Guest Post: CFPB Issues Request for Information Regarding Small Business Lending

By Vanessa Garrido

The CFPB has issued a Request for Information (RFI) to collect data that will shed light on how small businesses engage with financial institutions, with a particular focus on women-owned and minority-owned small businesses. Of the estimated 27.6 million small businesses in the United States, over 7 million of these businesses are minority-owned and over 8.4 million are women-owned. In order to learn more about how to encourage and promote small businesses, “it is vitally important to fill in the blanks on how small businesses are able to engage with the credit markets.”  Prepared Remarks of CFPB Director Richard Cordray at the Small Business Lending Field Hearing, CFPB (May 10, 2017),The RFI was issued pursuant to Section 1071’s business lending data collection rule under the Dodd-Frank Act which modifies the Equal Credit Opportunity Act to require financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses.

The purpose of the business lending data collection rule is to:

• Fill existing gaps in the general understanding of the small business lending environment;
• Identify potential fair lending concerns regarding small business, including women-owned and minority-owned small business;
• Facilitate enforcement of fair lending laws; and
• Identify the needs and opportunities for both business and community development.

In an effort to collect and report on small business lending data, the CFPB seeks comment on:

• How the lending industry defines small business and how that affects their credit application processes;
• The particular data points that financial institutions are compiling and maintaining in the ordinary course of business concerning their small business lending, the sources of information that financial institutions rely on in obtaining this data, and any challenges financial institutions foresee in collecting and reporting this data;
• How financial institutions integrate data collection into their application process;
• The ability to measure accurately the prevalence of lenders and the products they offer;
• Roles that marketplace lenders, brokers, dealers and other third parties may play in the application process for loans;
• Whether certain classes of financial institutions should be exempt from the requirement to collect and submit data on small business lending;
• Any financial products that finance small business, in addition to term loans, lines of credit, and credit card products; and
• Ways to protect the privacy of applicants and borrowers, as well as the confidentiality interest of financial institutions that are engaged in the lending process.

Comments are due on or before July 14, 2017.

 Vanessa Garrido is a rising third year law student at Wake Forest University and is clerking with Smith Debnam Narron Drake Saintsing & Myers, LLP.

CFPB Issues its Annual Fair Lending Report and Sets its 2017 Agenda

The CFPB has issued its 2016 Fair Lending Report which provides a summary of the Bureau’s efforts in fair lending for 2016.  The Report also includes an indication of the Bureau’s fair lending priorities for 2017.  Here are the highlights:

·        A Risk Prioritization Approach. The Report confirms that the Bureau takes a risk-based prioritization approach to supervisory and enforcement.  Risk based prioritization considers several factors including cooperation with the Bureau’s special population offices, consumer complaints, tips and leads from advocacy groups, whistleblowers and other governmental agencies, supervisory and enforcement history and, of course, analysis of HMDA and other data.

·        2016 Fair Lending Activities.  The Report indicates that its 2016 focus was on mortgage and indirect auto lending, as well as credit card account management.  While the Bureau is expected to continue investigations in these three areas, it will also increase its focus on other segments of consumer credit.

·        2017 Fair Lending Priorities. Based upon this approach, the Bureau intends to increase its focus in the areas of redlining, mortgage and student loan servicing and small business lending.

·        Mortgage and Student Loan Servicing. The Report expresses concerns as to whether student loan and mortgage servicers are handling workouts and loss mitigation differently with customers based upon their race, ethnicity, sex or age.

·        Small Business Lending.  Dodd Frank charges the CFPB with ensuring that women owned and minority businesses have fair access to credit.  The CFPB intends to begin exercising small business lending supervisory authority to ensure fair access to credit.

·        Fair Lending Supervisory Observations.  The Report recaps examination observations which were previously provided by the CFPB in its 2016 Summer and Fall Supervisory Highlights and reported previously.

