The CFPB released its second Fair Lending Report to Congress last week, summarizing the Bureau’s fair lending actions in the last year and a half. The Report highlighted the Bureau’s creation and implementation of a risk-based fair lending prioritization process that is aimed at ensuring that its resources are focused on areas that present the greatest fair lending risk to consumers. This data-driven prioritization for fair lending scrutiny, part of the Bureau’s larger risk-based prioritization process, incorporates several factors: (i) complaints and tips from consumers, advocacy groups, whistleblowers, and other government agencies at all levels of government; (ii) information from the Bureau’s and other regulators’ prior fair lending work, including any supervisory or enforcement actions; (iii) quality of an entity’s fair lending compliance management system; (iv) data analysis of trends at the entity and market level to determine which entities seem to present heightened fair lending risk to consumers; and (v) market-specific insights to identify fair lending risks that may require further study or action.
The Report further specifies that a well-developed compliance management system should include the following features:
- An up-to-date fair lending policy statement
- Regular fair lending training for all employees involved with any aspect of the entity’s credit transactions, as well as all officers and board members
- Ongoing monitoring for compliance with fair lending policies and procedures, and appropriate corrective action if necessary
- Ongoing monitoring for compliance with other policies and procedures that are intended to reduce fair lending risk (such as controls on loan originator discretion), and appropriate corrective action if necessary
- Review of lending policies for potential fair lending violations, including potential disparate impact
- Depending on the size and complexity of the financial institution, regular statistical analysis, as appropriate, of loan-level data for potential disparities on a prohibited basis in pricing, underwriting, or other aspects of the credit transaction, including both mortgage and non-mortgage products such as credit cards, auto lending, and student lending
- Regular assessment of the marketing of loan products
- Meaningful oversight of fair lending compliance by management and where appropriate, the financial institution’s board of directors.
The Report outlined the Bureau’s supervision and enforcement work in housing and automobile finance, two key product areas for fair lending risk that were identified using the Bureau’s prioritization process. During the time period covered by the Report, the Bureau’s enforcement activity resulted in three mortgage-related referrals to the Department of Justice (two of which involved discrimination on the basis of marital status), and several public enforcement actions for ECOA and HMDA violations. The Bureau’s auto finance scrutiny focused on pricing and dealer compensation policies. The Bureau also monitored fair lending risk to consumers in other product markets, such as unsecured consumer lending and credit cards. The Bureau referred three such lenders to the DOJ for ECOA violations, and pursued its own enforcement action against a company that allegedly engaged in discrimination on the basis of age. The Report also lays out the Bureau’s cooperation and coordination with other federal agencies and state regulators to promote consistent, efficient, and effective enforcement of fair lending laws. For example, the CFPB-DOJ Memorandum of Understanding was finalized to streamline coordination on enforcement actions. The promulgation of interagency guidance and participation in interagency working groups also further cooperation between agencies, and further the Bureau’s enforcement of fair lending laws.
The Report also discusses the Bureau’s outreach to private industry and fair lending, fair housing civil rights, consumer and community advocates. To this end, the Bureau relies on the Consumer Advisory Board to advise and consult, and to provide information on emerging practices in the consumer financial products or services industry. The Consumer Advisory Board hosts public sessions and small gatherings with industry, advocates and consumers, focusing on issues relating to fair access to credit for consumers.
As we reported previously, several Members of the House Committee on Financial Services expressed their concern as to the Bureau’s lack of transparency regarding its disparate impact analysis, and this Report does not clarify the Bureau’s position or answer the Members’ questions. Despite mentions of the Bureau’s use of statistical analysis to prioritize its enforcement and supervision actions, this Report does not answer the Committee’s questions regarding the Bureau’s specific methodologies in its disparate impact analysis. The Report also does not address the Committee’s broader concern regarding decreased consumer choice as a result of regulatory overreach or lack of transparency. We will continue to keep a close eye on these issues.