Fair Lending Report of the Bureau of Consumer Financial Protection, April 2020, 27395-27407 [2020-09890]
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Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Notices
BUREAU OF CONSUMER FINANCIAL
PROTECTION
Fair Lending Report of the Bureau of
Consumer Financial Protection, April
2020
Bureau of Consumer Financial
Protection.
ACTION: Fair Lending Report of the
Bureau of Consumer Financial
Protection.
AGENCY:
The Bureau of Consumer
Financial Protection (Bureau) is issuing
its eighth Fair Lending Report of the
Bureau of Consumer Financial
Protection (Fair Lending Report) to
Congress. The Bureau is committed to
ensuring fair, equitable, and
nondiscriminatory access to credit for
both individuals and communities. This
report describes our fair lending
activities in innovation, outreach,
prioritization, guidance and rulemaking,
supervision, and enforcement for
calendar year 2019.
DATES: The Bureau released the April
2020 Fair Lending Report on its website
on April 30, 2020.
FOR FURTHER INFORMATION CONTACT:
Bobby Conner, Senior Policy Counsel,
Fair Lending, at 1–855–411–2372. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
1. Fair Lending Report of the Bureau of
Consumer Financial Protection, April
2020
Message From Kathleen L. Kraninger,
Director
I am pleased to present this Fair
Lending Annual Report to Congress
reflecting the Consumer Financial
Protection Bureau’s fair lending efforts
in 2019.
During the past year, we’ve worked
hard to enhance our fair lending efforts
by leveraging the authorities provided
by Congress and the Bureau’s resources
to be more effective and
comprehensively utilized. From
supervision and enforcement to
rulemaking, guidance and education,
the Bureau is dedicated to using all the
tools at its disposal to achieve our
mission: Fair, equitable, and
nondiscriminatory access to credit
markets for consumers and their
communities.
Through our supervision and
enforcement work, we strive to foster a
culture of institutional compliance and
prevention of consumer harm. As part of
these important efforts, the Bureau
continues to vigorously enforce fair
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lending laws, including the Equal Credit
Opportunity Act and the Home
Mortgage Disclosure Act. Through our
rulemaking and guidance, we articulate
to regulated entities clear rules of the
road that protect consumers while
promoting competition, transparency,
and fair markets for financial products
and services. Through our outreach, we
continue to educate and empower
consumers to make informed decisions
that secure their financial well-being.
In addition, the Bureau continues to
focus on consumer beneficial
innovation—one of my key priorities—
including innovation that provides fair,
equitable, and non-discriminatory
access to credit. In 2019, the Bureau
issued three new policies to help
promote innovation and facilitate
compliance: A revised No-Action Letter
Policy, a revised Trial Disclosure
Program Policy, and the Compliance
Assistance Sandbox Policy. We
encourage innovators to consider these
tools to develop new financial products
and services to better serve consumers.
One particular fair lending issue ripe
for innovative solutions is making
financial products and services more
accessible to consumers who are
unbanked and underbanked, including
those who are Limited English
Proficient (LEP). By working on these
complex issues together, I am confident
that we can find ways to overcome
obstacles and provide greater access to
credit markets, including to LEP
consumers.
In 2019, we issued a Request for
Information regarding ‘‘Tech Sprints.’’
Tech Sprints gather regulators,
technologists, financial institutions, and
subject matter experts from key
stakeholders to collaboratively develop
innovative solutions to clearly
identified challenges. We are excited to
explore the use of Tech Sprints to
encourage regulatory innovation and
collaborate with stakeholders in
developing viable solutions to
regulatory compliance challenges. I
hope to announce more about these
efforts in the near future.
Finally, in light of recent events
concerning the COVID–19 pandemic, I
am mindful of the need for additional
innovative solutions that protect
America’s consumers.
I am proud of the work that is
highlighted in this report and grateful to
the Bureau staff who have been
instrumental in leading these efforts.
Going forward, we will continue to
work on expanding responsible access
to credit and helping to ensure that all
consumers are protected from
discrimination.
