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Melanie Brody is a partner in Mayer Brown’s Washington DC office and a member of the Consumer Financial Services group. She concentrates her practice on federal and state government enforcement matters, primarily for banks, mortgage lenders, auto lenders, credit card issuers, student lenders and other financial service providers. She represents clients in investigations, examinations and enforcement actions by the US Department of Justice, Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, Federal Reserve Board, Department of Housing and Urban Development, Federal Trade Commission, state banking regulators and state attorneys general.

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Since the Consumer Financial Protection Bureau’s inception in 2011, the Office of Fair Lending and Equal Opportunity (Office of Fair Lending) has been a powerful force within the agency. This week, Acting Director Mick Mulvaney announced that the Office of Fair Lending will be transferred from where it currently resides – in the Division of Supervision, Enforcement, and Fair Lending (SEFL) – to the Office of the Director, where it will become part of the Office of Equal Opportunity and Fairness. Despite the similar nomenclature, the priorities of the Office of Fair Lending and the Office of Equal Opportunity and Fairness are vastly different, with the latter having oversight over equal employment opportunity and diversity and inclusion initiatives within the CFPB. The move likely signals a substantial curtailment of CFPB fair lending enforcement activities.

Section 1013 of the Dodd-Frank Act mandated the establishment of an Office of Fair Lending and the statutory language provides that the Office of Fair Lending “shall have such powers and duties as the Director may delegate to the Office, including”:

  • Providing oversight and enforcement of federal fair lending laws (including ECOA and HMDA);
  • Coordinating fair lending efforts with other federal agencies and state regulators;
  • Working with the private industry and consumer advocates on the promotion of fair lending compliance and education; and
  • Providing annual reports to Congress on the Bureau’s efforts to fulfill its fair lending mandate.

The CFPB to date had in fact given the Office of Fair Lending the powers and duties listed in the statute, and Office of Fair Lending attorneys played a substantial role in overseeing fair lending examinations and bringing fair lending enforcement actions. Indeed, the Office of Fair Lending has come under fire for “regulation through enforcement” and for “pushing the envelope” through its aggressive enforcement of federal anti-discrimination statutes against lenders on the basis of statistical analyses (i.e., dealer markup and redlining). It is clear that, as a result of the restructuring, the Office of Fair Lending will no longer have supervisory or enforcement responsibilities. According to an email sent by Mulvaney to CFPB staff that was leaked to several news outlets, the Office of Fair Lending’s new focus will be on advocacy, coordination, and education. Although SEFL as a whole still maintains responsibility for fair lending supervisory and enforcement matters, this restructuring signals a de-emphasis on fair lending and likely will lead to a significant decrease in the number of fair lending examinations, investigations and enforcement actions brought by the Bureau. Indeed, Congress presumably required the establishment of a separate fair lending office out of recognition that having such an office would ensure a persistent attention to fair lending issues. Stripping the office of supervisory and enforcement responsibilities will similarly result in less of a focus on those issues. While SEFL leadership and staff are likely to continue to pursue fair lending matters, those matters will now compete for attention and resources with the myriad other issues over which the CFPB has jurisdiction.

In its Fair Lending Report released last year, the Bureau’s then-Director Cordray touted its “historic resolution of the largest redlining, auto finance, and credit card fair lending cases.” Cordray also identified redlining, mortgage loan servicing, student loan servicing, and small business lending as the Bureau’s fair lending priorities going forward. Under the Bureau’s new leadership, fair lending issues evidently will no longer be a top priority. With the rollback in the CFPB’s fair lending enforcement activities, there may be an uptick in consumer advocacy groups seeking other avenues for fair lending relief, such as class action litigation and complaints filed with HUD and state agencies tasked with enforcing state anti-discrimination laws.

Yesterday, the CFPB issued two HMDA-related items – a final rule amending federal Regulation B’s information collection provisions and a proposed policy document addressing which HMDA data fields the Bureau intends to make public beginning in 2019.

The Regulation B amendment is intended to facilitate compliance with the new version of Regulation C going into effect on January 1, 2018.   The final rule provides creditors with flexibility in complying with Regulation B’s information collection requirements and restrictions for certain dwelling-secured loans. This will allow lenders to use uniform information-gathering practices and consistent forms without running afoul with Regulation B, even when their loan volume or other circumstances exempts them from data collection and reporting under Regulation C.  The final rule can be found here.

