The CFPB and other federal agencies with the responsibility to enforce the Equal Credit Opportunity Act (ECOA) and/or Fair Housing Act (FHAct), recently sent a joint letter to The Appraisal Foundation (TAF) expressing concerns with the Fourth Exposure Draft of Proposed Changes for the 2023 Edition of the Uniform Standards of Professional Appraisal Practice (USPAP). TAF is a private, non-governmental organization that sets professional standards for appraisers. The other agencies are the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Federal Reserve Board, National Credit Union Administration, U.S. Department of Justice, and U.S. Department of Housing and Urban Development.
As previously reported, in February 2022 the agencies sent a joint letter to TAF on the Second Exposure Draft of proposed changes to the USPAP urging TAF to provide a “full presentation” of the anti-discrimination prohibitions in the ECOA and FHAct as they relate to appraisal bias. The agencies also expressed concern that while the Appraisal Standards Board Ethics Rule and Advisory Opinion 16 state that an appraiser cannot rely on “unsupported conclusions relating to [protected characteristics],” these items “do not prohibit an appraiser from relying on “supported conclusions” based on such characteristics and, therefore, suggest that such reliance may be permissible.”
In the recent joint letter, the agencies state that they “were pleased to see that the Third Exposure Draft provided a detailed summary of the FHAct’s and ECOA’s nondiscrimination standards and that any ambiguity as to their applicability was removed. The agencies reviewed the Third Exposure Draft and did not suggest any edits to the text.” With regard to the Fourth Exposure Draft, the agencies express concern that it “eliminated the Third Exposure Draft’s summary of the FHAct’s and ECOA’s nondiscrimination standards and, instead, substituted a distinction between unethical discrimination and unlawful discrimination.” The agencies note three specific concerns:
- The term “unethical discrimination” is not well established in either current law or practice. As a result, the agencies believe the introduction of the term in USPAP, and the resulting need to distinguish between unethical discrimination and unlawful discrimination, would create confusion in the appraisal industry. The agencies also state that federal and state regulators responsible for examining for compliance with USPAP would face difficult challenges in determining when appraisers have engaged in unethical discrimination given that it is not defined in existing legal norms and standards and is inherently vague and subjective.
- The introduction of the concept of unethical discrimination implies that USPAP and the Ethics Rule permit appraisers to engage in “ethical” discrimination. The agencies also state that the term “ethical” discrimination, and reference to the possibility of a protected characteristic being “essential to the assignment and necessary for credible assignment results,” appears to resemble the concept of “supported” discrimination that the agencies previously disfavored.
- Suggesting that appraisers avoid “bias, prejudice, or stereotype” as general norms would permit individual appraisers’ wide discretion in applying these norms, likely yielding inconsistent results. The agencies also state that although they understand that appraisers may seek additional guidance for valuations, such as those involving housing for older persons, that may be treated differently under the FHAct, they believe that a thorough explanation of those particular legal distinctions would be preferred to the introduction of the concept of “ethical” discrimination or other distinctions not found in current law and practice.
In a blog post authored by Patrice Alexander Ficklin and Tim Lambert, the Fair Lending Director and a Senior Counsel at the CFPB, respectively, the authors state that “the CFPB continues to see reports of appraisers who fail to follow the law and who base their value judgments on biased, unfounded assumptions about borrowers and communities.” The authors also state that “[f]or more than 50 years, federal law has forbidden racial, religious, and other discrimination in home appraisals. It is imperative that TAF provide appraisers clear, detailed, and unambiguous warnings about the requirements of federal law covering appraisal standards. [TAF], however, appears reluctant to act. Its recalcitrance undermines efforts to rid the housing market of bias and discrimination and threatens the market’s fairness and competitiveness.”