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  • CFPB issues 2019 fair lending report to Congress

    Federal Issues

    On April 30, the CFPB issued its annual fair lending report to Congress, which outlines the Bureau’s efforts in 2019 to fulfill its fair lending mandate. According to the report, in 2019 the Bureau continued to focus on promoting fair, equitable, and nondiscriminatory access to credit, highlighting several fair lending priorities that continued from years past such as mortgage lending, student loans, and small business lending. The Bureau also highlighted three policies released over the last year to promote innovation and to facilitate compliance: the No-Action Letter Policy, the Trial Disclosure Program Policy, and the Compliance Assistance Sandbox Policy (covered by InfoBytes here). Additionally, the report discussed the Bureau’s efforts in encouraging consumer-friendly innovation to expand access to unbanked and underbanked consumers and communities. These include: (i) using alternative data in credit underwriting to expand credit access responsibly; (ii) issuing a request for information on the use of “Tech Sprints” (covered by InfoBytes here) to encourage regulatory innovation and stakeholder collaboration; (iii) continuing to enforce fair lending laws such as ECOA and HMDA, including reaching a settlement with one of the largest HDMA reporters nationwide to resolve HMDA reporting allegations; and (iv) engaging with stakeholders to discuss fair lending compliance, issues related to credit access, and policy decisions. The report also provides information related to supervision, enforcement, rulemaking, and education efforts.

    Federal Issues CFPB Congress Fair Lending Supervision Enforcement Alternative Data Fintech Mortgages Student Lending Small Business Lending ECOA HMDA

  • Senators urge HUD to withdraw new version of AFFH rule

    Federal Issues

    On March 16, thirty-seven Senators led by Senator Sherrod Brown (D-OH) sent a letter to HUD in response to the agency’s proposed replacement for the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule (proposed rule). As previously covered by InfoBytes, in January, HUD announced that the proposed rule would provide state and local government participants with more straightforward advice “to help them improve affordable housing choices in their community.” The Senators contend, however, that the proposed rule will reverse efforts to make access to housing fair and equitable and “relies on the faulty premise that simply increasing housing supply can address the problems of housing discrimination and segregation.” Among other things, the Senators argue that the proposed rule undermines the following “three core elements of any approach to fair housing”: (i) “detailed, comprehensive analysis of fair housing issues”; (ii) “judicious enforcement”; and (iii) “the public input necessary to ensure that our communities can provide inclusive pathways of opportunity for all Americans.” The Senators request that HUD withdraw the proposed rule and re-implement the 2015 AFFH final rule.

    Federal Issues HUD U.S. Senate Fair Housing Fair Lending

  • Senate Democrats ask Office of Civil Rights to address student lending racial disparities

    Federal Issues

    On February 27, Senators Elizabeth Warren (D-MA), Kamala Harris (D-CA), and Cory Booker (D-NJ) sent a letter to the Department of Education’s Office of Civil Rights (OCR) asking how the office plans to address reports of racial disparities within the federal student loan industry. The letter discusses OCR’s responsibility for enforcing civil rights laws that prohibit discrimination in Department-funded programs and activities, including student aid funding, and notes that OCR also bears the responsibility for examining the role federal student loan contractors may play in racial disparities faced by students of color after they leave their institution of higher learning. The Senators claim that for-profit colleges “disproportionately target students of color and often leave them deep in debt while providing little education value in return.” The Senators also cite new Department data, which shows that “despite using [income-driven repayments] at a much higher rate than other borrowers with the same level of education, Black student borrowers continued to have a higher default rate than their peers, regardless of the type of institution they attended.” Latino and Native student borrowers are also affected by these racial disparities, the letter notes.

    Among other things, the Senators request the following from OCR by March 26:

    • Provide a summary of all current and ongoing actions, including enforcement actions, that OCR has taken since January 2017 to address racial disparities in student loan borrowing and outcomes;
    • Conduct a comprehensive investigation into the ways predatory colleges and the student loan industry contribute to racial disparities, such as through servicing and debt collection practices, access to repayment plans, and debt cancellation options for borrowers of color; and
    • Develop a plan to address racial disparities in the student loan industry, including legislative recommendations and new policy guidance to entities involved in the industry.

    Federal Issues U.S. House Student Lending Department of Education Fair Lending

  • Supreme Court vacates as moot 11th Circuit’s FHA decision

    Courts

    On March 2, the U.S. Supreme Court vacated as moot a 2019 judgment of the U.S. Court of Appeals for the Eleventh Circuit, which had held that the City of Miami plausibly alleged that two national banks’ lending practices violated the Fair Housing Act (FHA) and led to defaults, foreclosures, and vacancies, eventually reducing property values and corresponding property tax revenues. (Covered by InfoBytes here.) This follows the City’s voluntarily dismissal in January of fair housing lawsuits brought against four national banks (covered by InfoBytes here).