The policy guidance document sets out how the CFPB proposes to balance the competing goals of making HMDA data available to the public while also protecting loan applicant privacy. The Bureau believes that public disclosure of HMDA data is critical to advancing HMDA’s goals, including the identification of possible lending discrimination.  On the other hand, there is a risk that the expanded list of HMDA fields that will be collected next year under amended Regulation C could reveal loan applicants’ identities and other personal information.  The CFPB therefore proposes to exclude certain fields from public disclosure and to modify certain others so they are less specific.  The proposed guidance can be found here. The Bureau will accept comments on the proposal for 60 following its publication in the Federal Register.

The Consumer Financial Protection Bureau (“CFPB”) has issued its first No-Action Letter (“No-Action Letter” or “Letter”) in response to a request from Upstart Network, Inc. (“Upstart”). The No-Action Letter means that CFPB staff currently has no intention of recommending enforcement or supervisory action against Upstart. This decision is limited to the application of the Equal Credit Opportunity Act (“ECOA”) and its implementing regulation, Regulation B, to Upstart’s automated model for underwriting applicants for unsecured, non-revolving credit (“automated model”).

Upstart is an online lending platform that, working with a bank partner, uses alternative data to facilitate credit and pricing decisions for consumers with limited credit or work history. In addition to relying on traditional credit information, Upstart uses non-traditional sources of information to evaluate a consumer’s creditworthiness. For instance, Upstart might look at an applicant’s educational information, such as school attended and degree obtained, and the applicant’s employment to determine financial capacity and ability to repay. Upstart submitted a Request for No-Action Letter (“Request”) in relation to its automated model to the CFPB pursuant to the agency’s no-action letter policy.

According to the CFPB, the no-action letter policy is intended to facilitate consumer-friendly innovations where regulatory uncertainty may exist for certain emerging products or services. In practice, however, the process has presented significant challenges for companies that might seek to benefit from it. Continue Reading CFPB Issues No-Action Letter to Alternative Credit Lending Platform

The ABA Business Law Section is holding its 2017 Annual Meeting in Chicago next week and will offer over 90 CLE programs and many more committee meetings and events.

Mayer Brown’s Financial Services Regulatory & Enforcement (FSRE) partner David Beam (Washington DC) will moderate a panel on payment network rules and their impact in the marketplace. FSRE partner Melanie Brody (Washington DC) will participate on a panel on how fintech is changing the way consumer credit offerings work.

FSRE associate Matthew Bisanz (Washington DC) will co-moderate, and FSRE partner Stephanie Robinson (Washington DC) will participate on, a panel discussing innovative enforcement techniques being employed by bank regulators and how the industry can adapt to them. FSRE associate Eric Mitzenmacher (Washington DC) will participate on a panel on bank technology services and marketplace lending developments.

Mayer Brown’s Government Relations partner Mitchell Holzrichter (Chicago) will participate on a panel discussing the life-cycle of public-private partnership projects.

For more information, please visit the event webpage.

The long awaited en banc oral argument in the PHH v. CFPB appeal was heard this morning.  Based upon the questions asked by the judges, and with the caveat that such questioning is not always an indicator of how a court will rule, it seems likely that the D.C. Circuit will not find the CFPB to be unconstitutionally structured.  While Judge Kavanaugh, author of the roughly 100-page 3-judge panel decision last October, tried mightily to defend his position that a single director removable only for cause thwarts the President’s Article II authority, most of the judges did not seem to share his views.  Some judges, like Judge Griffith, implied that the Court was bound by the Supreme Court’s decision in Humphrey’s Executor v. United States, which upheld the constitutionality of removal-for-cause provisions as pertains to the multi-member Federal Trade Commission.  Other judges appeared to believe there was sufficient accountability for the CFPB Director because he or she can be removed for cause.  Judge Pillard defended the independence of financial regulatory agencies such as the CFPB.  On the whole, fewer judges seemed inclined to declare the for-cause provisions unconstitutional than to keep the status quo.

