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On September 15, 2020, the CFPB published a detailed outline of proposed options it is considering to implement a rule under Section 1071 of the Dodd Frank Act. Ten years ago, Section 1071 amended the Equal Credit Opportunity Act (ECOA) to require that financial institutions collect and report information concerning credit applications made by women- or minority-owned businesses and by small businesses. Although the CFPB was tasked with drafting rules to implement Section 1071, it did not take significant steps to meet that obligation until 2017, when it reported on some preliminary research, and then later in November 2019, when it held an information-gathering symposium.

As we previously noted, once Section 1071 is implemented, certain financial institutions will be required to collect information regarding the race, sex, and ethnicity of the principal owners of small businesses and women- and minority-owned businesses and submit this information to the CFPB, similar to what is currently required by the Home Mortgage Disclosure Act for mortgage loans. The CFPB’s outline released this week proposes several potential options for developing the small business lending data collection rule and is a precursor to any future proposed rulemaking. At this stage, the CFPB is seeking feedback on the direction of the rule. Feedback and comments on the scope of the rule can be sent to 2020-SBREFA-1071@cfpb.gov until December 14, 2020. The CFPB is also seeking feedback on the potential impacts on small business entities and has requested submission of such feedback by November 9, 2020.

Below, we summarize the key aspects of the Bureau’s outline and its proposals regarding the scope of the rule.
Continue Reading CFPB Finally Makes Progress on Implementing Small Business Lending Data Collection Requirements

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.  
Continue Reading NCRC Files Suit Against CFPB over HMDA Reporting Thresholds

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.
Continue Reading CFPB Seeks Input on Fair Lending Laws and Interpretations to Help Foster Innovation and Prevent Credit Discrimination

On July 15, 2020, the Consumer Financial Protection Bureau filed a lawsuit against Townstone Financial, Inc., a Chicago-based mortgage lender and mortgage broker, alleging that Townstone “redlined” African-American neighborhoods in the Chicago Metropolitan Statistical Area and discouraged prospective applicants from applying to Townstone for mortgage loans on the basis of race. This marks the first

The COVID-19 national emergency has caused unprecedented economic disruption. The federal government was quick to enact relief measures for federal student loan borrowers who may be experiencing financial hardship as a result of the pandemic. Last week, nine states announced a coordinated effort to partner with private student loan servicers and offer relief for private

On Friday, March 27, 2020, the President signed into law a stimulus bill designed to provide emergency assistance for those affected by the COVID-19 national emergency (the “CARES Act” or “Act”) that includes certain temporary relief for federal student loan borrowers. The Act largely codifies the Department of Education’s previous announcement regarding temporary relief to federal student loan borrowers impacted by the COVID-19 national emergency and extends the timeline for the temporary relief measures.

The Act provides three primary relief measures to federal student loan borrowers whose loans are held by the Department of Education:


Continue Reading School’s Out: Proposed Relief for Federal Student Loan Borrowers Impacted by COVID-19

The Consumer Financial Protection Bureau (“CFPB”) has settled a lawsuit seeking to compel it to undertake the rulemaking required by Section 1071 of the Dodd-Frank Act (“Section 1071”). Section 1071, 15 U.S.C. § 1691c-2, requires financial institutions to collect and maintain information about loan applications by women-owned, minority-owned and small businesses, and requires the CFPB to collect and publish this data annually. It also requires the CFPB to issue implementing regulations. The settlement sets forth a specific date by which the CFPB must begin the rulemaking process and establishes a framework for determining, along with plaintiffs or subject to court order, a final timeline for promulgation of the required rule. The settlement should result in a final rule in 2022, a dozen years after Congress first required the CFPB to act.
Continue Reading Long-Awaited Section 1071 Small Business Rulemaking Is Finally on the Horizon

A new Memorandum of Understanding (MOU) between the Consumer Financial Protection Bureau (CFPB) and the US Department of Education (ED) appears to signal an end to the turf war between these two agencies regarding the handling of complaints related to federal student loans. It also ends a period during which the CFPB and ED failed to maintain an MOU, as required by the Dodd-Frank Act.
Continue Reading Back to School: CFPB and ED Agree to New MOU

Last week — roughly 8 1/2 years after the CFPB published a letter to financial institutions promising to develop rules “expeditiously” — the CFPB held an information-gathering symposium on Section 1071 of the Dodd-Frank Act. Section 1071 amended the Equal Credit Opportunity Act to require that financial institutions collect and report information concerning credit applications made by women- or minority-owned businesses and by small businesses.

As we previously noted, once Section 1071 is implemented, institutions will be required to collect information regarding the race, sex, and ethnicity of the principal owners of small businesses and women- and minority-owned businesses. Collection of this information is designed to “facilitate enforcement of fair lending laws,” among other things. Applicants can refuse to provide required information, but the financial institution must retain the required demographic information that it collects and submit it to the CFPB. Section 1071 mandates that, where feasible, a financial institution’s underwriters, officers, employees, or affiliates involved in making credit determinations should not have access to this demographic information, and applicants must receive notice if those individuals do receive access to demographic information.

While the CFPB is responsible for drafting rules to implement Section 1071, it had not previously taken significant steps to meet that obligation other than reporting on some preliminary research it conducted in 2017. The CFPB had moved the Section 1071 rulemaking to “long-term” status. However, in its Spring 2019 rulemaking agenda, the CFPB indicated that it expected to resume pre-rulemaking activities related to Section 1071.
Continue Reading CFPB Holds Symposium on Dodd-Frank Section 1071; Outlines Plan in Court Documents

Last week, the CFPB announced that it will hold a symposium on Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) on November 6, 2019. This will be the third in a series of symposia held by the CFPB. Section 1071 of the Dodd-Frank Act amended the Equal Credit Opportunity Act (“ECOA”) to require financial institutions to collect, report, and make public information about credit applications made by women- and minority-owned businesses and small businesses. The CFPB is responsible for drafting rules to implement Section 1071, but, other than issuing a Request for Information in 2017, has not yet taken significant steps to meet this statutory requirement. The stated purpose of the symposium is to hear various perspectives on the small business lending marketplace and CFPB’s implementation of Section 1071. The CFPB had moved the Section 1071 rulemaking to long-term status, but indicated in its Spring 2019 rulemaking agenda that it expected to resume pre-rulemaking activities. With this symposium, the CFPB appears to be (re)starting those activities.

Once Section 1071 is implemented, institutions will be required to collect information regarding the race, sex, and ethnicity of the principal owners of small businesses and women- and minority-owned businesses. Applicants have the right to refuse to provide required information. Financial institutions must retain required demographic information and submit it to the CFPB.
Continue Reading Ladies and Gentlemen, (Re)start Your Engines — CFPB Symposium on Women/Minority/Small Businesses Credit Data