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27395
Sincerely,
Kathleen L. Kraninger
Message From Patrice Alexander
Ficklin, Director, Office of Fair Lending
and Equal Opportunity
As we reflect on another year and
look ahead to the next, the Bureau
continues to make progress in ensuring
fair, equitable, and nondiscriminatory
access to credit for all consumers in
America. To that end, I am honored to
share our achievements in this, our
eighth Fair Lending Report.
During the past year, the Office of Fair
Lending and Equal Opportunity
(OFLEO) continued to coordinate the
Bureau’s fair lending work both
internally, and with other governmental
agencies, civil rights organizations,
consumer groups, and industry to
encourage consumer-friendly
innovation to expand access to credit,
especially for unbanked and
underbanked consumers.
Through our work on innovation, we
also aim to provide meaningful
guidance to institutions on fair lending
compliance in the age of innovation. In
this vein, in 2019, along with four other
financial regulators, the Bureau issued a
joint statement about the use of
alternative data in underwriting, seeking
to expand fair, equitable, and
nondiscriminatory access to credit. The
use of alternative data such as cash-flow
data may improve the speed and
accuracy of credit decisions and expand
access to fair and affordable credit to
consumers who currently may not
obtain credit in the mainstream credit
system, and the Bureau encourages
responsible use of such data to expand
access to credit.
We are particularly excited by our
role in launching the Bureau’s first Tech
Sprints, which we hope will facilitate
the use of innovative technologies to
address challenges experienced by
consumers, industry and regulators.
I look forward to continuing to work
with all stakeholders in protecting
America’s consumers and expanding
access to credit. When navigating
complex fair lending issues,
stakeholders should consider OFLEO as
a resource.
Sincerely,
Patrice Alexander Ficklin
1. Innovations in Access to Credit
1.1 Collaboration Between the Office
of Fair Lending and Equal Opportunity
and the Office of Innovation
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (DoddFrank Act) established the Bureau’s
mission to include both fair lending and
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innovation components. Specifically,
the Dodd-Frank Act makes clear that
‘‘[t]he Bureau is authorized to exercise
its authorities under [F]ederal consumer
financial law for the purposes of
ensuring that, with respect to consumer
financial products and services . . . (2)
consumers are protected from unfair,
deceptive, or abusive acts and practices
and from discrimination . . . and (5)
markets for consumer financial products
and services operate transparently and
efficiently to facilitate access and
innovation.’’ 1
The Bureau is also responsible for
providing oversight and enforcement of
Federal fair lending laws intended to
ensure ‘‘fair, equitable, and
nondiscriminatory access to credit for
both individuals and communities.’’ 2
The Bureau’s Office of Fair Lending and
Equal Opportunity (OFLEO) coordinates
fair lending work both internally and
externally with Bureau stakeholders,
including consumer advocates, civil
rights organizations, industry, academia,
and other government agencies. OFLEO
also works closely with the Office of
Innovation (OI) to help encourage
innovation in expanding responsible
credit access, including fair, equitable,
and nondiscriminatory access to credit
to underserved populations.
On September 10, 2019, the Bureau,
through OI, issued three new policies to
promote innovation and facilitate
compliance: A revised No-Action Letter
(NAL) Policy,3 a revised Trial
Disclosure Program Policy,4 and the
Compliance Assistance Sandbox
Policy.5 The Bureau is accepting
applications under these policies and,
as of this report, has granted two NALs
and a NAL template under the revised
2019 NAL Policy.6
As part of its coordination function,
OFLEO works with OI regarding
applications to the Bureau’s innovation
1 Dodd-Frank Act section 1021(b)(2), (5)
(emphasis added).
2 Dodd-Frank Act sections 1002(13), 1013(c).
3 Consumer Fin. Prot. Bureau, No-Action Letter
Policy (Sept. 10, 2019), https://
files.consumerfinance.gov/f/documents/cfpb_finalpolicy-on-no-action-letters.pdf; Policy on No-Action
Letters, 84 FR 48229, 48229–48246 (Sept. 6, 2019).
4 Consumer Fin. Prot. Bureau, Policy to Encourage
Trial Disclosure Programs (Sept. 6, 2019), https://
files.consumerfinance.gov/f/documents/cfpb_finalpolicy-to-encourage-tdp.pdf; Policy to Encourage
Trial Disclosure Programs, 84 FR 48260, 48260–
48272 (Sept. 13, 2019).
5 Consumer Fin. Prot. Bureau, Policy on the
Compliance Assistance Sandbox (Sept. 6, 2019),
https://files.consumerfinance.gov/f/documents/
cfpb_final-policy-on-cas.pdf; Policy on the
Compliance Assistance Sandbox, 84 FR 48246,
48246–48260 (Sept. 13, 2019).
6 Consumer Fin. Prot. Bureau, Granted
Applications, https://www.consumerfinance.gov/
about-us/innovation/granted-applications/.
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programs that involve fair lending and
access to credit issues.
Review of such applications generally
includes consideration of the potential
fair lending risks associated with the
proposed product or service, as well as
its potential for expanding access to
credit for underserved or underbanked
populations. In addition, after an
application related to fair lending or
access to credit has been granted by the
Bureau, the two offices continue to work
together, for example, in reviewing data
submitted by the recipient relating to
fair lending and credit access issues.
The Bureau encourages consumerbeneficial innovations, including those
that can help serve populations
currently underserved by the
mainstream credit system. Entities are
strongly encouraged to contact the
Bureau before applying to any of the
innovation programs.
1.2 No-Action Letter Issued to HUD
Housing Counseling Agencies
In September 2019, the Bureau issued
a NAL under the revised 2019 NAL
policy in response to a request by the
U.S. Department of Housing and Urban
Development (HUD) on behalf of more
than 1,600 housing counseling agencies
(HCAs) that participate in HUD’s
housing counseling program.7 The NAL
was issued after HUD brought concerns
to the Bureau about HCAs and mortgage
lenders not entering into agreements
that would fund counseling services due
to uncertainty about the application of
the Real Estate Settlement Procedures
Act.
The more than 1,600 HUD-certified
HCAs serve more than one million
households annually. They offer prepurchase homeownership counseling to
potential borrowers looking to purchase
their first home, providing important
information on fair housing, fair
lending, and access to credit issues.
With this information, potential
borrowers may be better able to make
informed choices based on their
financial circumstances to achieve safe
and sustainable homeownership. The
NAL is intended to facilitate HCAs
entering into such agreements with
lenders and will enhance the ability of
HCAs to obtain funding from additional
sources.
At the same time, in response to
HUD’s application, the Bureau issued a
NAL Template for mortgage lenders
under the NAL Policy, providing a
7 Consumer Fin. Prot. Bureau, CFPB Issues
Policies to Facilitate Compliance and Promote
Innovation (Sept. 10, 2019), https://
www.consumerfinance.gov/about-us/newsroom/
bureau-issues-policies-facilitate-compliancepromote-innovation/.
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foundation for future NAL applications
by mortgage lenders.
1.3 Joint Statement On the Use of
Alternative Data in Credit Underwriting
In December 2019, the Bureau, the
Board of Governors of the Federal
Reserve System (FRB), the Federal
Deposit Insurance Corporation (FDIC),
the Office of the Comptroller of the
Currency (OCC), and the National Credit
Union Administration (NCUA)
(collectively ‘‘the agencies’’) issued a
joint statement on the use of alternative
data in underwriting by banks, credit
unions, and non-bank financial firms.8
The purpose of the statement was to
provide guidance on the use of
alternative data in underwriting and, to
the extent firms are using or
contemplating using alternative data, to
encourage responsible use of such data.
Alternative data includes information
not typically found in consumers’ credit
reports or customarily provided by
consumers when applying for credit.
Alternative data can include cash-flow
data derived from consumers’ bank
account records.
The statement further explains that a
well-designed compliance management
program provides for a thorough
analysis of relevant consumer protection
laws and regulations to ensure firms
understand the opportunities, risks, and
compliance requirements before using
alternative data. As reflected in the
statement, the agencies recognize that
use of alternative data in a manner
consistent with applicable consumer
protection laws may improve the speed
and accuracy of credit decisions and
may help firms evaluate the
creditworthiness of consumers who
currently may not obtain credit in the
mainstream credit system. Additionally,
the agencies acknowledge that using
alternative data may enable consumers
to obtain additional products and/or
more favorable pricing/terms based on
enhanced assessments of repayment
capacity.