·        Redlining.  While we are not going to rehash all of the 2016 Supervisory Highlights, the Bureau’s observations as to redlining bear repeating. The Report indicates the factors considered by the CFPB is assessing redlining risk and provides the following laundry list:

o   Strength of the institution’s compliance management system including its underwriting policies and guidelines;

o   Unique attributes of the relevant geographic area, including population demographics, credit profiles and the housing market;

o   Lending patterns including applications and originations with and without purchased loans;

o   Peer and market comparisons;

o   The institution’s physical presence in the area (full service branches, ATM only branches, brokers and loan production offices, etc.) as well as the services offered;

o   Marketing;

o   Mapping;

o   CRA assessment area and market area more generally;

o   The institution’s lending policies and procedures record;

o   Additional, miscellaneous evidence (including whistleblower tips, loan officer diversity, testing, and comparative file reviews); and

o   An institution’s explanation for apparent disparate treatments.

·        Ongoing Investigations.  The Bureau’s ongoing investigations and referrals to DOJ include discrimination in mortgage and auto lending, as well as discrimination in credit card account management.

Based upon the Report and prior announcements regarding fair lending prioritization from the Bureau in the past several months, mortgage and student loan servicers should be re-examining their policies and procedures as to loss mitigation and workouts to ensure their practices are consistent with the Equal Credit Opportunity Act and other fair lending mandates.

Two More Banks Fall to Redlining Consent Orders

The Department of Justice has entered into a proposed consent order with two Ohio based banks resolving allegations that the banks engaged in a pattern or practice of redlining in their mortgage lending practices by “structuring their businesses to avoid the credit needs of majority black neighborhoods” in four Ohio and Indiana MSAs. The banks, Union Savings Bank and Guardian Savings Bank, are both headquartered in Cincinnati Ohio and share common ownership and management.  The consent orders come just a few weeks after the CFPB reinforced its emphasis on fair lending violations.  The consent order, if approved, requires the banks to invest $7 million in loan subsidies and spend at least $2 million in advertising, outreach, financial education and community partnerships in the Cincinnati, Columbus, Dayton and Indianapolis metropolitan areas. The consent order additionally requires Union Savings Bank to add two full-service branches and Guardian Savings Bank to add one loan production office to serve the majority African American neighborhoods in their MSAs.

The complaint alleged that the banks violated both the Fair Housing Act and the Equal Credit Opportunity Act by serving the credit needs of predominantly white neighborhoods to a significantly greater extent than they served the credit needs of majority African American neighborhoods.  The complaint alleged that both banks engaged in a race-based pattern of locating branches, noting that all of the banks’ branches were in majority white census tracts and that statistical analysis of their loan applications revealed significant disparities in their loan activities when compared to similar lenders in the same MSAs.

The consent order requires the banks engage an independent third party compliance management system consultant to assist in reviewing and revising their policies and practices to insure compliance with fair lending laws.  The Consent Order additionally requires that the banks:

• Conduct a detailed assessment of their policies and practices regarding “branch locations; loan officers’ solicitation of applications, including the geography covered by loan officers; product availability at branch locations; loan officers; assignment, training, oversight, and compensation; marketing; and fair lending compliance monitoring.”
• Submit a plan that includes a program for ongoing fair lending statistical monitoring of loan applications and originations, including statistical peer analysis of applications and originations from majority African American census tracts.
• Provide training to all employees with significant involvement in mortgage lending to insure their activities are conducted in a non-discriminatory manner and address the Fair Housing Act and the Equal Credit Opportunity Act and that the banks document employees’ participation and proficiency.
• Prepare a credit assessment of the needs of majority African American census tracts within their MSAs including analysis of demographic and socioeconomic data of those tracts, an evaluation of the credit needs and lending opportunities in those neighborhoods and a review of affordable loan products offered by other lenders and how products with those features can be adopted by the banks.
• Expand into majority African American neighborhoods.  Specifically, the Order requires Union Bank to open two new branches in majority African American tracts and requires Guardian to open one loan production office in a majority African American tract.
• Partner with local community based organizations or government organizations to provide residents in majority African American census tracts with loan products.  The banks are required to spend $750,000.00 over the term of the Consent Order.
• Advertise and conduct outreach in majority African American census tracts to effectively communicate the availability of the Loan Subsidy Program required by the Consent Oder and generate applications for mortgage loans from qualified residents in the majority African American census tracts.  The banks are required to spend $625,000 over the term of the Consent Order.
• Develop and Implement a consumer financial education and credit report program which includes the sponsoring of a minimum of twelve financial education events a year and the provision of a program for credit establishment or repair assistance to residents of majority African American census tracts.
• Provide a minimum of $7 million dollars in loan subsidies to residents and small businesses operating in majority African American census tracts within the banks MSAs.
• Maintain records relating to their compliance with the Consent Order and provide annually their HMDA data and a report as to their compliance to the Department of Justice to assist it in monitoring the banks’ compliance with the Order.

