The CFPB has issued its annual Report summarizing its fair lending activities in 2015. The Report is comprehensive and lays out not only the activities of the Bureau but also its methodology in reviewing fair lending issues. For those not familiar, the Dodd Frank Act established an Office of Fair Lending and Equal Opportunity within the CFPB and charged it with “providing oversight and enforcement of Federal laws intended to ensure the fair, equal, and nondiscriminatory access to credit for both individuals and communities.” In doing so, the Office’s two primary tools are the Equal Credit Opportunity Act (“ECOA”) and the Home Mortgage Disclosure Act (“HMDA”).
While much of the Report has been previously discussed in prior blog entries, the key takeaways for lenders are as follows:
- The Bureau uses a risk based prioritization process to focus their enforcement and regulatory efforts on markets or products that represent the greatest risk for consumers. The Report confirms the Bureau is currently honed in on four products:
- Mortgage Lending. Mortgage lending is a priority for the Office and they continue to focus on the HMDA data to identify risks in the areas of redlining, underwriting and pricing. In 2015, the Bureau resolved two public enforcement actions involving mortgage lending.
- Indirect Auto Lending. The Report confirms that the Office remains focused on indirect auto lending and is conducting auto finance targeted ECOA reviews which generally include examination of three areas: credit approvals and denials, interest rates quoted by the lender to the dealer (“Buy Rates”) and any discretionary markup or adjustments to the Buy Rate. In 2015, the Bureau resolved two public enforcement actions involving discriminatory pricing and compensation.
- Credit Cards. The Report suggests that this is a product which is receiving increased fair lending scrutiny. The Report indicates that the Bureau is “focused in particular on the quality of fair lending compliance management systems and on fair lending risks in underwriting, line assignment, and servicing,” including the treatment of consumers who indicate a preference to speak Spanish.
- Small Business Lending. The Report indicates that the Bureau has begun targeted ECOA reviews of small-business lending and is focused on the quality of fair lending compliance management systems and on fair lending risks in underwriting, pricing and redlining.
- The Bureau is conducting three types of fair lending reviews:
- ECOA Baseline Reviews. The CFPB uses ECOA Baseline Reviews to evaluate how well an institution’s compliance management system identifies and manages fair lending risks. To this end, the Bureau updated their Baseline Review Modules in the CFPB Supervision and Enforcement Manual.
- ECOA Targeted Reviews. The CFPB uses Targeted Reviews to evaluate areas of heightened fair lending risks and generally focus on a specific line of business, including those identified above.
- HMDA Data Integrity Reviews. The CFPB makes no bones about it. HMDA data is a primary tool used to identify redlining issues.
- The Report also summarizes the Bureau’s pending investigations:
- Mortgage Lending. The Report makes it abundantly clear that mortgage lending is among the Bureau’s top priorities and has focused its fair lending enforcement efforts on redlining practices. Currently, the Report indicates that it has a number of authorized enforcement actions in settlement negotiations and pending investigations.
- Indirect Auto Finance. Similarly, the Bureau has prioritized discrimination resulting from discretionary loan pricing. The Report indicates the Bureau currently has a number of pending enforcement actions and several authorized enforcement actions in settlement negotiations.
- The Report also summarizes the new HMDA rule and indicates that the Bureau is in the pre rulemaking stage with respect to developing rules as to the collection of small business lending data as required by the Dodd Frank Act.