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On July 15, the Consumer Financial Protection Bureau filed a complaint against a Chicago-based nonbank mortgage company alleging fair lending violations predicated, in part, on statements made by the company’s owner and other employees during radio shows and podcasts from 2014 through 2017. The complaint, filed in federal court in Illinois, marks the first instance in which a federal regulator has taken a public enforcement action against a nondepository institution based on allegations of redlining.
According to the CFPB, the mortgage company violated the Equal Credit Opportunity Act and the Consumer Financial Protection Act by engaging in discriminatory marketing and applicant outreach practices that allegedly:
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.)
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.
On July 29, HUD announced a conciliation agreement to resolve allegations that a California-based bank engaged in redlining practices from 2014 to at least 2017 against African-American and Latino mortgage applicants in the Los Angeles region. In 2017, a California-based community advocacy organization filed a complaint with HUD asserting that the bank violated the Fair Housing Act by engaging in discriminatory acts, which allegedly resulted in a lower number of mortgages made to African-American and Latino borrowers relative to the area’s demographics and to the industry as a whole. Additionally, the complaint claimed that the bank located and maintained its branches in areas that do not serve minority neighborhoods or borrowers. While the bank denies having engaged in any discriminatory behavior, it agreed to (i) invest $5 million in a loan subsidy fund to increase credit opportunities for residents of majority-minority neighborhoods; (ii) contribute $1.3 million to advertising and community outreach; and (iii) provide $1 million in grants for various financial education, counseling, community revitalization, and homelessness programs. The bank also committed to originating “$100,000,000 in home purchase, home improvement and home refinance loans to borrowers in majority-minority areas, and to open a full-service branch serving the banking and credit needs of residents in a majority-minority and low- and moderate-income neighborhood.”
On June 13, the DOJ announced a settlement with an Indiana bank resolving allegations the bank engaged in unlawful “redlining” in Indianapolis by intentionally avoiding predominantly African-American neighborhoods in violation of the Fair Housing Act and ECOA. In the complaint, the DOJ alleges that from 2011 to 2017, among other things, the bank (i) excluded Marion County in Indianapolis and its “50 majority-Black census tracts” from its Community Reinvestment Act assessment area; (ii) did not have any branch locations in majority-Black areas of the county; (iii) did not market in the majority-Black areas of the country; and (iv) had a residential mortgage lending policy that allegedly showed preference to the location of borrowers, not the creditworthiness. Under the settlement agreement, which is subject to court approval, the bank will, among other things, expand its business services and lending to the predominantly African-American neighborhoods in Indianapolis and will invest at least $1.12 million in a special loan subsidy fund to be used to increase credit opportunities in the specified neighborhoods. Additionally, the bank will designate a full-time Director of Community Lending and Development to oversee the continued development of the bank’s lending in the specified areas.
On March 1, the U.S. District Court for the District of Connecticut signed an order dismissing with prejudice a Fair Housing Act complaint filed by the Connecticut Fair Housing Center through its legal counsel, the National Consumer Law Center, against a Connecticut-based bank. The bank denied all allegations of wrongdoing and liability. Under the terms of the stipulation of dismissal, the bank agreed voluntarily to resolve the claims and, among other things, to (i) revise its fair lending policies and procedures and conduct fair lending training for all employees; (ii) open a loan production office in Hartford; (iii) spend $230,000 on targeted marketing and advertising to minority communities, and provide additional consumer financial education opportunities; (iv) invest $300,000 for subsidies to promote home ownership and enhance access to credit in identified communities; (v) identify a Community Development Officer within the bank; and (vi) expand its community development loan program by investing $5 million over the next three years.
On February 1, Federal Reserve Governor Lael Brainard spoke at the “Research Symposium on the Community Reinvestment Act” hosted by the Federal Reserve Bank of Philadelphia to discuss the need to update Community Reinvestment Act (CRA) regulations. Brainard summarized comment letters received in response to the OCC’s Advance Notice of Proposed Rulemaking (ANPR) published last August (previously covered by InfoBytes) seeking input on ways to transform or modernize the CRA regulatory framework, and discussed the following six key takeaways:
- There is broad support for the CRA among commenters—including academics, financial institutions, banking trade associations, community organizations, consumer groups, and citizens—who, among other things, applaud the volume of CRA loans and investments that support low-and-moderate income households and communities.
- There is general agreement among commenters for the need to modernize—but not completely overhaul—CRA assessment areas, while retaining its core focus.
- Commenters support different performance tests for different types of banks. According to Brainard, there is broad agreement that “CRA regulations cannot be one-size-fits-all” and should be tailored to banks of different sizes, as well as different business models.
