Author: Steve Shepherd, CRCM
On June 26, 2024, the CFPB (Consumer Financial Protection Bureau) issued a fair lending report to Congress describing actions the agency took in 2023 for unlawful discrimination. The report contains regulatory enforcement and supervision actions, rulemaking and guidance, stakeholder engagement, interagency engagement, amicus program and other litigation, interagency reporting, and future initiatives for fair lending.
A review of the report can help identify trends or areas of focus from the CFPB and other regulatory agencies.
Enforcement Actions
In 2023 the CFPB issued two enforcement actions of illegal discrimination and violations of ECOA (Equal Credit Opportunity Act). The first enforcement action was against Citibank, N.A. for discrimination against Armenian applicants from 2015 to 2021. The discrimination targeted applicants with last names that had properties consistent with Armenian names, as well as applicants located in Glendale California, which has a significant Armenian population. Additionally, Citibank conspired with bank employees to hide the discrimination.
The CFPB also issued an enforcement action against Colony Ridge, a developer and lender in Texas, which sold properties in flood prone areas that did not have access to water, sewer, or electrical infrastructure. One-in-four loans originated by Colony Ridge to the subject location ended in foreclosure. In Liberty County, Texas, 92% of all foreclosures between the years 2017 and 2022 were sold or originated by Colony Ridge.
In 2023 the CFPB also issued two enforcement actions related to repeated HMDA (Home Mortgage Disclosure Act) data integrity violations. One of the enforcement actions was against Freedom Mortgage, the Country’s third largest mortgage originator. The CFPB indicated that there was not a specific field or fields that were in error, but that the HMDA LAR (Loan Application Report) contained excessive amounts of overall errors.
The second enforcement action related to HMDA data was issued to Bank of America. The CFPB found that from 2016 to 2020 Bank of America lenders did not request consumer demographic information but were instead documenting that the applicant chose not to provide that information.
The CFPB also issued 18 Department of Justice referrals on individuals who the CFPB believed were acting in a discriminatory manner with respect to lending.
Fair Lending Examinations
In 2023 the CFPB initiated twenty-eight targeted fair lending examinations. From these examinations, the CFPB noted the two most common risks identified with respect to fair lending were inaccurate HMDA data and the granting of pricing exceptions. The CFPB also directed mortgage lenders to correct and remediate fair lending issues with respect to redlining.
The CFPB also directed institutions to enhance their compliance management systems with targeted guidance on dealing with credit scoring models. The guidance encourages financial institutions to evaluate the credit scoring models against the intended business need, as well as evaluate the credit scoring models for disparities against prohibited basis groups. The financial institution should compare the results of their testing to the intended goal of the model.
Lastly the CFPB encouraged financial institutions to implement policies, procedures, and controls for effective HMDA data integrity and data collection requirements.
Rulemaking
The CFPB also detailed their rulemaking in 2023. Items of note included the updates to the 1071 Small Business lending and data collection requirements, as well as updates to the Automated Valuations Model. The delay of 1071 implementation requirements were updated in a prior blog post by Steve H Powell & Company published on July 9th, 2024.
The comment period for the proposed Automated Valuation Model closed on August 21, 2023. The rulemaking proposed quality control standards for users of automated real estate valuation models in valuing real estate for secondary market originators and financial institutions acting as mortgage originators.
For additional information included in the CFPB’s fair lending report to congress, please see the CFPB summary at: https://www.consumerfinance.gov/about-us/blog/the-cfpbs-2023-fair-lending-annual-report-to-congress/
On June 26, 2024, the CFPB (Consumer Financial Protection Bureau) issued a fair lending report to Congress describing actions the agency took in 2023 for unlawful discrimination. The report contains regulatory enforcement and supervision actions, rulemaking and guidance, stakeholder engagement, interagency engagement, amicus program and other litigation, interagency reporting, and future initiatives for fair lending.
A review of the report can help identify trends or areas of focus from the CFPB and other regulatory agencies.
Enforcement Actions
In 2023 the CFPB issued two enforcement actions of illegal discrimination and violations of ECOA (Equal Credit Opportunity Act). The first enforcement action was against Citibank, N.A. for discrimination against Armenian applicants from 2015 to 2021. The discrimination targeted applicants with last names that had properties consistent with Armenian names, as well as applicants located in Glendale California, which has a significant Armenian population. Additionally, Citibank conspired with bank employees to hide the discrimination.
The CFPB also issued an enforcement action against Colony Ridge, a developer and lender in Texas, which sold properties in flood prone areas that did not have access to water, sewer, or electrical infrastructure. One-in-four loans originated by Colony Ridge to the subject location ended in foreclosure. In Liberty County, Texas, 92% of all foreclosures between the years 2017 and 2022 were sold or originated by Colony Ridge.
In 2023 the CFPB also issued two enforcement actions related to repeated HMDA (Home Mortgage Disclosure Act) data integrity violations. One of the enforcement actions was against Freedom Mortgage, the Country’s third largest mortgage originator. The CFPB indicated that there was not a specific field or fields that were in error, but that the HMDA LAR (Loan Application Report) contained excessive amounts of overall errors.
The second enforcement action related to HMDA data was issued to Bank of America. The CFPB found that from 2016 to 2020 Bank of America lenders did not request consumer demographic information but were instead documenting that the applicant chose not to provide that information.
The CFPB also issued 18 Department of Justice referrals on individuals who the CFPB believed were acting in a discriminatory manner with respect to lending.
Fair Lending Examinations
In 2023 the CFPB initiated twenty-eight targeted fair lending examinations. From these examinations, the CFPB noted the two most common risks identified with respect to fair lending were inaccurate HMDA data and the granting of pricing exceptions. The CFPB also directed mortgage lenders to correct and remediate fair lending issues with respect to redlining.
The CFPB also directed institutions to enhance their compliance management systems with targeted guidance on dealing with credit scoring models. The guidance encourages financial institutions to evaluate the credit scoring models against the intended business need, as well as evaluate the credit scoring models for disparities against prohibited basis groups. The financial institution should compare the results of their testing to the intended goal of the model.
Lastly the CFPB encouraged financial institutions to implement policies, procedures, and controls for effective HMDA data integrity and data collection requirements.
Rulemaking
The CFPB also detailed their rulemaking in 2023. Items of note included the updates to the 1071 Small Business lending and data collection requirements, as well as updates to the Automated Valuations Model. The delay of 1071 implementation requirements were updated in a prior blog post by Steve H Powell & Company published on July 9th, 2024.
The comment period for the proposed Automated Valuation Model closed on August 21, 2023. The rulemaking proposed quality control standards for users of automated real estate valuation models in valuing real estate for secondary market originators and financial institutions acting as mortgage originators.
For additional information included in the CFPB’s fair lending report to congress, please see the CFPB summary at: https://www.consumerfinance.gov/about-us/blog/the-cfpbs-2023-fair-lending-annual-report-to-congress/
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