Despite expectations to the contrary, Rohit Chopra faced little in the way of hostile questioning by Republican members of the Senate Banking Committee at the hearing yesterday on his nomination by President Biden as CFPB Director.  It is possible Republican members took a less aggressive approach in questioning Mr. Chopra in order to devote more of their time to probing the views of Gary Gensler, President Biden’s nominee for SEC Chairman, whose confirmation hearing was held together with Mr. Chopra’s hearing.

In response to questions from several Senators about student loans, Mr. Chopra stressed the need for the CFPB to ensure that student loan servicers are meeting their obligations when dealing with distressed borrowers, such as honoring debt forgiveness rights and providing access to income-driven repayment plans and other federal student loan protections.  He indicated that servicers should be proactive to avoid what he described as an impending “avalanche of defaults” when pandemic-related payment moratoriums expire.  He also commented that while the CFPB has a major role to play in this area, it should work cooperatively with the Education Department, state attorneys general, and state regulators that license student loan servicers.  Mr. Chopra similarly noted the need for the CFPB to work more closely with the Department of Justice and state AGs to enforce SCRA and MLA protections for members of the military and their families and for mortgage servicers to be prepared to avoid another foreclosure crisis as a result of forbearances “that can flip to foreclosures.”

Mr. Chopra’s responses to several questions reinforce our expectation that the CFPB will significantly ramp up its enforcement activity under his leadership.  In response to a question from a Republican Senator asking whether Mr. Chopra would engage in rulemaking on the meaning of “abusive” before using the CFPB’s UDAAP authority, Mr. Chopra acknowledged the potential usefulness of rulemaking but resisted the Senator’s suggestion that a rule was necessary for the CFPB to enforce the UDAAP prohibition.  When asked by another Republican Senator if he intended to reinstate the CFPB’s “rulemaking through enforcement” approach under former Director Cordray, Mr. Chopra committed to make the CFPB’s expectations clear to market participants but also highlighted the leveling effect of the CFPB’s enforcement authority for those who are operating lawfully in the marketplace.

Mr. Chopra also defended various dissents that he has written as an FTC Commissioner in which he objected to settlements based on the FTC’s failure to impose larger financial penalties.  He stressed the need for fraudsters to be accountable to consumers and indicated that restitution is critical for remedying wrongdoing, particularly where the wrongdoer is a large company, and that remedying consumer harm should be the focus of enforcement.  He criticized the FTC for targeting small entities and not applying equal scrutiny to larger entities.

With regard to fair lending, Mr. Chopra also criticized the FTC for not bringing ECOA enforcement actions and expressed the view that agencies with ECOA enforcement authority have an obligation to use that authority.  He indicated that the CFPB’s Office of Fair Lending should play a critical role in the CFPB’s enforcement of the ECOA.

Other noteworthy comments made by Mr. Chopra included:

  • Credit reporting and debt collection are among the areas presenting the greatest risks to consumers and enforcement is needed to stop unlawful practices.
  • He plans to use consumer complaints and supervision to guide enforcement activity.
  • He has an “open mind” regarding how the CFPB’s QM rules should be revised, noting that consumer protection needs to be balanced with access to mortgages.
  • With regard to small dollar credit, he acknowledged the need for consumers to have access to small dollar credit but also stressed the need for consumers to have faster access to their own money.
  • It is critical that the CFPB use its enforcement authority to protect small businesses.

Committee Chairman Sherrod Brown asked Committee members to submit any questions for the record by March 8 as he wants to “move quickly” on the nominations.

On March 8, 2021, from 12:00 p.m. to 1:30 p.m. ET, Ballard Spahr will hold a webinar, “CFPB Rulemaking Under the Biden Administration: What’s On the Agenda?”  For more information and to register, click here.

The OCC has filed a reply in support of its cross-motion for summary judgment in the lawsuit filed by state AGs to enjoin the OCC’s final rule (Rule) purporting to override the Second Circuit’s Madden decision as to national banks and federal savings associations.  The filing of the OCC’s reply concludes the briefing on the motions for summary judgment filed by the AGs and the OCC.  A hearing on the motions is scheduled for March 19, 2021.