- CRA modernization should keep the focus on underserved areas. Commenters discussed concerns about “CRA hotspots and credit deserts,” and the need for incentives to ensure CRA capital can reach underserved communities has been a common theme at regional roundtables.
- Commenters offered recommendations on how to increase the “consistency and predictability of CRA evaluations and ratings.”
- Roundtable discussions as well as commenters have emphasized the “historical context of the CRA as it relates to redlining practices,” and demonstrated strong support for the CRA to retain its underlying focus of reaching all underserved borrowers, including low-income communities and communities of color.
CFPB’s latest fair lending report focuses on promoting fair, equitable, and nondiscriminatory access to credit
On December 4, the CFPB issued its sixth fair lending report to Congress, which outlines the Bureau’s efforts in 2017. According to the report, in 2017, the Bureau continued to focus on promoting fair, equitable, and nondiscriminatory access to credit, highlighting several fair lending priorities such as redlining, mortgage and student loan servicing, and small business lending. The report also addresses the Bureau’s risk-based prioritization approach to supervisory examinations and enforcement activity relating to underwriting, pricing, steering, servicing, and HMDA data integrity. Specifically, the report covers fair lending supervision and enforcement activities, guidance and rulemaking, and interagency coordination efforts, including (i) taking enforcement actions against a bank for alleged credit card lending discrimination, and a mortgage lender that allegedly failed to accurately report consumer application and loan data; (ii) issuing its first no-action letter to a company that uses alternative, non-traditional data and modeling techniques “to make credit and pricing decisions to support innovation and enable people with limited credit history, among others, to obtain credit or obtain credit on better terms”; (iii) collaborating with other federal banking regulators to issue, among other things, the “HMDA Examiner Transaction Testing Guidelines,” which present uniform guidelines for examiners when evaluating whether covered mortgage lenders are reporting accurate data; and (iv) communicating fair lending information to the public through various platforms. Notably, the report is silent regarding plans for upcoming fair lending activities in 2019, unlike previous reports that included future actions. (See InfoBytes coverage on the 2016 report here.)
On October 22, the Pennsylvania Attorney General announced a request for mortgage borrowers and home-loan applicants who believe they may be victims of redlining to file complaints with that office. The announcement states that the Attorney General is investigating evidence of redlining by financial institutions in Philadelphia neighborhoods where lenders either refused to make loans due to the applicant’s race or dissuaded minorities from applying for mortgage loans. The investigation is in response to an investigative article identifying a pattern of racial discrimination in mortgage lending in the Philadelphia area.
On July 26, the Federal Reserve Board released its inaugural Consumer Compliance Supervision Bulletin (Bulletin) to share information about the agency’s supervisory observations and other noteworthy developments related to consumer protection, and provide practical steps for banking organizations to consider when addressing consumer compliance risk. The first Bulletin focuses on fair lending issues related to the practice of redlining and outlines key risk factors the Fed considers in its review, such as (i) whether a bank’s Community Reinvestment Act (CRA) assessment areas inappropriately exclude minority census tracts; (ii) whether a bank’s Home Mortgage Disclosure Act or CRA lending data show “statistically significant disparities in majority minority census tracts when compared with similar lenders”; or (iii) whether the bank’s branches, loan production offices, or marketing strategies appear to exclude majority minority census tracts. Practical steps for mitigating redlining risk are also provided. The Bulletin also discusses fair lending risk related to mortgage pricing discrimination against minority borrowers, small dollar loan pricing that discriminates against minorities and women, disability discrimination, and maternity leave discrimination.
The Bulletin additionally addresses unfair or deceptive acts or practices risks related to overdrafts, misrepresentations made by loan officers, and the marketing of student financial products and services. The Bulletin also highlights regulatory and policy developments related to the Federal Financial Institutions Examination Council’s updated Uniform Interagency Consumer Compliance Rating System along with recent changes to the Military Lending Act.
- Daniel P. Stipano to discuss "High standards: Best practices for banking marijuana-related businesses" at the ACAMS AML & Anti-Financial Crime Conference
- Daniel P. Stipano to discuss "Wait wait ... do tell me! Where the panelists answer to you" at the ACAMS AML & Anti-Financial Crime Conference
- Matthew P. Previn and Walter E. Zalenski to discuss "Is valid when made ... valid?" at the Women in Housing & Finance Partner Series webinar
- Warren W. Traiger and Caroline K. Eisner to discuss "CRA modernization and the OCC final rule" at CBA Live
- Daniel R. Alonso to discuss "Transnational corruption: A chat with former U.S. federal prosecutors in New York" at Marval Live Talks
- Sherry-Maria Safchuk and Lauren Frank to discuss "New CFPB interpretation on UDAAP" at a California Mortgage Bankers Association Mortgage Quality and Compliance Committee webinar
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute