The CFPB announced on October 9, 2013 that they entered into consent orders with two financial institutions that allegedly misreported HMDA data. The CFPB also issued Bulletin 2013-11, which provides guidance on compliance with HMDA, when the CFPB will pursue HMDA enforcement actions, and resubmission of HMDA data.
According to the consent orders and the CFPB’s press release, Mortgage Master, a nonbank headquartered in Massachusetts, will pay a civil penalty of $425,000 for errors in data submitted for 21,015 loans. Washington Federal, a bank headquartered in Seattle, Washington, will pay a civil penalty of $34,000 for errors in data submitted for 5,785 loans. Both institutions are required under the consent orders to resubmit 2011 HMDA data and develop HMDA compliance systems. The institutions do not admit or deny the allegations in the consent orders.
The CFPB addresses the difference in the amount of the civil penalties, as compared to the number of errors in each institution’s data, by giving a laundry list of other factors considered in assessing penalties, including the size of each institution’s mortgage lending, their respective error rates, and each institution’s history of prior violations.
These factors are mirrored in Bulletin 2013-11, which explains when the CFPB will pursue HMDA enforcement actions. In addition, the CFPB will consider whether an institution self-identified and self-corrected any errors when determining both whether to pursue an enforcement action and the appropriate size of any civil penalties. As we have previously reported, the CFPB has released similar guidance encouraging supervised entities to self-report violations in the past.
The Bulletin also describes the common elements of an effective HMDA compliance system, based in part on the HMDA reviews the CFPB has already performed. These elements include:
- Policies, procedures, and internal controls to ensure ongoing compliance with the HMDA collection and reporting requirements;
- Internal pre-submission HMDA audits, as appropriate for the size and complexity of the institution;
- Reviews of any relevant regulatory changes;
- Reporting systems scaled to the volume of the institution’s lending operations;
- One or more individuals assigned responsibility for oversight, data entry, and data updates, including the timely and accurate reporting of the institution’s data;
- Employee training on HMDA;
- Corrective action in response to identified deficiencies; and
- Board and management oversight, as appropriate.
Although the two consent orders at issue did not allege any discrimination, as we previously foreshadowed, the CFPB signaled that it will be using HMDA data to identify and pursue institutions that may be discriminating against protected classes of borrowers. As stated in the press release, “Inaccurate HMDA data impedes the Bureau’s efforts to detect violations of the Equal Credit Opportunity Act (ECOA) and to stop discrimination in home mortgage lending.” Similarly, Director Cordray stated that inaccurate HMDA data “makes it more difficult for the CFPB to discover and stop discriminatory lending.” The CFPB is, or will soon be, engaging in pre-rule activity to implement the expansion in HMDA data reporting elements provided for in Dodd-Frank. The industry can expect that the accuracy of HMDA data, and the analysis of the data for potential fair lending concerns, will continue to be a priority of the CFPB.