1.4 Providing Adverse Action Notices
When Using Artificial Intelligence and
Machine Learning Models
As part of our consumer protection
mission, Congress tasked the Bureau
with ensuring that markets for consumer
financial products and services operate
transparently and efficiently to facilitate
access and innovation. One area of
innovation the Bureau is monitoring for
8 Consumer Fin. Prot. Bureau, Federal Regulators
Issue Joint Statement on the Use of Alternative Data
in Credit Underwriting (Dec. 3, 2019), https://
www.consumerfinance.gov/about-us/newsroom/
federal-regulators-issue-joint-statement-usealternative-data-credit-underwriting/.
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fair lending and access to credit issues
is artificial intelligence (AI), and more
specifically, machine learning (ML), a
subset of AI.
One important issue is how complex
AI models address the adverse action
notice requirements in ECOA and the
Fair Credit Reporting Act (FCRA). ECOA
requires creditors to provide consumers
with the main reasons for a denial of
credit or other adverse action.9 FCRA
also includes adverse action notice
requirements.10 These notice provisions
serve important anti-discrimination,
educational, and accuracy purposes.
There may be questions about how
institutions can comply with these
requirements if the reasons driving an
AI decision are based on complex
interrelationships.
The existing regulatory framework has
built-in flexibility that can be
compatible with AI algorithms. For
example, although a creditor must
provide the specific reasons for an
adverse action, the Official
Interpretation to ECOA’s implementing
regulation, Regulation B, provides that a
creditor need not describe how or why
a disclosed factor adversely affected an
application,11 or, for credit scoring
systems, how the factor relates to
creditworthiness.12 Thus, the Official
Interpretation provides an example that
a creditor may disclose a reason for a
denial, even if the relationship of that
disclosed factor to predicting
creditworthiness may be unclear to the
applicant. This flexibility may be useful
to creditors when issuing adverse action
notices based on AI models where the
variables and key reasons are known,
but which may rely upon non-intuitive
relationships.
Another example of this flexibility is
that neither ECOA nor Regulation B
mandate the use of any particular list of
reasons. Indeed, the regulation provides
that creditors must accurately describe
the factors actually considered and
scored by a creditor, even if those
reasons are not reflected on the current
sample forms.13 This latitude may be
useful to creditors when providing
reasons that reflect alternative data
sources and more complex models.
Industry continues to develop tools to
accurately explain complex AI
decisions, and the Bureau expects more
methods will emerge. These
developments hold great promise to
enhance the ‘‘explainability’’ of AI and
U.S.C. 1691(d)(2).
U.S.C. 1681m (a).
11 12 CFR pt. 1002, comment 9(b)(2)–3.
12 Id. at 9(b)(2)–4.
13 12 CFR pt. 1002, comment 9(b)(2)–2 and app.
C, ¶ 4.
In 2017, the Bureau announced a NAL
to Upstart Network, Inc. (Upstart), a
company that uses alternative data and
machine learning in making credit
underwriting and pricing decisions.14
Upstart’s underwriting model uses
traditional underwriting data and
various categories of alternative data,
including information related to
borrowers’ education and employment
history. The NAL, approved under the
Bureau’s 2016 NAL policy, references
the application of ECOA and Regulation
B to Upstart’s use of alternative data and
ML for its underwriting and pricing
model. This NAL is specific to the facts
and circumstances of Upstart and does
not serve as an endorsement of the use
of any particular variables or modeling
techniques in credit underwriting and
pricing. In addition, the NAL does not
serve as an endorsement of Upstart or
the products or services it offers.
As a condition for receiving the NAL,
Upstart agreed to a model risk
management and compliance plan that
requires it to analyze and appropriately
address risks to consumers, as well as
assess the real-world impact of
alternative data and ML. Pursuant to the
NAL, Upstart provides the Bureau with
information comparing outcomes from
its underwriting and pricing model
(tested model) against outcomes from a
hypothetical model that uses traditional
application and credit file variables and
does not employ ML (traditional model).
Upstart independently validated the
traditional model through fair lending
testing to ensure that it did not violate
antidiscrimination laws.
