columbia and are requesting that the court vacate the new rule and require the Bureau to return to the prior thresholds.
HMDA requires mortgage lenders that originate a minimum number of mortgage loans to collect, report, and disclose certain information related to their mortgage origination and purchase activities. The law’s primary purpose is to provide the public with information on lending practices, including whether lenders are meeting the housing needs of certain communities or potentially engaging in discriminatory practices. HMDA data is a critical tool for plaintiffs and regulators assessing disparate impact claims. The appropriate framework for bringing disparate impact claims has been the subject of recent controversy, with key industry stakeholders asking the Department of Housing and Urban Development to hold off on finalizing its 2019 Proposed Disparate Impact Rule. Regardless of the specifics of the disparate impact legal framework, HMDA data remains a critical component for bringing (and defending) disparate impact claims in mortgage lending.
In recent years, both Congress and the CFPB have exempted several types of entities from the burden of HMDA’s collection and reporting requirements. Below, we briefly summarize the HMDA reporting threshold changes over the last five years:
- In the CFPB’s 2015 HMDA Rule, the CFPB exempted mortgage lenders that originated fewer than 25 closed-end mortgages or 100 open-end lines of credit in each of the two preceding years from HMDA reporting obligations.
- In 2017, the CFPB temporarily increased the loan-volume reporting threshold for open-end lines of credit to 500 per year for 2018 and 2019.
- In 2018, through the Economic Growth, Regulatory Relief, and Consumer Protection Act, Congress amended HMDA to add partial exemptions for insured depository institutions and insured credit unions with high Community Reinvestment Act scores and fewer than 500 qualifying mortgage loan originations in the two preceding years.
- In April 2020, the CFPB promulgated a new rule that increased the loan-volume reporting thresholds. Specifically, the rule raised the loan-volume thresholds to 100 closed-end mortgage loans or 200 open-end lines of credit in each of the two preceding years.
The plaintiffs assert that the CFPB’s most recent April 2020 change was significant because the new rule will allegedly exempt about 40% of closed-end mortgage lenders that were previously required to report under HMDA. In their complaint, the plaintiffs allege that the CFPB “failed to provide a reasoned explanation for its changes in position, conducted a flawed analysis of the costs and benefits of the rule, did not meaningfully address factors it is required by statute to consider, failed to adequately consider comments submitted in opposition to the rule, and relied on considerations that have no sound basis in law.” As a result, the plaintiffs allege, the new rule violates the APA because the CFPB’s changes to the HMDA reporting thresholds were arbitrary, capricious, and an abuse of the CFPB’s discretion and exceeded its statutory authority.
In support of these allegations, the plaintiffs allege that the Bureau’s most recent changes contradict statements it made previously about appropriate HMDA reporting thresholds. Specifically, the plaintiffs allege that, when promulgating the 2015 HMDA rule, the Bureau stated that setting the HMDA reporting thresholds any higher would negatively affect the ability of the public and officials to analyze mortgage lending within communities and therefore, would contravene the purpose of HMDA. The plaintiffs also argue that the CFPB ignored or insufficiently addressed comments arguing that the reduced thresholds would disproportionately reduce data collection in underserved areas. Further, the plaintiffs allege that the CFPB did not provide adequate support for its conclusions and did not sufficiently consider certain factors as required under the Dodd-Frank Act’s rulemaking requirements for the Bureau.
The CFPB’s answer is due on August 24, unless an extension is granted.