On July 26, 2018, the Federal Reserve Board (“FRB”) announced the launch of a new publication called the Consumer Compliance Supervision Bulletin. Similar to the Bureau of Consumer Financial Protection’s (“BCFP”) Supervisory Highlights, the new publication summarizes examiners’ observations from recent supervisory activities and offers guidance on what supervised institutions can do to address consumer compliance risks. The first bulletin focuses on three areas: fair lending, unfair or deceptive acts or practices (“UDAP”), and recent regulatory and policy developments.
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On June 20, the U.S. Department of Housing and Urban Development (“HUD”) published an advance notice of proposed rulemaking (“ANPR”) that seeks public comment on whether and how to amend its 2013 rule under the Fair Housing Act (“FHA”). The ANPR follows HUD’s May 10 announcement of its intention to formally seek public comment on the rule in light of the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., in which the Court recognized disparate impact as a cognizable theory under the FHA, but imposed meaningful limitations on the application of the theory.

The ANPR, together with the statement of Bureau of Consumer Financial Protection Acting Director Mick Mulvaney this spring that the Bureau would be “reexamining the requirements of ECOA” in light of “a recent Supreme Court decision” (i.e., Inclusive Communities), signals that the Trump administration is likely seeking to retreat from the Obama administration’s enthusiastic use of disparate impact liability in lending discrimination cases.

The Disparate Impact Rule and Inclusive Communities

HUD finalized its disparate impact rule in February 2013. The rule codified HUD’s Obama-era view that disparate impact is cognizable under the FHA. In contrast to disparate treatment claims, in which a plaintiff must establish a discriminatory motive, a disparate impact claim challenges practices that have a disproportionately adverse effect on a protected class that is not justified by a legitimate business rationale. The rule states that a practice has a “discriminatory effect” where “it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.” HUD explained that it had “consistently concluded” that facially neutral policies that resulted in a discriminatory effect on the basis of a protected characteristic violated the FHA, and that the rule merely “formalize[d] its longstanding view.” The rule also formalized a three-part burden-shifting test for determining whether a practice had an unjustified discriminatory effect.

At the time HUD issued the rule, the nonprofit Inclusive Communities Project, Inc. was embroiled in a lawsuit against the Texas Department of Housing and Community Affairs, in which it brought a disparate impact claim under the FHA. After HUD issued the disparate impact rule, the Texas Department filed a petition for a writ of certiorari to the Supreme Court on whether the FHA recognized disparate impact claims. In its 2015 decision, the Supreme Court held that disparate impact claims are cognizable under the FHA, but the Court articulated a rigorous standard for a successful claim. The Court did not explicitly address the merits of HUD’s rule, nor did the rule form the basis of its holding. 
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On May 8, 2018, the United States Department of Justice and KleinBank reached a settlement agreement resolving allegations that the bank engaged in mortgage lending discrimination by failing to adequately serve predominantly minority neighborhoods (so-called “redlining”) in and around the Twin Cities of Minneapolis and St. Paul, Minnesota. The settlement resolves one of the only

On May 8, 2018, the House of Representatives used the Congressional Review Act (“CRA”) to vote to repeal the Consumer Financial Protection Bureau’s (CFPB’s) March 2013 bulletin addressing indirect auto lending and compliance with the Equal Credit Opportunity Act (“ECOA”). That vote follows the Senate’s April 18 CRA vote to repeal the bulletin. President Trump

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

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

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.
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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.
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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.
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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.  
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