The CFPB recently issued its annual fair lending report covering its fair lending activity in 2021.
In the report’s discussion of its risk-based approach for prioritizing fair lending supervisory and enforcement activity, the CFPB indicates that much of its enforcement and supervision efforts were focused on advancing its priorities of advancing racial and economic equity and promoting economic recovery related to the COVID-19 pandemic. It also identifies the following additional fair lending supervisory areas of focus: “mortgage origination and pricing, small business lending, student loan origination work, policies and procedures regarding geographic and [income types] exclusions in underwriting, and on the use of artificial intelligence (AI) and machine learning models [in evaluating applicants for credit].” For these areas, the CFPB identifies the following specific issues:
- Mortgage origination—redlining (and whether lenders intentionally discouraged prospective applicants living in, or seeking credit in, minority neighborhoods from applying for credit); assessing whether there is discrimination in underwriting and pricing processes such as steering; and HMDA data integrity and validation reviews (both as standalone exams and in preparation for ECOA exams that follow).
- Small business lending—assessing whether there are disparities in application, underwriting, and pricing processes, redlining, and whether there are weaknesses in fair lending-related compliance.
- Student loan origination—lender’s policies and practices in underwriting or pricing.
The report’s discussion of fair lending enforcement actions indicates that in 2021, the Bureau announced four fair-lending enforcement actions. One of those actions is an action brought jointly with the DOJ and OCC against Trustmark National Bank (TNB) which alleged TNB engaged in lending discrimination by redlining predominantly Black and Hispanic neighborhoods in Memphis, Tennessee. Another is the CFPB’s lawsuit against online lender LendUp that included allegations that LendUp violated the ECOA and Regulation B by failing to provide timely and accurate adverse action notices to consumers whose loan applications were denied.
The other two enforcement actions that the CFPB labels “fair lending” actions are the CFPB’s lawsuits against Libre by Nexus and JPay. The Libre lawsuit targeted activities directed at immigrants seeking to obtain bonds in order to be released from federal detention centers, the majority of whom were alleged to be “Spanish-speakers, most of whom do not read or write English and many of whom cannot read or write in any language.” The immigrants’ limited English proficiency was the basis of a claim by the CFPB that the defendants engaged in abusive acts and practices in violation of the CFPA’s UDAAP prohibition.
The JPay lawsuit involved prepaid cards that JPay issued to formerly incarcerated individuals upon their release from prison. The cards contained the balance of funds owed to former inmates upon their release, including their commissary money, and any “gate money” to which they were entitled under state or local law. The CFPB alleged that JPay engaged in unfair, deceptive, and abusive acts and practices in violation of the CFPA’s UDAAP prohibition through conduct that included causing fees to be imposed on consumers who were required to get a JPay debit release card to access money owed to them at the time of their release from prison and misrepresenting fees. Neither the CFPB’s press release nor Director Chopra’s statement about the lawsuit mentions concerns about vulnerable populations or discrimination. However, in her introductory message to the report, Fair Lending Director Patrice Ficklin stated: “In the United States, incarcerated individuals and individuals reentering society are overwhelmingly men of color. The CFPB will continue to fight discrimination that manifests as unfair, deceptive, or abusive acts and practices.”
Ms. Ficklin’s comment would appear to confirm that the CFPB’s decision to include these lawsuits in the report and characterize them as “fair lending enforcement actions” despite the absence of any apparent “lending” or “credit” in either case is tied to the CFPB’s recent announcement that it intends to use its UDAAP authority to challenge discrimination even when fair lending laws do not apply, even though that announcement occurred some months after these lawsuits were filed. While the report does not directly reference the CFPB’s announcement in the section on pending fair lending enforcement investigations, the CFPB states that it “is looking into potential discriminatory conduct, including ECOA and unfairness, as well as unlawful conduct targeted at vulnerable populations.”