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 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

It appears that the Consumer Financial Protection Bureau’s (CFPB) controversial indirect auto initiative may be over.  Before the holidays, the CFPB issued a blog post setting forth its fair lending priorities for 2017.  It identified those priorities as Redlining, Mortgage and Student Loan Servicing, and Small Business Lending.  Not only was indirect auto lending not listed, but the CFPB appeared to go out of its way to indicate it was moving away from this issue.   Continue Reading Is the CFPB’s Indirect Auto Initiative Over?

Several of Mayer Brown’s Consumer Financial Services partners will be featured at this month’s Regulatory Compliance Conference in Washington, DC, sponsored by the Mortgage Bankers Association.

On Sunday, September 18th, Kris Kully will participate in the Compliance Essentials Workshop outlining how the Dodd Frank Act changed the regulatory framework for mortgages.  This panel will be useful for attendees looking for an introduction or refresher course in mortgage origination compliance, and those seeking MBA certification.

Also on Sunday the 18th, Krista Cooley will participate on the Servicing Essentials panel, which will include a discussion of the latest updates to the CFPB’s servicing rules, the TCPA, and the FDCPA.

Melanie Brody will participate on a Sunday panel addressing fair lending and HMDA.

Phil Schulman will participate on a panel on Monday, September 19th, discussing how the CFPB’s views affect marketing and advertising campaigns under RESPA. If the Circuit Court releases its opinion in the PHH case before the Conference, Phil will discuss how the court’s opinion will affect future RESPA compliance.

We look forward to seeing you there!

The Consumer Financial Protection Bureau (CFPB) marks its fifth birthday having made a substantial mark on the consumer financial services marketplace. To mark this event, we have compiled a retrospective of the CFPB’s first five years. The retrospective provides an overview of the CFPB’s actions in the realms of rulemaking, supervision, and enforcement. While it would be difficult to chronicle all of the CFPB’s activities over that period, the articles in the retrospective provide a snapshot of the rules the CFPB has written or proposed, the supervision program it has implemented, and the enforcement actions it has taken across the landscape of consumer financial services. Some of the articles appeared previously on this blog, others appeared as Mayer Brown Legal Updates, and many are new analyses or summaries of the CFPB’s actions.  Read the retrospective, available here.

 

On June 27, 2016, a New York federal jury found that a bank and its affiliated mortgage company violated the Fair Housing Act, the Equal Credit Opportunity Act, and the New York City Human Rights Law by intentionally marketing to African-American and Hispanic homeowners predatory loans with default interest rates of 18 percent.

In 2011, eight homeowners filed suit in the Eastern District of New York, claiming that between 2004 and 2009 the bank “aggressively originated” no income refinancing loans with unfavorable terms to them because they were minority borrowers.

According to the 2014 amended complaint, the bank marketed NINA (No Income No Assets) loans to homeowners with low credit scores but substantial equity in their houses. When issuing these loans, the bank did not consider the homeowners’ ability to repay but valued the loan based on the home’s equity. Homeowners could be charged an interest rate of 18 percent if they were late by 30 days in making a single payment.

The homeowners alleged they were purposely targeted for these loans because of their poor credit and resulting likelihood of default, and that this practice had a disparate impact on African-American and Hispanic borrowers. Specifically, the complaint stated that “[s]ince black and Latino individuals are disproportionately represented among persons with low credit scores, [the bank’s] marketing of these abusive loans to this population ensured that the loans would have their greatest impact on minority homeowners.” The jury found that the bank’s practices constituted violations of the federal fair lending laws and the New York state law.

Six of the plaintiffs were awarded a combined $950,000 in damages, while the jury found that the remaining two homeowners waived their claims upon modifying their loans and were not eligible for damages. The bank has asserted its plan to appeal the decision.

Legal Services NYC, who represented several of the homeowners, stated that the case marks the first time a jury has held a bank liable for reverse redlining.

Lenders that offer loans to consumers with impaired credit should consider evaluating their practices for potential reverse redlining risk.

*Mrs. Moyer is not admitted in the District of Columbia. She is practicing under the supervision of firm principals

*Mrs. Moyer is not admitted in the District of Columbia. She is practicing under the supervision of firm principals.

On June 29, 2016, the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) jointly filed a complaint against a regional bank alleging that the bank discriminated against African-American borrowers in many aspects of its mortgage lending services. The agencies alleged that the bank’s discriminatory practices violated both the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act. Below we outline the primary allegations in the complaint, the main terms of the consent order, and the key takeaways from this recent action. This is the CFPB’s first use of mystery shoppers to identify discrimination in a fair lending enforcement action and may offer a sign of what’s to come. Continue Reading Mystery Shopping Revelations: CFPB, DOJ, Bring Action Against Regional Bank for Discriminatory Lending Practices Confirmed by Testers*

*Mrs. Moyer is not admitted in the District of Columbia. She is practicing under the supervision of firm principals.

On June 8, 2016, the U.S. Department of Housing and Urban Development (HUD) announced a conciliation agreement with a bank, resolving allegations that the bank engaged in discrimination by denying the mortgage applications of African-American and Hispanic applicants at a disproportionally higher rate than white applicants.  The complaint, filed on December 23, 2011, resulted from a HUD review of the bank’s 2010 Home Mortgage Disclosure Act (HMDA) data.  During its investigation, HUD analyzed mortgages that were first denied by an automated underwriting system (AUS), and then manually underwritten, and determined that white applicants received unjustified preferential treatment in the manual underwriting process in violation of the Fair Housing Act.

Although neither the conciliation agreement nor HUD’s press release on the settlement mentioned redlining, the settlement terms included provisions typically associated with resolving redlining claims.  Continue Reading The Devil’s In the Data: HUD Settles Complaint Arising From HMDA Data*