The OCC’s reply is its first filing in the case since President Biden’s inauguration.  The OCC is currently under the leadership of Acting Comptroller of the Currency Blake Paulson.  Mr. Paulson, the OCC’s Chief Operating Officer, became Acting Comptroller on January 14, 2021 upon the resignation of Acting Comptroller Brian Brooks.  President Biden has not yet nominated a new Comptroller of the Currency.  While we have speculated that a new Comptroller might want to revisit the Rule, that now seems unlikely in light of the OCC’s decision to continue to defend the Rule in the new filing rather than seek an extension to give the new Comptroller an opportunity to review the litigation.

In its new filing, the OCC makes the following principal arguments:

  • The AGs’ argument that the OCC does not have authority to issue the Rule because it would regulate the interest rate a non-bank can charge after a bank transfers a loan lacks merit.  This argument relies on the AGs’ mischaracterization of the Rule as preempting state interest rate caps for non-bank buyers of national bank loans.  Contrary to the AGs’ characterization, the Rule interprets Section 85 of the National Bank Act (NBA) which incorporates, rather than eliminates, state law.  The Rule regulates the conduct of national banks when they transfer loans by clarifying a statutory ambiguity in the interest rate authority of national banks.
  • The AGs incorrectly assert that the Rule must preempt state law because Section 85 affects the applicability of certain state laws.  Rather than preempt state law, the Rule interprets the substantive meaning of Section 85 by clarifying the scope of federal authority granted by Section 85.  As a result, the NBA provision (Section 25b) that establishes a standard for OCC preemption determinations does not apply.
  • The AGs incorrectly assert that the Rule overrides the plain language of Section 85 and 12 U.S.C. §1463 because those provisions, respectively, speak only to interest that a national bank or federal savings association may charge.  The narrow reading of these provisions urged by the AGs overlooks the relationship of these provisions to other provisions of federal banking law and case law that underscore the ambiguity of these provisions on their applicability to loan sales.
  • The AGs incorrectly assert that a specific delegation of authority from Congress is needed for the OCC to promulgate a rule regulating interest charged by non-bank buyers of national bank loans.  The absence of language in Section 85 regarding loan buyers constitutes an implicit delegation of Congressional authority to the OCC to interpret this statutory gap, particularly when viewed in conjunction with national banks’ recognized authority to make and assign contracts, the NBA’s deliberate facilitation of interstate lending, longstanding common law principles affirming the assignability of loan contracts, and the OCC’s history of issuing regulations interpreting Section 85’s substantive scope.
  • The Rule does not authorize the transfer of preemption to non-banks.  Section 85 determines the rate of interest a national bank can charge on a loan it makes.  The interest rate is reflected in the loan agreement.  Following legal precedent and historical practice, the OCC has concluded that when a national bank transfers a loan agreement, the transferee steps into the shoes of the bank and can enforce the terms of the loan agreement.  A non-bank obtains no national bank powers as a result of holding a loan originated by a national bank.  Instead, the Rule simply confirms the concept that the originally-agreed upon interest rate, reflected in the loan contract, endures after assignment.
  • The OCC Rule is not arbitrary and capricious because it is based on speculation and contradicted by evidence in the record.  Rather, it is supported by record evidence and the OCC’s supervisory experiences.  The Administrative Procedure Act does (APA) not require the OCC to develop and rely on detailed statistical evidence as part of the rulemaking process.  The APA only requires an agency to justify a rule with a reasoned explanation.  The OCC’s concerns about Madden’s negative impact on credit markets provided a reasoned explanation for the Rule.
  • The Rule is not arbitrary and capricious due to the OCC’s failure to consider relevant factors as required by the APA.  Contrary to the AGs’ assertion that the OCC failed to consider the Rule’s impact on facilitating predatory lending arrangements between national banks and non-banks, the OCC did acknowledge and consider this concern.  However, in balancing the policy considerations, the OCC concluded it was reasonable to issue the Rule.

The OCC’s final “true lender” rule has also been challenged by a group of state AGs in a lawsuit filed in January 2021 in a New York federal district court.   In its reply brief, the OCC distinguishes the “true lender” rule from its Madden-fix rule, noting that the Madden-fix rule only applies when a bank is the “true lender.”  The OCC states that, “[a]ccordingly, the [Madden-fix] Rule and the “True Lender” rule stand on their own merit.”

