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Financial Services Law Insights and Observations


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  • NYDFS issues guidance insurers regarding discrimination in affordable housing market

    State Issues

    On June 24, Gov. Kathy Hochul announced guidance issued by NYDFS in Circular Letter No. 6 (2024) informing insurers and related parties that, under the new Insurance Law § 3462, making coverage decisions based on a property’s status as an affordable housing development or on the amount or source of a tenant’s income will be prohibited. According to the Circular Letter, the recently enacted law came in response to a “hardening” insurance market that has resulted in increased premiums and reduced coverage options for affordable housing developments. Under the law, insurers cannot base decisions such as issuing, renewing, or increasing premiums for policies on whether a property was an affordable housing development or if tenants received government assistance. The guidance noted that “excess line insurers, and the New York Property Insurance Underwriting Association (NYPIUA) must comply with Insurance Law § 3462 and can no longer request information about government-subsidized housing units or tenants paying rent with housing assistance or use this information for underwriting purposes,” and were required to update their insurance applications and underwriting guidelines accordingly. If insurance rates were previously based on these factors, insurers must revise their rates and submit them to NYDFS.

    State Issues NYDFS New York Insurance Discrimination

  • New Jersey proposes disparate impact discrimination rule

    State Issues

    On June 3, New Jersey Attorney General, Matthew Platkin, and the state’s Division on Civil Rights announced a proposed rule that described and clarified prohibitions against disparate impact discrimination under the New Jersey Law Against Discrimination (LAD), including employment, housing, places of public accommodation, credit, and contracting. The proposed rule provided examples of policies and practices that may result in a disparate impact on members of a protected class under the LAD.

    The proposed rule aimed to clarify that the LAD outlawed practices or policies that have an adverse impact on members of a protected class, regardless of whether there was intent to discriminate. Such practices or policies were only permissible if they were necessary to attain an important and legitimate non-discriminatory goal and there was no alternative method that was less discriminatory and equally effective in achieving that goal. The rule would codify largely the existing legal standard and burdens of proof used in New Jersey and Federal courts when reviewing claims of disparate impact discrimination pursuant to the LAD for determining whether a practice or policy was discriminatory unlawfully, along with the framework used in evaluating claims of disparate impact. Comments on the proposed rule must be received by August 2.

    State Issues New Jersey State Attorney General Discrimination

  • HUD guidance on AI to prevent housing discrimination

    Federal Issues

    On April 29, the Office of Fair Housing and Equal Opportunity of HUD issued two guidance documents concerning the use of artificial intelligence (AI) in housing-related practices, specifically in tenant screening and housing advertising. The guidance came in response to Biden's Executive Order to address potential biases in automated systems within the housing sector (covered by InfoBytes here).

    HUD emphasizes the need for transparency and fairness when housing providers and screening companies use AI-assisted tenant screening processes. The tenant screening guidance recommended best practices for housing providers and screening companies to prevent discrimination based on race, color, national origin, religion, sex, disability, and familial status. The HUD guidance provided the following six “Guiding Principles for Non-Discriminatory Screenings”: (i) choose relevant screen criteria; (ii) use only accurate records; (iii) follow the applicable screening policy; (iv) be transparent with applicants; (v) allow applicants to challenge negative information; and (vi) design and test complex models for Fair Housing compliance.

    Regarding housing advertising, HUD’s guidance warned advertisers and online platforms about the risks of using targeted advertising tools that could violate the Fair Housing Act by denying consumers information about housing opportunities or targeting individuals based on their protected characteristics. To reduce the risk of violating the Fair Housing Act, HUD recommended that advertisers should: (i) utilize advertising platforms that are taking steps to manage the risk of discriminatory delivery of housing-related ads; (ii) ensure the advertisements related to housing are accurately identified to the platform; (iii) analyze the composition of audience datasets; and (iv) monitor outcomes of advertising campaigns to identify and mitigate discriminatory outcomes. Advertising platforms are recommended to: (i) ensure that housing-related ads are run in a separate process designed to avoid discrimination; (ii) avoid providing targeting options for housing-related ads that describe or are related to FHA-protected characteristics; (iii) conduct regular end-to-end testing of advertising systems; (iv) proactively identify and adopt less discriminatory alternatives for AI models and algorithmic systems; (v) ensure that algorithms are similarly predictive; (vi) ensure that ad delivery systems are not resulting in differential charges on the basis of protected characteristic; and (vii) document, retain, or publicly release in-depth information about ad targeting functions and internal auditing.