    The Supreme Court first addressed the underlying case in 2017, holding that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices. (Covered by a Buckley Special Alert.) However, the Court held that such injuries must be proximately caused by, rather than simply the foreseeable result of, the alleged misconduct. On remand, the 11th Circuit found “a logical and direct bond between discriminatory lending as a pattern and practice applied to neighborhoods throughout the City and the reduction in property values,” but also noted that the City’s allegations fell short of establishing a direct relationship between the alleged misconduct and the City’s purported increase in its municipal services expenditures. The banks subsequently filed petitions (see here and here) last November, asking the Supreme Court to review “[w]hether proximate cause in private litigation about the [FHA] requires more than a ‘logical bond’ between the alleged statutory violation and the plaintiff’s injury.”

    Courts Appellate Eleventh Circuit U.S. Supreme Court FHA Fair Lending

  • CFPB agrees to publish small-business data proposal by September

    Courts

    On February 26, the U.S. District Court for the Northern District of California approved a stipulated settlement between plaintiffs, including the California Reinvestment Coalition (CRC), and the CFPB to resolve a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act. As previously covered by InfoBytes, the plaintiffs argued that the Bureau’s failure to implement Section 1071—which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses—violates two provisions of the Administrative Procedures Act, and has harmed the CRC’s ability to advocate for access to credit, advise organizations working with women and minority-owned small businesses, and work with lenders to arrange investment in low-income and communities of color.

    Under the terms of the settlement, the Bureau has agreed to outline a proposal for collecting data and studying discrimination in small-business lending by September 15, and will also create a Small Business Advocacy Review panel by October 15 to prepare a report on the proposal within 60 days. The Bureau and the plaintiffs will also negotiate the deadlines for issuing the proposed rule, and, if an agreement cannot be reached, the parties will accept a court-supervised process for public reporting as well as for the development and issuance of the proposed and final rules.

    Last November, the Bureau held a symposium covering small business lending and Section 1071. (Covered by InfoBytes here.) At the time, Director Kathy Kraninger noted in her opening remarks that the symposium would assist the Bureau with information gathering for upcoming rulemaking and emphasized that the Bureau is focused on a rulemaking that would not impede small business access to credit by imposing unnecessary costs on financial institutions.

    Courts Agency Rule-Making & Guidance CFPB Fair Lending Small Business Lending ECOA Dodd-Frank

  • FTC gives annual ECOA summary to CFPB

    Federal Issues

    On February 21, the FTC announced it recently provided the CFPB with its annual summary of work on ECOA-related policy issues, focusing specifically on the Commission’s activities with respect to Regulation B. The summary discusses, among other things, the following FTC research and policy development initiatives:

    • The FTC continued its series of Hearings on Competition and Consumer Protection in the 21st Century. Session 12 of these hearings specifically focused on consumer privacy and “the use of big data in automated decision making and how . . . ECOA should inform the use of data collected from consumers.” Session 14 included a roundtable of state attorneys general and senior staff who addressed consumer protection issues related to “the impact of big data and algorithms on equal access to credit.”
    • The FTC held a forum with a variety of business leaders, enforcement attorneys, and policymakers to discuss ECOA’s applicability to small business financing.
    • The FTC held a consumer reporting workshop to discuss ECOA as well as (i) consumer report furnisher practices; (ii) making credit decisions based on fairness; and (iii) avoiding the use of a prohibited basis in extending credit.
    • The FTC’s Military Task Force continued to work on military consumer protection issues, including military consumers’ rights to “various types of notifications as applicants for credit, including for adverse action, and information about the anti-discrimination provisions, in ECOA and Regulation B.”
    • The FTC continued to participate in the Interagency Task Force on Fair Lending, along with the CFPB, DOJ, HUD, and federal banking regulatory agencies.

    The summary also highlights FTC business and consumer education efforts on fair lending issues, as well as blog posts discussing the online marketplace for small business financing.

    Federal Issues CFPB FTC ECOA Fair Lending

  • Miami voluntarily dismisses FHA suits against banks

    State Issues

    On January 30, the city of Miami dismissed fair housing lawsuits against four of the largest banks in the U.S. (see orders here, here, here and here). The suits—filed in 2013—claimed that redlining by the banks led to a high rate of mortgage loan defaults, foreclosures, and property vacancies, causing property values to go down, which resulted in reduced tax revenues to the city. As previously covered by InfoBytes, in May, the U.S. Court of Appeals for the Eleventh Circuit determined that Miami made plausible claims that the lending practices of two of the banks violated the Fair Housing Act (FHA) and eventually reduced property tax revenues. Philadelphia recently reached a settlement with a large bank after making similar allegations regarding discriminatory mortgage lending practices. (Covered by InfoBytes here.)

    State Issues Courts FHA Fair Housing Act Redlining Fair Lending Mortgage Lenders Mortgages Foreclosure

  • Otting defends OCC’s CRA proposal

    Federal Issues

    On January 29, OCC Comptroller Joseph Otting testified at a hearing held by the House Financial Services Committee to discuss the OCC’s Community Reinvestment Act (CRA) modernization proposal. (See Buckley Special Alert covering the joint notice of proposed rulemaking issued last December by the OCC and FDIC.) Committee Chairwoman Maxine Waters (D-CA) expressed concerns with the NPR, arguing that the proposal “runs contrary to the purpose of the CRA and would lead to widespread bank disinvestment from low- and moderate-communities throughout the country.” Waters cited additional concerns with the NPR, including what she believes are efforts by the OCC “to deregulate megabanks” and “greenlight rent-a-bank schemes that allow lenders to skirt state usury caps.”