Since the issuance of the NAL,
Upstart has worked to answer several
key questions, including:
• Whether the tested model’s use of
alternative data and ML expands access
to credit, including lower-priced credit,
overall and for various applicant
segments, compared to the traditional
model.
• Whether the tested model’s
underwriting or pricing outcomes result
in greater disparities than the traditional
model with respect to race, ethnicity,
sex, or age, and if so, whether applicants
in different protected class groups with
similar model-predicted default risk
actually default at the same rate.
Upstart agreed to allow the Bureau to
share key highlights from simulations
and analyses that it conducted pursuant
to its model risk management and
compliance plan; the simulations and
analyses were not separately replicated
by the Bureau. The following results
provided by Upstart reflect the net effect
of both the alternative data and the ML
methodology used in the lender’s model
as applied to the lender’s applicant
pool. The Bureau shared this
information in a blog post in August
2019.15
The results provided from the accessto-credit comparisons show that the
tested model approves 27% more
applicants than the traditional model,
and yields 16% lower average APRs for
approved loans.
This reported expansion of credit
access reflected in the results provided
occurs across all tested race, ethnicity,
and sex segments resulting in the tested
model increasing acceptance rates by
23–29% and decreasing average APRs
by 15–17%.
In many consumer segments, the
results provided show that the tested
model significantly expands access to
credit compared to the traditional
model. Under the tested model, the
results provided reflect that:
• Near prime consumers with FICO
scores from 620 to 660 were approved
approximately twice as frequently.
• Applicants under 25 years of age
are 32% more likely to be approved.
• Consumers with incomes under
$50,000 are 13% more likely to be
approved.
With regard to fair lending testing,
which compared the tested model with
the traditional model, the approval rate
and APR analysis results provided for
minority, female, and 62 and older
applicants showed no disparities that
require further fair lending analysis
under the compliance plan. The Bureau
continues to monitor the Upstart NAL.
14 Consumer Fin. Prot. Bureau, CFPB Announces
First No-Action Letter to Upstart Network (Sept. 14,
2017), https://www.consumerfinance.gov/about-us/
newsroom/cfpb-announces-first-no-action-letterupstart-network/.
15 Patrice Alexander Ficklin and Paul Watkins,
Consumer Fin. Prot. Bureau, An update on credit
access and the Bureau’s first No-Action Letter (Aug.
6, 2019), https://www.consumerfinance.gov/aboutus/blog/update-credit-access-and-no-action-letter/.
facilitate use of AI for credit
underwriting compatible with adverse
action notice requirements.
Despite this flexibility, there may still
be some regulatory uncertainty about
how certain aspects of the adverse
action requirements apply in the context
of AI/ML. Entities are encouraged to
consider the Bureau’s new innovation
policies as a means to address these
potential compliance issues.
The Bureau welcomes continued
dialogue with institutions and
organizations regarding innovative ways
to fulfill adverse action notice
requirements when using AI.
1.5 Update on Upstart No-Action
Letter
9 15
10 15
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1.6 Tech Sprints Request for
Information
In September 2019, the Bureau,
through collaboration between OI, the
Office of Technology and Innovation,
and OFLEO, issued a Request for
Information (RFI) seeking comments
and information to identify
opportunities to utilize ‘‘Tech Sprints’’
to encourage regulatory innovation.16
Used successfully by the Financial
Conduct Authority in the United
Kingdom, Tech Sprints gather
regulators, technologists, financial
institutions, and subject matter experts
from key stakeholders for several days
to work together to develop innovative
solutions to clearly identified
challenges. Small teams include
participants from both the regulator and
a diversity of entities to ensure the
inclusion of regulatory, industry, and
technology perspectives. The regulator
assigns a specific regulatory compliance
or market problem to each team and
challenges the teams to solve or mitigate
the problem using modern technologies
and approaches. The most promising
ideas can then be further developed
either in collaboration with the
regulator or by external parties.
Specifically, the RFI stated that the
Bureau is interested in using Tech
Sprints to:
• Leverage cloud solutions, machineautomated compliance checks that
allow for independent validation by
regulators, and other developments that
may reduce or modify the need for
regulated entities to transfer data to the
Bureau.
• Continue to innovate HMDA data
submission, processing, and publication
to help ease burdens, increase
flexibility, and resolve compliance
challenges, while satisfying all legal
requirements.