In advance of his confirmation hearing tomorrow, the Senate Banking Committee has released the prepared statement of Rohit Chopra, President Biden’s nominee for CFPB Director. 

The brief statement highlights several areas on which Mr. Chopra is likely to focus his attention as CFPB Director.  He raises concern about the financial difficulties faced by consumers as a result of the COVID-19 pandemic, particularly in the housing market, and observes that “[e]xperts expect distress across a number of consumer credit markets, including an avalanche of loan defaults and auto repossessions.”

Mr. Chopra raises racial equity concerns twice in his statement.  He indicates that there is a need for  “fair and effective oversight” in the mortgage market, to “promote a resilient and competitive financial sector, and address the systematic inequities faced by families of color.”  He also observes that individuals living in communities of color are particularly at risk of losing their homes due to financial difficulties caused by the pandemic.

Other areas highlighted by Mr. Chopra are credit reporting and debt collection.  He indicates that consumers “continue to discover serious errors on their credit reports or feel forced to make payments to debt collectors on bills they already paid or never owed to begin with, including for medical treatment related to Covid-19.”   He characterizes these issues as “longstanding, pervasive problems.”

Surprisingly, despite his focus on student loans during his previous tenure at the CFPB, Mr. Chopra did not mention student lending in his statement.  

A litigation phenomenon that has recently surged is the simultaneous filing of hundreds or even thousands of individual arbitration demands against the same company by the same law firm, requiring the company to pay the substantial up-front filing fees typically charged by arbitration administrators.  Initially used in the context of employment arbitration claims, such “mass arbitrations” are now also being pursued against consumer businesses.

The American Arbitration Association (“AAA”) recently implemented a sliding scale for filing fees in “multiple consumer cases.”  The fees will apply when the AAA determines, in its sole discretion, that 25 or more similar arbitration claims have been filed by or against the same party by the same counsel or coordinated counsel.  The rules took effect on November 1, 2020.

Under prior AAA rules, in an arbitration commenced by an individual consumer, the filing fee was as high as $1,900. The business was required to pay $1,700 of that amount, and the consumer $200.   Failure to timely pay the filing fee could result in dismissal of the arbitration, enabling the consumer to sue in court.  When thousands of individual arbitrations were made or threatened against a company, as has happened on several occasions, the up-front filing fees totaled millions of dollars.  Under the new rules, the following filing fees are payable by businesses in “multiple consumer cases”: (a) $300 per case for the first 500 cases; (b) $225 per case for cases 500 to 1,500; (c) $150 per case for cases 1,501 to 3,000 and (d) $75 per case for cases 3,001 and beyond.  Consumers pay $100 per case for the first 500 cases, and $50 per case for cases 501 and beyond.

It is too early to tell whether the new AAA rules will have an impact on the filing and administration of mass arbitration claims.  The AAA rules also require businesses to pay a $1,400 case management fee prior to the appointment of an arbitrator, a minimum $2,500 arbitrator fee, half of which is payable once a preliminary management conference is held, and a $500 hearing fee.  The rules do not clarify whether these additional amounts must be paid in each case or if and how they are adjusted if there are multiple consumer cases.  Nor do they clarify whether multiple consumer cases must be filed at the same time or can be aggregated over a period of time.  In any event, this is clearly a step in the right direction as it seeks to balance the rights of all parties to the arbitration agreement.

On March 4 and 5, 2021, the Consumer Law Review of Loyola University Chicago School of Law will hold a symposium on issues involving racial justice in consumer law.  The symposium will consist of three panel discussions, with each panel discussion followed by a Q&A session.  Chris Willis, co-chair of Ballard Spahr’s Consumer Financial Services Group, will be a member of the second panel.

The first panel discussion is titled “Antiracist Policy in Consumer Law” and will take place on March 4.  The discussion will focus on antiracist policy arising in the various areas of consumer law.

The second and third panel discussions will take place on March 5.  The second panel discussion, titled “Racial Inequity in Lending Practices,” will examine the issue of racial disparity in lending from a range of perspectives.