The Consent Order will remain in effect for 63 months.  A couple of other points worth noting:

• As with most consent orders, the order is made without any admission of liability;
• The DOJ’s findings are based upon a review of the banks’ HMDA data and a comparison of that data with HMDA data from other banks operating in the same MSAs.  Of particular note are allegations in the complaint comparing the percentage of mortgage applications generated and loans originated by both banks in majority black tracts compared with other “comparable lenders” in the same MSAs in the same time period; and
• The MSAs in question are in metropolitan areas which are highly segregated.  This undoubtedly makes these MSAs areas and others that are similar in racial makeup areas of focus for the DOJ.

CFPB Hones Its Fair Lending Agenda for 2017

A recent blog post from the CFPB indicates it will focus its Fair Lending efforts in three directions in 2017.  According to the post, the CFPB will increase its focus on: (a) redlining; (b) mortgage and student loan servicing; and (c) small business lending. 

Redlining. The Bureau’s has shown a renewed interest in redlining claims in the past two years.  In 2017, the Bureau “will continue to evaluate whether lenders have intentionally avoided lending in minority neighborhoods.” 

Mortgage and Student Loan Servicing. The Bureau’s turn to the mortgage and student lending markets is likely to take up where its focus on auto lenders and credit card providers left off.  The Bureau has indicated it will determine “whether some borrowers who are behind on their mortgage or student loan payments may have more difficulty working out a solution with the servicer because of their race or ethnicity.”  Entities in these markets should pay close attention to the Bureau’s recent use of mystery shoppers in other fair lending investigations. 

Small Business Lending.  Finally, the Bureau’s focus on small business lending should come as no surprise.  Its last two rule making agendas have included small business lending. Currently, the CFPB’s efforts have been in the pre-rule making stages, but it would not be surprising to see their “research” include examinations results as they move towards developing proposed regulations.

Cordray Provides Mortgage Industry with Insight on Examination Priorities

In his prepared remarks to the Mortgage Bankers Association, CFPB Director Richard Cordray offered some insight into his office’s examination priorities with respect to the mortgage industry.    Here are the key takeaways:

• TRID:  In his remarks, Cordray characterized the CFPB’s early examinations of TRID compliance to be “diagnostic and corrective, not punitive.”  According to Cordray, examiners are focused on the institution’s compliance management system and efforts to comply.  Cordray also indicated that examiners are engaged in transaction testing.
• Mortgage Servicing: Cordray confirmed that the complaint portal is being used as a partial basis for examinations as it provides a better understanding of trends.  Cordray also indicated that mortgage servicing remains a focal point of examinations and that examiners will continue to focus on the effectiveness of institutional information technology systems.
• Redlining:  Again, Cordray indicated that this is a “priority issue” in the Bureau’s supervisory work without much elaboration.

FDIC Seeks to Supplement Vendor Management FIL with Third Party Lending Guidelines

As vendor management continues to be a key issue for regulators, the FDIC has issued its Proposed Guidelines for Third-Party Lending. The deadline to comment was originally September 12, 2016 and was extended through October 27, 2016 in response to several requests for an extension of time. 