• Identify new technologies and
approaches that can be used by the
Bureau to provide more cost-effective
oversight of supervised entities,
effective evaluation of compliance and
risk, and closer interface with financial
industry systems and technology that
may include the use, for example, of
analytical tools in the review of
mortgage origination data.
• Explore other technological
approaches to robust and secure data
access or exchange between regulated
entities and the Bureau.
• Reduce unwarranted regulatory
compliance burdens.
16 Consumer
Fin. Prot. Bureau, Request for
Information Regarding Tech Sprints (Sept. 12,
2019), https://files.consumerfinance.gov/f/
documents/cfpb_rfi_tech-sprints.pdf.
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In the RFI, the Bureau sought
responses to questions, including:
• What regulatory compliance issues,
problems, procedures, or requirements
could benefit from innovation through a
Bureau Tech Sprint?
• What financial technology or other
advances hold the most promise for
helping modernize regulatory
compliance?
• Other than organizing Tech Sprints,
what else might the Bureau do to
encourage innovation in financial
products and services? For example,
could advances be encouraged by
changes to certain Bureau rules or
policies?
The comment period closed on
November 8, 2019, and the Bureau
received 19 comments in response to its
RFI. The feedback identified an interest
in organizing Tech Sprints in the areas
of HMDA, supervision data sharing and
submission, automated compliance,
third-party technology providers/bankfintech partnerships, consumer
disclosures, and regulations.
The information provided will help
the Bureau identify how stakeholders
can work together to create a regulatory
environment (1) that allows flexible,
efficient, and effective innovation to
flourish; (2) where new and/or emerging
risks can be identified and managed
effectively; and (3) where consumers
have the appropriate level of protection
and suitable access to the benefits of
technological advancement. The
information may also help identify
responsible innovations that can be
implemented in a consumer-friendly
way to help serve populations currently
underserved by the mainstream credit
system. The Bureau expects to
announce its first Tech Sprints later in
2020.
2. Outreach: Promoting Fair Lending
Compliance and Education
Pursuant to the Dodd-Frank Act, the
Bureau regularly engages in outreach
with stakeholders, including civil rights
organizations, consumer advocates,
industry, academia, and other
government agencies, to: (1) Educate
them about fair lending compliance and
access to credit issues and (2) hear their
views on the Bureau’s work to inform its
policy decisions.17
Throughout 2019, OFLEO worked
closely with other Bureau offices to
execute the Bureau’s fair lending
outreach and education efforts.
17 Consumer Fin. Prot. Bureau, Fiscal Year 2020:
Annual performance plan and report, and budget
overview, Performance goal 2.1.1, at 69 (Feb. 2020),
https://files.consumerfinance.gov/f/documents/
cfpb_performance-plan-and-report_fy20.pdf.
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The Bureau is committed to
communicating directly with all
stakeholders on its policies, compliance
expectations, and fair lending priorities,
and to receiving valuable input about
fair lending issues and how innovation
can promote fair, equitable, and
nondiscriminatory access to credit.
2.1 Educating Stakeholders About Fair
Lending Compliance and Access to
Credit Issues
2.1.1 Bureau Blog Posts, Statements,
Reports, and Press Releases
The Bureau regularly uses blog posts,
statements, reports, and press releases
as tools to timely and effectively
communicate with consumers and other
stakeholders on issues, emerging areas
of concern, Bureau initiatives, and
more. In 2019, the Bureau published
three blog posts related to fair lending
including: an update on credit access
and the Bureau’s No-Action Letter with
Upstart,18 the 2019 report on the
Bureau’s Building a Bridge to Credit
Visibility symposium,19 and the release
of the 2018 Fair Lending Annual
Report.20 The Bureau’s blog posts,
including those related to fair lending,
may be accessed at
www.consumerfinance.gov/blog.
The Bureau also issued two
statements related to fair lending in
2019: a Statement on Collection of
Demographic Information by
Community Development Financial
Institutions,21 and a Joint Statement
with Federal Regulators on the Use of
Alternative Data in Credit
Underwriting.22
In 2019, the Bureau also issued six
press releases related to fair lending
18 Patrice Alexander Ficklin and Paul Watkins,
Consumer Fin. Prot. Bureau, An update on credit
access and the Bureau’s first No-Action Letter (Aug.
6, 2019), https://www.consumerfinance.gov/aboutus/blog/update-credit-access-and-no-action-letter/.
19 Patrice Alexander Ficklin and J. Frank VespaPapaleo, Consumer Fin. Prot. Bureau, A report on
the Bureau’s Building a Bridge to Credit Visibility
Symposium (July 19, 2019), https://
www.consumerfinance.gov/about-us/blog/reportcredit-visibility-symposium/.
20 Patrice Alexander Ficklin, Encouraging
innovation in expanding credit access: 2018 Fair
Lending Report to Congress, Consumer Fin. Prot.
Bureau (June 28, 2019), https://
www.consumerfinance.gov/about-us/blog/2018-fairlending-report-congress/.
21 Consumer Fin. Prot. Bureau, Statement on
Collection of Demographic Information by
Community Development Financial Institutions
(June. 27, 2019), https://www.consumerfinance.gov/
policy-compliance/guidance/supervisory-guidance/
statement-collection-demographic-informationcommunity-development-financial-institutions/.
22 Consumer Fin. Prot. Bureau, Federal Regulators
Issue Joint Statement on the Use of Alternative Data
in Credit Underwriting (Dec. 3, 2019), https://
www.consumerfinance.gov/about-us/newsroom/
federal-regulators-issue-joint-statement-usealternative-data-credit-underwriting/.
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topics including: the Bureau’s
announcement regarding its symposia
series,23 the release of certain 2018
HMDA data,24 25 the extension of the
public comment period for the Advance
Notice of Proposed Rulemaking (ANPR)
regarding HMDA data points,26 the
issuance of a final HMDA Rule,27 the
issuance of the Interagency Statement
on the Use of Alternative Data in Credit
Underwriting,28 and a public
enforcement action against Freedom
Mortgage Corporation.29 The Bureau’s
statements and press releases, including
those related to fair lending, may be
accessed at www.consumerfinance.gov/
about-us/newsroom.
2.1.2 Bureau Outreach Engagements
With Stakeholders
Bureau staff participated in 63
outreach engagements throughout 2019
to educate external stakeholders about
fair lending compliance and access to
credit issues. In most of those
engagements, Bureau personnel also
received information and feedback on
the Bureau’s policy decisions.
Specifically, in 2019, the Bureau
communicated directly with fair
lending, civil rights, consumer and
community advocates, and with
industry through speeches, panel
remarks, presentations, roundtables, a
webinar, an onsite HMDA Help Desk,
and smaller meetings on issues
pertaining to fair, equitable, and
nondiscriminatory access to credit. The
Bureau also engaged with stakeholders
23 Consumer Fin. Prot. Bureau Announces
Symposia Series (Apr. 8, 2019), https://
www.consumerfinance.gov/about-us/newsroom/
bureau-announces-symposia-series/.
24 Consumer Fin. Prot. Bureau, FFIEC Announces
Availability of 2018 Data on Mortgage Lending
(Aug. 30, 2019), https://www.consumerfinance.gov/
about-us/newsroom/ffiec-announces-availability2018-data-mortgage-lending/.
25 Consumer Fin. Prot. Bureau, HMDA Modified
Loan Application Registers Released (Mar. 29,
2019), https://www.consumerfinance.gov/about-us/
newsroom/hmda-modified-loan-applicationregisters-released/.
26 Consumer Fin. Prot. Bureau, CFPB Extends
Comment Period for ANPR on HMDA Data Points
(Jun. 27, 2019), https://www.consumerfinance.gov/
about-us/newsroom/bureau-extends-commentperiod-anpr-hmda-data-points/.
27 Consumer Fin. Prot. Bureau, Consumer
Financial Protection Bureau Issues Final HMDA
Rule to Provide Relief to Smaller Institutions (Oct.
10, 2019), https://www.consumerfinance.gov/aboutus/newsroom/bureau-issues-final-hmda-ruleprovide-relief-smaller-institutions/.