The third panel discussion, titled “The Government’s Role in Consumer Protection,” will look at the government’s role in protecting consumers in the areas of housing, healthcare, and business.

For information about all panel members and to register, click here.


The CFPB recently issued a policy statement addressing the rules finalized near the end of former Director Kraninger’s tenure that amend the Regulation Z ability to repay rule/qualified mortgage (QM) requirements to replace the strict 43% debt-to-income (DTI) ratio basis for the current general QM with an annual percentage rate (APR) limit, and to create a new seasoned loan QM. As previously reported, Acting Director Uejio generated speculation regarding the fate of the rules, which each have a March 1, 2021 effective date, when he made public a statement that he sent to the staff of the CFPB’s Division of Research, Markets, and Regulations (RMR) outlining his regulatory priorities and directing staff to “explore options for preserving the status quo with respect to QM and debt collection rules.”

While the CFPB will not change the March 1, 2021, effective date of the rules, in the policy statement the CFPB advises that it:

  • Expects to issue shortly a proposed rule that would delay the July 1, 2021, mandatory compliance date for the new general QM rule;
  • Will consider at a later date whether to initiate a rulemaking to reconsider other aspects of the new general QM rule; and
  • Is considering whether to initiate a rulemaking to revisit the seasoned loan QM rule.

Currently, (1) both the current general QM based on a 43% DTI ratio and the temporary QM based on a loan being eligible for sale to Fannie Mae or Freddie Mac, which is commonly referred to as the “GSE Patch,” remain available for applications received by creditors through June 30, 2021, (2) the new general QM becomes available for applications received on or after March 1, 2021, and (3) for applications received on or after July 1, 2021, the new general QM remains available and the current general QM and the GSE Patch are no longer available. The CFPB advises in the policy statement that if it delays the July 1, 2021 mandatory compliance date for the new general QM rule, creditors would be able to originate loans under the current and new general QM rules until the delayed mandatory compliance date, and it anticipates that the GSE Patch will remain available until the delayed mandatory compliance date, unless Fannie Mae and Freddie Mac exit conservatorship before then.

In a related blog post, Acting Director Uejio notes that because of the economic hardship and uncertainty caused by the COVID-19 pandemic, the CFPB must do all it can to protect homeowners and promote stability in the housing market. He also advised that the CFPB plan to delay the July 1, 2021, mandatory compliance date for the new general QM rule is intended “to ensure consumers have the options they need during the pandemic and financial crisis it has caused, as well as to provide maximum flexibility to the market . . . .” He also notes that “[a]n extension of the compliance deadline would allow lenders more time in which they could make QM loans based on a debt-to-income ratio or whether the loans are eligible for sale to Fannie Mae or Freddie Mac, and not just a pricing cut off.”

With regard to the seasoned loan QM rule, the CFPB advises in the policy statement that if it decides to revisit the rule, it expects that it will consider in that rulemaking whether any potential final rule revoking or amending the rule should affect covered transactions for which an application was received during the period of time from March 1, 2021, until the effective date of the final rule. This statement likely will have a chilling effect on companies that intended to rely on the seasoned loan QM rule for applications received on or after March 1, 2021.

The policy statement is scheduled for publication in the February 26, 2021, Federal Register. In addition to issuing the policy statement, the CFPB also issued a revised version of the Ability-to-Repay and Qualified Mortgage Rule Small Entity Compliance Guide, which reflects the new general QM and seasoned loan QM rules.

Earlier this week, the CFPB announced that it has filed its first enforcement action under the leadership of Acting Director Uejio.  The lawsuit was filed in a Virginia federal district court jointly with the Attorneys General of Virginia, Massachusetts, and New York.  The complaint names as defendants Libre by Nexus, Inc. (Libre), Libre’s parent company, and three individual owners of the parent company.

The lawsuit involves Libre’s activities directed at immigrants seeking to obtain bonds in order to be released from federal detention centers.  The complaint alleges that “the vast majority of Libre’s clients are Spanish-speakers, most of whom do not read or write English and many of whom cannot read or write in any language.”  As discussed below, the immigrants’ limited English proficiency is the basis of a claim by the CFPB that the defendants engaged in abusive conduct in violation of the CFPA’s UDAAP prohibition.  In addition, in the Bureau’s press release about the action, Acting Director Uejio characterized the lawsuit as targeting racial inequity, an issue he has identified as a priority issue for the Bureau under his leadership.  Acting Director Uejio called the case “a prime example of how people of color are targeted in financial scams and the latent inequity that is too often found in the market for financial products and services.”  He stated that “[s]topping these kinds of cash-grab schemes is part of the Bureau’s commitment to addressing racial injustice in the market.”