In its proposal, the FDIC outlines the risks associated with third party lending, sets forth its minimum expectations for associated risk management systems, its supervisory considerations and the examination procedures related to third party lending.  Here are the highlights:

• The Proposed Guidelines defines third-party lending as being an arrangement that relies on a third party to perform a significant aspect of the lending process.  It includes situations where the insured institution originates loans for third parties, situations where the insured institution originates loans through third party lenders or jointly with third party lenders and situations where the institution originates loans using third party platforms.
• The Guidelines make clear that an institution’s board of directors and senior management are ultimately responsible for managing third party lending arrangements and cannot divest itself of liability.
• The Proposed Guidelines reiterate much of what is set forth in FIL-44-2008 regarding third party risk management.
• Specifically, the proposal makes clear that risk management programs should consider the following risks: strategic, operational, transaction, pipeline and liquidity, model, credit, lending compliance, consumer compliance, and BSA/AML.
• In that regard, the Proposal  requires that institutions engaged in third-party lending develop a risk management program that incorporates:
• Strategic planning which establishes the risk tolerance limits and ensures necessary management, staffing and expertise to properly manage, oversee and audit third party lending relationships.  Strategic planning should also address and incorporate exit strategies and back up plans for third-party lending arrangements that do not go as planned;
• Third-Party Lending Policies that at a minimum:
• Limits the total capital for each third party arrangement and for the program overall;
• Establishes policies and additional requirements for selecting and establishing third-party lending relationships;
• Establishes minimum performance criteria, requirements for independent review of each third party and oversight management for each third-party relationship;
• Establishes monitoring to identify, assess and mitigate risk including fair lending;
• Establishes reporting processes including board reporting;
• Requires access to data and other program information;
• Defines permissible loan types;
• Establishes underwriting, administration and quality standards;
• Establishes a consumer complaint process;
• Addresses capital and liquidity support and allowance for loan and lease concerns;
• Ensures the compliance officer has adequate authority, resources, accountability and knowledge to insure compliance with relevant consumer protection laws and regulations that apply to each third-party lending arrangement; and
• Maintains an appropriate training program for the institution and insure that third party personnel maintains and institutes the same.

• The Proposed Guidelines also make it clear that all proposed third-party lending arrangements should fit within the institution’s strategic plan and business model. 
• Additionally, third-party lending relationships require ongoing oversight and due diligence and sets forth the FDIC’s minimum expectations which include such matters as :
  • Policies and procedures;
  • Credit quality of loans solicited or underwritten;
  • Management information systems;
  • Compliance management systems;
  • Consumer complaints;
  • Litigation or enforcement actions;
  • Information security programs;
  • Compliance with relevant guidance, regulations and laws regulating the loans; and
  • Repurchase activity and volume.

• The Proposal sets forth the minimum expectation that institutions understand the models used by third-party lenders to insure they are consistent with the institution’s underwriting and loan policies and compliance with applicable consumer protection laws, among other things.
• Like other third party relationships, third-party lending relationships should be memorialized by a contractual agreement establishing the parties’ rights and the lender’s expectations.  The Proposed Guidelines reiterate that contractual agreements should address:
  • Indemnification, representations, warranties, recourse and other protections to limit the institution’s exposure;
  • Termination rights;
  • The Institution’s right to require the third party to implement policies and procedures for any function or activity it outsources to the third party; and
  • Allow the institution full access to information or data necessary to perform its risk and compliance management responsibilities.

• The FDIC expects that credit underwriting and administration guidelines will be established by the institution and not the third party. 
• Partnering with third parties does not relieve the institution from ultimate responsibility for compliance with all applicable laws and regulations, including consumer protection and fair lending.  “Third parties that have direct contact with borrowers, develop customer-facing documents, or provide new, complex, or unique loan products require enhanced compliance-related due diligence and oversight by the institution to ensure areas of potential consumer harm are identified and mitigated…and should be particularly attuned to potential elevated fair lending risks.”
• Institutions engaged in significant lending activities through third parties will received increased supervisory attention, including concurrent and more frequent examinations.