    Federal Issues HUD Artificial Intelligence Biden Discrimination

  • Tennessee prevents lenders from discriminating against specific factors

    State Issues

    On April 22, the Governor of Tennessee signed into law HB 2100 (the “Act”) which amended the state consumer protection codes to prevent financial institutions and insurers (collectively, institutions) from discriminating in the provision or denial of services based on certain enumerated factors. Specifically, institutions will not be allowed to discriminate based on, among others: (i) a person’s political opinions, speech, or affiliations; (ii) a person’s religious beliefs, exercise, or affiliations; (iii) any factor that is not a quantitative, impartial and risk-based standard; or (iv) a “social credit score” that is based on certain identified factors, including the lawful ownership of a firearm, engagement in fossil fuel-related business, support of the state or federal government’s efforts to combat illegal immigration, or a person’s failure to meet environmental, social governance, corporate board composition, social justice, or diversity, equity, and inclusion standards so long as the person is in compliance with applicable state or federal law. The Act provides that engaging in the prohibited forms of discrimination constitutes an unfair trade practice. The Act will go into effect on July 1.

    State Issues Tennessee Consumer Protection Discrimination UDAP

  • FDIC releases report on bank's past discriminatory lending practices

    On April 3, the FDIC made public for the first time its Community Reinvestment Act Performance Evaluation for a bank from September 2022. The bank focused on residential and commercial lending and had $1.15 billion in assets at the time of the review. During its supervision window from 2019 to 2022, the FDIC rated the bank’s CRA rating as “Needs to Improve,” which was a downgrade from its previous rating of “Satisfactory.” Although the FDIC found that the bank “demonstrated satisfactory performance” under the Lending and Community Development Tests, it was found to have violated ECOA and FHFA. Specifically, the FDIC found that the bank engaged in discriminatory lending through alleged redlining practices, the FDIC deemed. The FDIC noted that these violations occurred due to a lack of sufficient oversight and appropriate policies and procedures. 

    Bank Regulatory Discrimination Fair Lending Supervision ECOA FHFA CRA

  • FFIEC releases statement on examination principles related to discrimination and bias in residential lending

    Federal Issues

    On February 12, the Federal Financial Institutions Examinations Council (FFIEC) released a statement on “Examination Principles Related to Valuation Discrimination and Bias in Residential Lending.” The statement outlined principles that examiners should use to evaluate an institution’s residential property appraisal and valuation practices to mitigate risks that stem from (i) discrimination “based on protected characteristics in the residential property valuation process, and (ii) bias, defined as “a preference or inclination that precludes an appraiser or other preparer of the valuation from reporting with impartiality, independence, or objectivity” as required by the Uniform Standards of Professional Appraisal Practice. Failure to have these internal controls to identify and address discrimination or bias can result in poor credit decisions, consumer harm, increased safety and soundness risk. The principles outlined by the statement are categorized into consumer compliance examination principles and safety and soundness principles. For consumer compliance, examiners should consider an institution’s (i) board and senior management oversight to determine if it is commensurate with the institution’s risk profile; and (ii) consumer compliance policies and procedures to identify and resolve potential discrimination. The principles during a safety and soundness examination should include reviewing the consumer protection issues, governance, collateral valuation program, third-party risk management, valuation review, credit risk review, and training programs. 

    Federal Issues FFIEC CFPB Consumer Finance Mortgages Discrimination

  • NYDFS offers guidance to insurers on AI models

    State Issues

    On January 17, NYDFS issued a guidance letter on artificial intelligence (AI) intended to help licensed insurers understand NYDFS’s expectations for combating discrimination and bias when using AI in connection with underwriting. The guidance is aimed at all insurers authorized to write insurance in New York State and is intended to help insurers develop AI systems, data information systems, and predictive models while “mitigat[ing] potential harm to consumers.”

    The guidance letter states that while the use of AI can potentially result in more accurate underwriting and pricing of insurance, AI technology can also “reinforce and exacerbate” systemic biases and inequality. As part of the letter’s fairness principles, NYDFS states that an insurer should not use underwriting or pricing technologies “unless the insurer can establish that the data source or model… is not biased in any way” with respect to any class protected pursuant to New York insurance law. Further, insurers are expected to demonstrate that technology-driven underwriting and pricing decisions are supported by generally accepted actuarial standards of practice and based on actual or reasonably anticipated experience. It was last noted that these rules build on New York Governor Hochul’s statewide policies governing AI.