The complaint alleges that Libre acted as an intermediary between the immigrants and the sureties and bond agents.  In exchange for the immigrants entering into agreements with it, Libre agreed to indemnify the sureties and their bond agents for any losses in connection with the bonds.  The agreements required consumers to pay large upfront fees plus a $420 monthly fee to rent GPS-tracking ankle monitors.  The monitors were required to be worn until the consumer’s immigration case was resolved or the consumer made payments equal to a specified amount.  In contrast to fully-paid bonds that are refundable when an immigration case is resolved, most fees paid to Libre were nonrefundable and resulted in consumers paying significantly more in nonrefundable fees to Libre than they would have paid for a refundable bond.  Libre is alleged to have made representations that created the false impression that a consumer’s non-compliance with his or her agreement with Libre could lead to negative consequences in the consumer’s immigration case when in fact, no government agency was monitoring the consumer through the GPS monitors or requiring the consumer to use a GPS monitor to avoid incarceration.

The complaint alleges that Libre is a “covered person” under the CFPA because its transactions with consumers are “consumer financial products or services.”  According to the complaint, the transactions are “consumer financial products or services” because Libre leads consumers to “reasonably believe that Libre offers or provides a credit transaction in which consumers incur a debt and defer the right to repay.”  More specifically, consumers are allegedly led to believe “that Libre has paid cash bonds, that consumers owe a debt to Libre in the amount of the cash bonds, and that monthly payments pay down that debt.”

The complaint alleges that Libre engaged in abusive acts or practices in violation of the CFPA’s UDAAP prohibition by using “predominantly English-language agreements to enroll clients.  According to the complaint, Libre (1) knew that many of its clients and co-signers did not understand English and that some could not read in any language, and (2) rushed through the enrollment process and omitted or misrepresented material terms of its written agreement to clients and co-signers before they were enrolled.  As a result, Libre is alleged to have “materially interfered with consumers’ ability to understand the terms and conditions of Libre’s offers of credit.”  The individual defendants are also alleged to have violated the CFP by engaging in these abusive acts or practices.

The complaint also alleges that Libre and the individual defendants engaged in deceptive acts or practices in violation of the CFPA’s UDAAP prohibition through conduct that included the following:

  • Falsely representing that it had paid consumers’ bonds and that consumers’ monthly payments went to repaying the bonds
  • Falsely threatening consumers with detention or deportation if they failed to make monthly payments or removed the GPS monitors
  • Threatening consumers that their accounts would be turned over to a debt buyer or collection agency when in fact Libre has never sold a debt or referred a debt to a collection agency
  • Threatening consumers that failing to make payments to Libre could harm their credit when in fact Libre does not furnish information to consumer reporting agencies
  • Threatening to sue consumers for non-payment when in fact Libre has never filed a collection lawsuit

The complaint includes a claim that the other defendants also violated the CFPA by providing substantial assistance to Libre’s deceptive and abusive acts or practices.  It also includes claims that the defendants violated the Virginia Consumer Protection Act, the Massachusetts Consumer Protection Law, the Massachusetts Fair Debt Collection Practices Act, the New York Executive Law and the New York General Business Law.  The relief sought by the complaint include restitution, disgorgement for unjust enrichment, civil penalties under the CFPA, and civil penalties under Virginia, Massachusetts, New York law.

The CFPB has filed its fourth status report with the California federal district court as required by the Stipulated Settlement Agreement in the lawsuit filed against the Bureau in May 2019 alleging wrongful delay in adopting regulations to implement Section 1071 of the Dodd-Frank Act.

Section 1071 amended the ECOA to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business.  The Stipulated Settlement Agreement, which the court approved in February 2020, established a timetable for the Bureau to engage in the Section 1071 rulemaking and required the Bureau to provide status reports to the plaintiffs and the court every 90 days until a Section 1071 final rule is issued.