The proposal should come as no surprise to lenders who have been monitoring the recent enforcement actions and continued focus on third party vendor management issues from all regulators. As the FIL will apply to all FDIC-supervised institutions engaged in third-party lenders, FDIC institutions should reassess their risk management programs and compliance management systems to insure they are in compliance with the proposed guidelines.

CFPB Monthly Complaint Report Focuses on Credit Card Accounts

The CFPB issued its monthly report on consumer complaints this week. The report is a high level snapshot of trends in consumer complaints. The Report provides a summary of the volume of complaints by product category, by company and by state. Additionally, it highlights a product type. The product “spotlight” rotates monthly. This month’s report highlights credit card account complaints which was last in the “spotlight” in October 2015.

 Complaint Volume by Product

• The three products which yield the highest volume of complaints on a three month average remain debt collection, mortgage and credit reporting;
• A trend worth noting is that the number of debt collection complaints remains almost flat;
• Student loans indicated the highest increase in change from last year– a 62% increase when compared to 2015; and
• Payday loan complaints showed the greatest decrease from last year – a 15% decrease when compared to 2015.

Highlighted Product: Credit Card Accounts

Credit card providers and servicers should pay close attention to this month’s report as it highlights what are likely to be points of emphasis with regulators in upcoming examinations – particularly with regard to fair lending concerns, application of payments and assessment of fees and adequate explanation of terms. 

• As was the case when credit cards were last in the spotlight, the most common complaint involves billing disputes. Consumers remain confused as to how and when late fees can be assessed. 16% of all credit card complaints are categorized by the CFPB as involving billing disputes. Specifically:
• According to the Report, consumers complain about how payments are being applied, particularly to accounts where there are multiple balances because of balance transfers, cash advances and deferred interest purchases. The majority of these complaints appear to emanate from confusion about the terms of use.
• Consumers also complain about the application of fees and additional costs associated with their credit cards, particularly the application of late fees.

• The Report also highlights complaints about credit decisions. Both initial credit decisions and servicing changes are frequent subjects of complaints. Specifically, the Report observes concerns with adverse actions and the negative impact that negative items in credit reports have on consumer’s creditworthiness;
• Deferred interest programs also are a source of complaints with consumers stating that the terms of the programs are not adequately explained;
• Another issue highlighted by the CFPB is the concern with credit card accounts being closed without notice due to concerns by the credit card companies as to fraud and identity theft.

So what might the credit card industry expect to see from regulators? Based upon the current complaint trends, the credit card industry is likely to continue to see a continued focus on to their application of credit card payments, as well as scrutiny as to the accuracy of their disclosures regarding special promotions. It would also not be surprising to see examiners scrutinize credit card products in their fair lending examinations based upon the volume of complaints concerning credit decisions.

CFPB Employs “Mystery Shopper” Strategy in Fair Lending Investigation

The CFPB and the Department of Justice have partnered together to enter into a proposed consent order with BancorpSouth Bank which resolves allegations that the bank engaged in a pattern or practice of redlining in its mortgage lending practice, discriminated in its underwriting and pricing of certain mortgage loans to minorities, and implemented an explicitly discriminatory denial practice.  The investigation marks the first time that the CFPB has used testers or “mystery shoppers” to support an allegation of discrimination. The consent order, if approved, requires the bank to invest $4 million in a loan subsidies, pay $2.78 million in settlement to African-American consumers harmed by the bank’s practices, spend at least $300,000 on targeted advertising in majority-minority neighborhoods in its Memphis MSA, spend at least $500,000 on local partnerships with community or governmental organizations that provide financial literacy and pay a $3 million civil penalty.  The proposed consent order also requires the bank to extend credit offers to previously denied African-American consumers who were denied mortgage loans as a result of the bank’s allegedly discriminatory underwriting policies and add at least one additional branch in a majority-minority neighborhood in its Memphis MSA. 

The complaint alleges that between 2011 and 2013, the bank violated the Equal Credit Opportunity Act and Fair Housing Act. Both Acts prohibit discrimination based upon race, color and national origin.  The agencies alleged that the bank “discriminated in a number of distinct ways through virtually every stage of its lending process.” Complaint, ¶ 3. The complaint makes four key allegations against the bank.  First, the complaint alleges that the bank engaged in redlining in minority neighborhoods in its Memphis MSA. Id. at  ¶4. Secondly, the complaint alleges that the bank illegally discriminated against African-American mortgage applicants in its underwriting of loan by rejecting both their consumer and business purpose loans at significantly higher rates than those of “similarly situated non-Hispanic White applicants” (“White”).  Id. at  ¶5.  Thirdly, the complaint alleges that the bank discriminated against African-American applicants by charging them higher prices than similarly situated White applicants.  Id. at ¶6. Finally, the complaint alleges that the bank implemented a policy and practice that required its employees to treat mortgage applicants differently based upon their race.  Id. at ¶7. 

The bank, while neither admitting nor denying the allegations of the complaint, entered into the consent order “solely for the purpose of avoiding contested litigation with the United States and the Bureau, and to instead devote its resources to providing fair credit services to eligible borrowers with meeting their credit needs.”  The consent order further notes that prior to the entry of the Order, the bank engaged in a number of steps to improve its compliance management system which included:

• Implementing rate sheets to price loans originated by its Community Banking Department;
• Transitioning to centralized underwriting;
• Appoint a Chief Lending Officer with responsibility over the bank’s fair lending compliance program;
• Opening a full time service branch in a minority neighborhood in its Memphis MSA;
• Implementing enhanced fair lending training; and
• Monitoring pricing and underwriting outcomes on a quarterly basis.

Beyond the monetary remediation previously discussed, the consent order requires the bank:

• With the assistance of a third party independent compliance-management-system consultant, develop and submit for approval a written Fair Lending Compliance Plan which includes at a minimum:
• Steps to effectively and promptly revise and revise the bank’s current mortgage lending policies and practices to ensure compliance with ECOA and the FHA;
• Diversity policies and practices;
• Fair lending training on an annual basis to all lending personnel to ensure employees’ conduct themselves in a nondiscriminatory manner;
• Written policies and procedures which insure the bank provides equal information and assistance to all applicants regardless of race or other prohibited characteristics;
• A formal process for ongoing monitoring of defendant’s mortgage lending for compliance with ECOA and the FHA, including conducting periodic fair lending statistical analyses of loan pricing and underwriting outcomes;
• Internal regular audits of the bank’s mortgage lending at least annually; and
• Implementation or revision of a consumer complaint resolution program which addresses complaints alleging discrimination in mortgage lending.
• Implement policies and procedures for the pricing of all mortgage loans that exclusively base pricing on objective credit and borrower characteristics supported by a legitimate business need; and
• Maintain specific race neutral underwriting guidelines, policies and procedures for mortgage loans that are designed to ensure consistent application of legitimate underwriting criteria and avoid unlawful discrimination.

Banks and other lenders should be aware that the CFPB has now embraced the use of “testers” or mystery shoppers – sending individuals (both white and African American) into branch offices to ascertain whether the testers were treated differently.  The CFPB contended in this matter that, in several instances, a Bancorp South Bank loan officer treated the African-American tester less favorably than a white counterpart with similar credit qualifications. 

CFPB Unveils “Know Before You Owe” Tool for Auto Purchases

Last week, the CFPB unveiled its “Know Before You Owe” tool for auto lending.  The “Auto Lending Shopping Sheet” provides a step by step guide for consumers purchasing automobiles and highlights the items which are negotiable.  It is important to note that the “Know Before You Owe” tool does not involve new regulations but is instead an educational tool for consumers.  Patterned after the mortgage “Know Before You Owe” series, the CFPB tool includes a series of informational resources which walk consumers through the purchase of a car step by step. Importantly, the tool includes information regarding credit reporting (including the impact of credit inquiries), fair lending and the Servicemembers Civil Relief Act.   