    State Issues NYDFS Artificial Intelligence GAAP Racial Bias Discrimination Insurance Underwriting

  • Bank to pay $1.9 million to resolve redlining suit

    Federal Issues

    On January 17, the DOJ announced a $1.9 million settlement with a national bank resolving allegations that the bank engaged in unlawful redlining in Memphis, Tennessee by intentionally not providing home loans and mortgage services to majority-Black and Hispanic neighborhoods, thereby violating the Fair Housing Act, ECOA, and Regulation B. In the complaint, the DOJ alleged that from 2015 through at least 2020, the bank (i) concentrated marketing and maintained nearly all its branches in majority-white neighborhoods; (ii) was aware of its redlining risk and failed to address said risk; (iii) generated disproportionately low numbers of loan applications and home loans during the relevant period from majority-Black and Hispanic neighborhoods in Memphis, compared to similarly-situated lenders; (iv) maintained practices that denied equal access to home loans for those in majority-Black and Hispanic neighborhoods, and otherwise “discouraged” those individuals from applying; and others.

    Under the consent order, which is subject to court approval, the bank will, among other things, invest $1.3 million in a loan subsidy fund to enhance home mortgage, home improvement, and home refinancing access in the specified neighborhoods. The bank will also allocate $375,000 in advertising, outreach, and financial counseling to specified neighborhoods, and allocate $225,000 to community partnerships for services boosting residential mortgage credit access in the specified areas. Additionally, the bank will assign at least two mortgage loan officers to serve majority-Black and Hispanic neighborhoods in the bank’s service area and appoint a Director of Community Lending who will oversee the continued development of lending in communities of color. 

    Federal Issues DOJ Consumer Finance Mortgages Redlining Discrimination Consent Order ECOA Regulation B Fair Housing Act Tennessee Fair Lending

  • CFPB orders large bank to pay $25.9 million

    Federal Issues

    On November 8, the CFPB announced an enforcement action against a large bank for allegedly discriminating against credit card applicants of Armenian descent. According to the consent order, from at least 2015-2021, respondent allegedly engaged in discriminatory practices that involved denying credit applications and providing false reasons for denials to credit applicants based on their national origin. Respondent’s supervisors also allegedly instructed employees not to discuss these practices in writing or on recorded phone lines. Respondent will pay $1.4 million to affected consumers and a $24.5 million civil money penalty. The CFPB found that respondent violated the Equal Credit Opportunity Act and its implementing Regulation B by unlawfully denying credit based on national origin stereotypes, as well as the CFPA.

    Federal Issues Discrimination Regulation B CFPA

  • FTC and Wisconsin sue auto dealer group for alleged discrimination and illegal fees

    Federal Issues

    The FTC and the State of Wisconsin announced that they filed a complaint in the District Court for the Western District of Wisconsin against an auto dealer group, and its current and former owners, and general manager, alleging that the defendants deceived consumers by tacking hundreds or even thousands of dollars in illegal junk fees onto car prices and discriminated against American Indian customers by charging them higher financing costs and fees relative to similarly situated non-Latino whites.

    The complaint also notes the disparity only increased since a change of ownership in 2019. Specifically, the complaint alleges that the defendants regularly charged many of their customers junk fees for “add-on” products or services without their consent, which resulted in additional fees and interest on the customers’ loans. Further, the defendants allegedly discriminated against American Indian customers in the cost of financing by adding more “markup” to their interest rates. This additional markup cost American Indian customers, on average, $401 more compared to non-Latino white customers.

    The complaint resulted in two proposed settlements. The proposed settlement with the auto dealer, its current owners, and the general manager requires the company to stop deceiving consumers about whether add-ons are required for a purchase and obtain consumers’ express informed consent before charging them for add-ons. The settlement will also the require the defendants to establish a comprehensive fair lending program that, among other components, will allow consumers to seek outside financing for a purchase and cap the additional interest markup the auto dealer can charge consumers. The current owners and general manager will also be required to pay $1 million to be used to refund affected consumers.

    Separately, the former owners agreed to pay $100,000 to be used to refund affected consumers.

    Federal Issues Wisconsin State Issues Discrimination Fees Enforcement


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