The CFPB has now satisfied the first three deadlines in the Stipulated Settlement Agreement which relate to the SBREFA process.  In September 2020 and October 2020, the Bureau satisfied the Agreement’s first two deadlines regarding, respectively, the Bureau’s release of a SBREFA outline of proposals under consideration and the convening of a SBREFA panel.  In December 2020, the Bureau released the final report of the SBREFA panel, thereby satisfying the Agreement’s third deadline.

The next step mandated by the Agreement is for the parties to confer after the completion of the panel report regarding a deadline for the Bureau’s issuance of a Notice of Proposed Rulemaking (Section 1071 NPRM).  The Agreement provides that if the parties agree on a deadline, they will jointly stipulate to the agreed date and ask the court to enter that deadline.  Also, at any time that is more than 30 days after completion of the panel report, the plaintiffs can notify the Bureau that they want to ask the court to set a deadline for issuance of a Section 1071 NPRM and within 7 days of such notice, the parties will file a joint statement setting forth their positions on a deadline.  The Bureau agreed not to propose or argue that the court should not set a deadline and the plaintiffs have agreed not to propose or seek a deadline that is less than 6 months after completion of the panel report.  If the court is asked to set a deadline, the parties must make their submissions according to the briefing schedule set forth in the Agreement.

In the status report, the Bureau states that its rulemaking staff is in the process of evaluating the panel’s recommendations and has begun briefing the Bureau’s new leadership regarding the significant legal and policy issues involved in the Section 1071 rulemaking “to obtain policy decisions that are necessary for the preparation of the [Section 1071 NPRM].”  The Bureau also states that the parties have conferred about an appropriate deadline for issuing the Section 1071 NPRM, are continuing to engage in discussions regarding a deadline, and pursuant to the Agreement, if the parties agree on a deadline, they will jointly stipulate to the agreed date and request that the court enter that deadline.

In his publicly-shared statement to the staff of the Bureau’s Division of Research, Markets, and Regulations (RMR) outlining his regulatory priorities, Acting CFPB Director Uejio indicated that he has “pledged RMR the support it needs to implement [section 1071] without delay.”  Mr. Uejio’s interest in prioritizing the Section 1071 rulemaking is likely to be shared by Rohit Chopra, if confirmed as CFPB Director.  In addition, a Section 1071 NPRM issued under new CFPB leadership will likely be more closely aligned with the views of consumer advocates than an NPRM issued under former Director Kraninger’s leadership would have been.  As a result, the plaintiffs can be expected to take a cooperative approach with new CFPB leadership and be more flexible regarding a deadline for issuing a Section 1071 NPRM.

In Part II of our two-part podcast, we discuss how we expect Rohit Chopra, if confirmed by the Senate, to approach his new role as CFPB Director.  We look at the possible implications of positions taken by Mr. Chopra as FTC Commissioner for how he will use the CFPB’s statutory authorities, his likely approach to student lending based on his tenure as CFPB Student Loan Ombudsman, and how his approach to enforcement is likely to differ from that of former Director Kraninger.

Ballard Spahr attorney Alan Kaplinsky hosts the conversation, with Chris Willis, Co-Chair of the firm’s Consumer Financial Services Practice Group, John Culhane, a partner in the Group, and Heather Klein, an associate in the Group.

Click here to listen to the podcast.   (To listen to Part I of our podcast in which we are joined by special guest former CFPB Director Richard Cordray, click here.)

The New York Department of Financial Services (DFS) recently announced that it has entered into an agreement with Hunt Mortgage, a licensed mortgage banker, to address the DFS’s findings that there was a “demonstrable lack of lending to minorities and in majority-minority neighborhoods in Western and Central New York by Hunt Mortgage.”  DFS also released a report on redlining in the Buffalo metropolitan area.

Hunt Agreement.  The Agreement relates to Hunt’s residential mortgage lending practices and arises out of DFS’s review of Hunt’s HMDA data from 2016 to 2019.  It recites that DFS reviewed Hunt’s fair lending policies, fair lending training materials, marketing and advertising policies, marketing efforts, marketing materials and underwriting and pricing procedures, as well as additional lending data provided by Hunt, and took testimony from Hunt officials.  Although DFS found no evidence of intentional discrimination and made no finding of any fair lending violations, it did find weakness in Hunt’s fair lending and compliance programs.  More specifically, it found that Hunt made no efforts to define the areas it serves, did not track marketing efforts, including where marketing materials were sent, and did not take any targeted efforts to ensure that it was serving all races and classes equally.

The Agreement sets forth steps Hunt has agreed to take “in a good faith effort” to increase its residential lending to minorities and in majority-minority neighborhoods.  These steps include the following:

  • Updating Hunt’s Fair Lending Policy to (1) reflect the lending areas Hunt serves by specifically defining the lending areas it will target (Lending Area) to include certain metropolitan statistical areas, (2) include a goal of directing 25% of marketing and advertising materials to minority neighborhoods or minorities, and (3) explain how Hunt’s marketing and advertising statistics will be measured, tracked, and reported to DFS.
  • Investing $50,000 in advertising and marketing designed to reach potential applicants who reside in majority-minority census tracts in the Lending Area.  Marketing shall include, at a minimum, the following components:
    • Holding quarterly outreach events for residents of majority-minority neighborhoods  to inform attendees of Hunt’s products and services, with such events to be targeted at neighborhood residents, real estate brokers and agents, developers and public or private entities engaged in residential real estate-related businesses in majority-minority neighborhoods.
    • Creating point-of-distribution materials, such as posters, billboards, and brochures targeted toward minority communities to advertise Hunt’s products and services, with such materials to be displayed in Hunt’s branch offices and other appropriate locations throughout the majority-minority neighborhoods in the Lending Area.
    • Distributing advertisements by direct mail targeted to residents in majority-minority neighborhoods in the Lending Area.
    • Distributing advertisements through Hunt’s website and using other means of online advertising targeted at minority borrowers and residents of majority-minority neighborhoods in the Lending Area, such as web banner advertising, text advertising, sponsored search engine results, social media, mobile advertising, and email advertising.
    • Offering and advertising credit counseling services.
  • Implementing a consumer complaint policy, with a member of the Board of Directors appointed to review all complaints on a monthly basis and brief the Board.
  • Establishing a special finance program to provide discounted or subsidized financing on loans to minority borrowers, with the total amount of discounts and subsidies to be at least $150,000 over a three-year period.
  • Retaining an independent third party to conduct an annual audit of Hunt’s fair lending practices, general compliance efforts, and compliance with the Agreement.

The DFS redlining report discussed below confirms our understanding that DFS is pursuing fair lending investigations of at least two nonbank mortgage lenders.  In the report, DFS states that it has been using HMDA data to inform fair lending investigations of other lenders who have been found to be lending overwhelmingly to white borrowers and making loans to  minority borrowers and in minority-majority areas at substantially lower numbers than other institutions in the Buffalo metropolitan area.  According to the report, these investigations are ongoing and DFS will announce findings as those cases are resolved.  DFS notes, however that it has found that many of the companies “suffer from the same basic failing: a general lack of attention to whether they are serving the entire Buffalo community, including minorities and majority-minority neighborhoods.”  DFS indicates that these companies generally “make little or no effort to obtain business in minority areas, do not have adequate fair lending compliance programs, and do not track whether or how well they are serving minority populations.”  

Redlining report.  Based on DFS’s analysis of HMDA data for lenders in the Buffalo market, the report includes the following findings:

  • Although minorities are about 20 percent of the Buffalo metro area’s population, only 9.74 percent of total loans made in the Buffalo market are made to minorities.
  • Nonbank mortgage lenders in the Buffalo market lent at lower rates in majority-minority neighborhoods than depository institutions did.

The report includes the following recommendations:

  • New York’s Community Reinvestment Act only applies to banks.  Because a majority of loans nationwide are made by nonbank mortgage lenders, a substantial portion of the mortgage lending market is exempt from CRA requirements.  Accordingly, New York’s CRA should be amended to apply to nonbank mortgage lenders.
  • New York’s Department of State should conduct an investigation of real estate agents who make referrals to nonbank lenders to determine whether the agents are engaged in any prohibited discriminatory activity that could be affecting mortgage lending patterns.