    In his written testimony, Otting reiterated that the NPR is intended to strengthen and modernize CRA regulations and that the proposal does not permit redlining. “Nothing in this proposal changes the agencies’ authority to enforce fair lending laws to prevent discrimination and redlining. The regulations implementing the Fair Housing Act and the Equal Credit Opportunity Act prohibit discrimination and redlining,” Otting stressed in his oral statement. “These regulations are not changed in any way by this proposal.” (Emphasis in the original.) Otting also defended several of the proposed amendments that would, among other things, (i) remove uncertainty that discourages investments; (ii) focus on a bank’s sustained commitment to meeting a community’s credit needs and rewarding long-term investment; and (iii) accommodate banks of different sizes and business models by allowing small banks with less than $500 million in total assets to choose between the existing and the proposed revised framework for their evaluations. During the hearing, Otting also refuted the perception that the NPR employs the use of a single metric to determine a bank’s CRA rating, stating “there is no one ratio in this proposal. . .the average regional bank will have 502 measurement points so every community would be measured by units and dollars and at the top of the house it would be dollars.”

    When Congressman Brad Sherman (D-CA) asked about the OCC’s recent request for bank-specific data to inform the NPR (previously covered by InfoBytes here) questioning why the agencies “want to adopt a rule on such a quick timetable when [they] still don’t have the information,” Otting responded that the additional information requested from the banks is meant to help validate the OCC’s analysis and conclusions. However, when the discussion turned to whether Congress could access the data and analysis used to create the NPR, Otting stated that he would be happy to discuss the data and analysis in person but that the information should not be publicly distributed. Waters stated Congress would subpoena the information if necessary. Otting also confirmed that the 60-day comment period of the NPR (which closes March 9) would not be extended, and that the goal would be to finalize the rule within 60 to 70 days after the comment period ends. With respect to the Federal Reserve’s decision not to join in the notice of proposed rulemaking, Otting said, “We have thousands of rules, regulations and guidance that differ amongst the agencies. So no…I do not see it as an impediment at all.” As previously covered by InfoBytes, earlier this month Federal Reserve Governor Lael Brainard discussed the Fed’s approach to the CRA modernization process and explained why the Fed chose not to join in the NPR.

    Federal Issues OCC FDIC Federal Reserve CRA Agency Rule-Making & Guidance House Financial Services Committee Fair Lending

  • HUD unveils new version of AFFH rule

    Agency Rule-Making & Guidance

    On January 7, HUD published its proposed replacement for the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule. According to HUD, the proposed AFFH rule will provide state and local government participants with more straightforward advice “to help them improve affordable housing choices in their community.” 

    In August of 2018, HUD suspended requirements under the 2015 rule for HUD grant recipient communities to submit assessments of fair housing. Additionally, as previously covered in InfoBytes, HUD solicited comments on amendments to the 2015 AFFH regulations, which, according to the agency, “proved ineffective, highly prescriptive, and effectively discouraged the production of affordable housing.” The proposed rule suggests a change to the definition of AFFH to “advancing fair housing choice within the program participant’s control or influence,” and seeks to move the focus away from anti-segregation planning and toward creation of affordable housing options.

    According to the proposed rule, fair housing choice includes (i) “[p]rotected choice, meaning absence of discrimination”; (ii) “[a]ctual choice, meaning not only that affordable housing options exist,” but that state and local governments are encouraged to educate the public on their rights; and (iii) “[q]uality choice, meaning that the available and affordable housing is decent, safe, and sanitary, and, for persons with disabilities, accessible as required under civil rights laws.” 

    Agency Rule-Making & Guidance Federal Issues HUD Fair Lending Affordable Housing Fair Housing Act

  • Bank and Philadelphia reach $10 million settlement in redlining suit

    State Issues

    On December 16, a national bank and the city of Philadelphia agreed to a $10 million settlement in a fair lending suit filed against a national bank in 2017 in the U.S. District Court for the Eastern District of Pennsylvania. The settlement resolves claims against the bank alleging violations of the Fair Housing Act, as previously covered in InfoBytes. Specifically, the city alleged that the bank engaged in discriminatory mortgage lending practices by placing minority borrowers in loans with less favorable terms than loans to similar non-minority borrowers. According to the complaint, these allegedly discriminatory loans increased foreclosure rates and resulted in falling property values, particularly in minority and low-income neighborhoods in Philadelphia. The empty properties and lower property values in turn reduced tax revenues and increased costs to the city to pay for municipal services including police, fire fighting, housing programs, and also maintenance for the growing number of empty properties. The court had previously denied the bank’s motion to dismiss, (prior InfoBytes coverage here), which argued, among other things, that the city had failed to show that the bank’s alleged lending practices were the proximate cause of the city’s harm.

    State Issues Courts Fair Housing Act Mortgage Origination Settlement Redlining Fair Lending

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