The CFPB has issued a fair lending report covering its fair lending activities during 2014. The report states that in 2014, CFPB fair lending supervisory and public enforcement actions required institutions to provide approximately $224 million in remediation.
The report begins with a discussion of factors the CFPB considers in its risk-based prioritization approach for determining “what, where, and how fair lending risks to consumers should be addressed.” The factors discussed are: (1) complaints and tips from consumers (including advocacy groups, whistleblowers and other government agencies), (2) an institution’s supervisory and enforcement history, (3) the quality of an institution’s fair lending compliance management system, (4) analysis of data to evaluate developments and trends at the institution and market levels, and (5) market intelligence and trends. The CFPB states that in 2014, it identified mortgage lending and auto finance as key priorities for fair lending supervision and enforcement. In mortgage lending, the CFPB focused on underwriting and redlining. In auto finance, the CFPB focused on “indirect auto lending,” commenting that “lenders need to be aware of and to monitor fair lending risk in their portfolios, particularly in connection with discretionary dealer markup and compensation policies.”
Key sections of the report include the following:
- The section on supervisory activities indicates that in August 2014, the CFPB created a National Fair Lending Examination Team made up of examiners from across the CFPB. The Team is described as “partnering” with the CFPB’s Office of Fair Lending and different regional offices. The CFPB reviews information previously provided in its Spring 2014 Supervisory Highlights which focused on exceptions to credit standards, Summer 2014 Supervisory Highlights which focused on “indirect automobile lending,” and Fall 2014 Supervisory Highlights which focused on HMDA resubmission schedules and guidelines. The section also includes a list of “best practices of financial institutions with well-developed fair lending compliance systems.” In its discussion of the Summer 2014 Supervisory Highlights, the CFPB states that when it makes a preliminary determination that an institution engaged in “indirect auto lending” may have discriminated unlawfully and notifies the institution of that determination, it will disclose the customized regression code that supports the preliminary determination.
- In the section on enforcement, the CFPB reviews several fair lending public enforcement actions and, as discussed in the DOJ’s ECOA report, the types of discrimination involved in the 15 fair lending matters referred to the DOJ by the CFPB. The section also includes a discussion of pending fair lending investigations. The CFPB states that, at the end of 2014, it had several open investigations of potential redlining. It again mentions the CFPB’s focus “on institutions’ indirect auto lending, specifically discrimination resulting from compensation policies that give auto dealers discretion to set loan prices,” and states that in 2014, the CFPB “investigated a number of indirect auto lenders and has a number of authorized lawsuits.” In addition, the CFPB states that it is investigating “other areas for potential discrimination,” noting that it has investigated lenders for discrimination in pricing and underwriting in mortgage lending.
- In the section on rulemaking, the CFPB discusses its proposed amendments to Regulation C (which implements HMDA) and its progress in developing rules on the collection of small business lending data to implement Section 1071 of Dodd-Frank. (Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.)
Two other sections of the report discuss the CFPB’s coordination with other federal agencies on fair lending issues (such as through an interagency task force and working groups) and outreach to industry and consumers (such as through its publication of its proxy methodology white paper which is reviewed in the report). The last section of the report is intended to satisfy certain ECOA and HMDA reporting requirements, including providing a summary of other agencies’ ECOA enforcement efforts and reporting on the utility of certain HMDA reporting requirements (which, not surprisingly, is found by the CFPB to “further the purposes of HMDA.”)