Notably, only about 60 seconds of the 90 minute oral argument addressed RESPA concerns, in particular Section 8(c)(2).  The judges’ RESPA-related questions concerned whether the industry had notice that RESPA prohibited the conduct in question (which had been blessed by a 1997 Letter from HUD permitting captive reinsurance if the Section 8(c)(2) safe harbor provisions were met) and whether the CFPB was bound by RESPA’s 3-year statute of limitations.  Questions about both issues were directed to CFPB counsel.  He stated that the statute itself provided ample notice of its prohibitions in Sections 8(a) and 8(c)(2). He also said the Bureau was bound by the generally-applicable 5-year statute of limitations at least insofar as penalties are concerned, but he did not concede the Bureau was otherwise bound by RESPA’s limitations period in an administrative proceeding.  That said, given how little attention was directed to the RESPA questions, it is likely that the full 11-member panel will affirm the 3-judge panel’s views on RESPA expressed last October.

It would appear that Director Cordray will remain at his desk until his term expires in July 2018.  He may, however, need to revise his interpretation of Section 8(c)(2).


The Consumer Financial Protection Bureau (“CFPB”) announced a Request for Information (“RFI”) about alternative data on February 16, 2017, seeking insights into the benefits and risks of using unconventional financial data in assessing a consumer’s creditworthiness. On the same day, the CFPB held a hearing in Charleston, West Virginia, inviting consumer groups, industry representatives, and others to comment on the use of alternative data.

The CFPB estimates that 45 million Americans have difficulty getting a loan under traditional underwriting criteria, because they do not have a sufficient credit history. According to the CFPB, the use of alternative data may support those Americans’ creditworthiness and allow them better access to financing at more affordable rates. Alternative data includes sources such as timely payment of rent, utilities, or medical bills, as well as bank deposit records, and even internet searches or social media information—data that credit bureaus do not traditionally consider. However, a consumer who lacks a credit history but who makes timely rent and utility payments may be as likely to repay a loan as another consumer with a higher credit score. Continue Reading CFPB Calls for Comment on Alternative Data

On Friday, January 13, the Department of Justice (“DOJ”) filed a lawsuit against a Minnesota bank in which it alleged that the bank violated the Fair Housing Act and the Equal Credit Opportunity Act by unlawfully redlining in the Minneapolis-St. Paul-Bloomington metropolitan statistical area (“Minneapolis MSA”).  The complaint, filed in the U.S. District Court for the District of Minnesota, claims that from 2010 to at least 2015, the bank purposely avoided serving the credit needs of residents in majority-minority neighborhoods while meeting the credit needs of residents in majority-white neighborhoods.  The DOJ is seeking damages for aggrieved persons, civil money penalties, and injunctive relief. The bank has chosen to litigate, rather than settle, as it believes the DOJ’s claim is baseless. Continue Reading Redlining Revelations: DOJ Lawsuit Alleges Discriminatory Practices by Bank

New regulations will impose increased inspection, reporting, and maintenance obligations on mortgagees and servicers of defaulted residential mortgage loans in New York.  You can learn more about the regulations of the New York Department of Financial Services for “zombie” properties in Mayer Brown’s latest Legal Update.  The regulations become effective today, December 20, 2016.

The Consumer Financial Protection Bureau (CFPB) has issued an updated small entity compliance guide for compliance with the Mortgage Servicing Rules after the CFPB’s recent amendments to the rules take effect, generally on October 19, 2017.

The existing guide is still relevant for compliance before the new amendments take effect.

To learn more about the amendments to the Mortgage Servicing Rules, read the Mayer Brown white paper.

On November 17, 2016, the Consumer Financial Protection Bureau (CFPB) announced a request for information (RFI) to better understand the benefits and risks associated with market developments that rely on access to consumer financial records.  The Bureau indicated that the information it obtains in response to its request may help shape industry best practices for delivering consumer benefits and minimizing consumer harm, and also could serve as a foundation for future CFPB guidance.

The Bureau’s RFI comes in the wake of the CFPB’s first report on its Project Catalyst and CFPB Director Cordray’s speech at the October 2016 Money 20/20 conference. During his remarks, the Director conveyed strong support for the ability of consumers to access their financial data and “grave concerns” about reports that financial institutions are seeking to limit such access.  Although banks and other institutions have expressed privacy- and information security-related concerns about providing consumer financial information to third parties, Director Cordray emphasized the importance of consumers being able to obtain their information and suggested that the focus should be on ensuring that the information remains secure, rather than on limiting access. Continue Reading CFPB Enters the Fray: Agency Solicits Information About “Screen Scraping”