CFPB Issues Annual Fair Lending Report

The CFPB has issued its annual Report summarizing its fair lending activities in 2015. The Report is comprehensive and lays out not only the activities of the Bureau but also its methodology in reviewing fair lending issues. For those not familiar, the Dodd Frank Act established an Office of Fair Lending and Equal Opportunity within the CFPB and charged it with “providing oversight and enforcement of Federal laws intended to ensure the fair, equal, and nondiscriminatory access to credit for both individuals and communities.” In doing so, the Office’s two primary tools are the Equal Credit Opportunity Act (“ECOA”) and the Home Mortgage Disclosure Act (“HMDA”).

 

While much of the Report has been previously discussed in prior blog entries, the key takeaways for lenders are as follows:

 

• The Bureau uses a risk based prioritization process to focus their enforcement and regulatory efforts on markets or products that represent the greatest risk for consumers. The Report confirms the Bureau is currently honed in on four products:
•  Mortgage Lending. Mortgage lending is a priority for the Office and they continue to focus on the HMDA data to identify risks in the areas of redlining, underwriting and pricing. In 2015, the Bureau resolved two public enforcement actions involving mortgage lending. 
• Indirect Auto Lending. The Report confirms that the Office remains focused on indirect auto lending and is conducting auto finance targeted ECOA reviews which generally include examination of three areas: credit approvals and denials, interest rates quoted by the lender to the dealer (“Buy Rates”) and any discretionary markup or adjustments to the Buy Rate. In 2015, the Bureau resolved two public enforcement actions involving discriminatory pricing and compensation.  
• Credit Cards. The Report suggests that this is a product which is receiving increased fair lending scrutiny. The Report indicates that the Bureau is “focused in particular on the quality of fair lending compliance management systems and on fair lending risks in underwriting, line assignment, and servicing,” including the treatment of consumers who indicate a preference to speak Spanish. 
• Small Business Lending. The Report indicates that the Bureau has begun targeted ECOA reviews of small-business lending and is focused on the quality of fair lending compliance management systems and on fair lending risks in underwriting, pricing and redlining.
• The Bureau is conducting three types of fair lending reviews:
• ECOA Baseline Reviews. The CFPB uses ECOA Baseline Reviews to evaluate how well an institution’s compliance management system identifies and manages fair lending risks. To this end, the Bureau updated their Baseline Review Modules in the CFPB Supervision and Enforcement Manual.
• ECOA Targeted Reviews. The CFPB uses Targeted Reviews to evaluate areas of heightened fair lending risks and generally focus on a specific line of business, including those identified above.
• HMDA Data Integrity Reviews. The CFPB makes no bones about it. HMDA data is a primary tool used to identify redlining issues.
•  The Report also summarizes the Bureau’s pending investigations:
• Mortgage Lending. The Report makes it abundantly clear that mortgage lending is among the Bureau’s top priorities and has focused its fair lending enforcement efforts on redlining practices. Currently, the Report indicates that it has a number of authorized enforcement actions in settlement negotiations and pending investigations.
•  Indirect Auto Finance. Similarly, the Bureau has prioritized discrimination resulting from discretionary loan pricing. The Report indicates the Bureau currently has a number of pending enforcement actions and several authorized enforcement actions in settlement negotiations.
• The Report also summarizes the new HMDA rule and indicates that the Bureau is in the pre rulemaking stage with respect to developing rules as to the collection of small business lending data as required by the Dodd Frank Act.

Guest Post: 100% Data Certainty and Proxy Methodology

April 8, 2016

By: Mark Dobosz

 

As reported in an April 8, 2016 article in Auto Finance SubPrime News, Senator Tom Cotton (R-AR), at the Senate Banking Committee’s CFPB hearing on April 7, 2016, took direct aim at CFPB Director Richard Cordray. He pressed the Director with questions about “…how the CFPB determined the amount of consumers harmed by auto financer’s Ally’s practices and how these borrowers would be able to secure restitution from the pool of $80 million included in Ally’s settlement with the bureau.”

The article continued:

Cotton asked, “Did the Department of Justice recommend that you had to opt-in under penalty?’ “We worked with the Justice Department,” Cordray replied “This is routinely required on federal forms,” Cotton retorted.” “We’re not doing something different than the Department of Justice in this case. We’re working together. We’re on the same page,” Cordray said. Cotton then questioned, “Did you personally decline the Department of Justice’s recommendation that a penalty of perjury would be attached to such a statement?” Cordray retorted, “I don’t believe I did. I’d be happy to have my staff follow up with you.

The research methodology to determine those who suffered disparate impact continues to be suspect from a variety of sources and researchers in light of the fact that the veracity of the data continues to remain questionable.

In a panel at the ABA’s Business Law Section Spring Meeting this week, “Is Fair Lending Enforcement Fair For All”, panelists addressed various viewpoints for why the actions are or are not properly addressing discrimination. The discussion included views on the USSC decision on the FHA’s Inclusive Communities, as well as a lively debate centered on the CFPB’s research methodology to determine discrimination.

Reasonable citizens and consumers observing these recent CFPB actions may be concerned that the federal government might not apply fair standards for all citizens equally. Furthermore, a reasonable person might surmise that if the government is going to utilize research to award financial remuneration to individuals based on race, they should use methods which can specifically, effectively and efficiently identify those impacted individuals.


While $80 million to 325,000 yet to be identified specific minority individuals by the CFPB makes great headlines – the average $246.16 payment per person – should be guaranteed by the Bureau to be 100% accurate and not containing any fraudulency through opt-in clauses for penalty of perjury by recipients seeking remuneration.

Accurate methodology matters when claims of discrimination and disparate impact are asserted.

 

About the Author: Mark Dobosz currently serves as the Executive Director for NARCA – The National Creditors Bar Association. Mark is a one of NARCA’s speakers on many of the creditor’s rights issues impacting NARCA members. The National Creditors Bar Association (NARCA) is a trade association dedicated to creditors rights attorneys. NARCA's values are: Professional, Ethical, Responsible.

CFPB Testimony Concerning Payday Lending Offers No New Insight

Acting Deputy Director David Silberman appeared before the House Committee on Financial Services’ Subcommittee on Financial Institutions and Consumer Credit this week to testify concern payday lending.  Silberman, who also serves as the Associate Director of Research, Markets and Regulations for the CFPB, provided a lengthy history to the subcommittee regarding the status of the CFPB regulation of payday lending.  The majority of Silberman’s prepared remarks recounted the CFPB research, field hearings, and concerns with payday lending. Silberman’s comments indicated there had been no softening of the CFPB’s stance concerning payday lending since it issued its proposal to end “payday debt traps” in April of last year.  It did, however, confirm that the CFPB continues to meet with the stakeholders, including state policy makers and tribal governments.  

Most notably, Silberman’s prepared remarks outlined the concerns which have been raised by various stakeholders.  Silberman noted that consumer advocates are pushing for an across the board ability to repay standard. He also noted that industry stakeholders have raised concerns that the proposal is too restrictive, particularly as to the limitation on the number of consecutive loans.  With regard to state policy makers, Silberman’s remarks indicate concerns with conflicts which may arise between current state laws and any impending CFPB rules.  While not stated, it is likely that these concerns are coming from states which have statutes in place which entirely preclude the making of payday or short term loans.  Finally, Silberman noted that tribal governments are concerned with the effect any regulation will have on the revenues they receive from these products.  Silberman concluded his comments by noting that the next step will be the formal issuance of a proposed rule.  While Silberman did not indicate a time table for doing so, the CFPB’s most recent Rulemaking Agenda suggests that a proposed rule is imminent and likely to be some time in the next thirty days.