28 Federal Regulators Issue Joint Statement on the
Use of Alternative Data in Credit Underwriting
(Dec. 3, 2019), https://www.consumerfinance.gov/
about-us/newsroom/federal-regulators-issue-jointstatement-use-alternative-data-credit-underwriting/.
29 Consumer Fin. Prot. Bureau, Consumer
Financial Protection Bureau Settles with Freedom
Mortgage Corporation (Jun. 5, 2019), https://
www.consumerfinance.gov/about-us/newsroom/
bureau-settles-freedom-mortgage-corporation/.
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through the Bureau’s website,
consumerfinance.gov. Some examples of
the topics covered include: fair lending
supervision and enforcement priorities,
innovations in lending, HMDA and
Regulation C, small business lending,
the Bureau’s Tech Sprints RFI, access to
credit for LEP consumers, providing
adverse action notices when using ML
models, and the use of alternative data.
2.1.3
2019 HMDA Warning Letters
In 2019, the Bureau issued warning
letters to mortgage-lending institutions
indicating that they may be required to
collect, record, and report data about
their mortgage-lending activity under
HMDA and Regulation C, and that they
may be in violation of those
requirements.30 The letters urged
recipients to review their practices to
ensure their compliance with all
relevant laws. The recipients were
encouraged to respond to the Bureau to
advise if they have taken, or will take,
steps to ensure compliance with the
law, or to tell the Bureau if they if they
think their activities do not trigger
HMDA reporting thresholds.
Through these letters the Bureau
seeks to increase compliance with
HMDA through enhanced education
efforts and direct outreach to potentially
non-compliant mortgage lenders, and to
increase HMDA data quality and
completeness through accurate
reporting. Since commencing the
issuance of the HMDA warning letters
more than 140,000 new mortgage loan
application registers (LARs) that
previously went unreported by the
entities have now been reported. The
Bureau will follow up on these letters to
ensure compliance, as appropriate.
2.1.4
Supervisory Highlights
Supervisory Highlights has long been
a report that anchors the Bureau’s efforts
to communicate about the Bureau’s
supervisory activity. In March 2019, the
Winter 2019 Supervisory Highlights
noted the updates made to HMDA Small
Entity Compliance Guide from October
30, 2018.31 At that time, the Bureau
updated the HMDA Small Entity
Compliance Guide to reflect changes
made to the HMDA by section 104(a) of
the Economic Growth, Regulatory
Relief, and Consumer Protection Act
(EGRRCPA).
30 On October 27, 2016, the Bureau issued the
first round of HMDA warning letters, https://
www.consumerfinance.gov/about-us/newsroom/
cfpb-warns-financial-institutions-about-potentialmortgage-lending-reporting-failures/.
31 Consumer Fin. Prot. Bureau, Supervisory
Highlights Winter 2019 at 19 (March 2019), https://
files.consumerfinance.gov/f/documents/cfpb_
supervisory-highlights_issue-18_032019.pdf.
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All editions of Supervisory Highlights
are available at
www.consumerfinance.gov/reports.
2.2 Listening to Stakeholders To
Inform the Bureau’s Policy Decisions
2.2.1 Bureau Outreach Engagements
With Stakeholders
As described above in section 2.1.2,
Bureau outreach engagements serve as a
vehicle to hear the views of external
stakeholders in order to inform the
Bureau’s policy decisions. In these
events, Bureau staff received feedback
from stakeholders on issues pertaining
to discrimination and fair, equitable,
and nondiscriminatory access to credit.
2.2.2 Bureau Outreach Follow-Up
From 2018 Building a Bridge
Symposium
In follow-up to the Bureau’s
September 17, 2018 Building a Bridge to
Credit Visibility symposium, and to
increase the Bureau’s knowledge base
about innovations in small business
lending, the Offices of Fair Lending and
Small Business Lending Markets held
two Fair Lending Roundtables with
Minneapolis/St. Paul-area (Twin Cities)
stakeholders involved in small business
lending. The event was held on May 8,
2019, in Minneapolis, Minnesota.
Participants at the Roundtables
represented both industry and consumer
groups, including community banks,
credit unions, and Community
Development Financial Institutions
(CDFIs) that provide small business
credit in the Twin Cities area. Also in
attendance were representatives from
the Minnesota Credit Union League and
Credit Union National Association.
Aside from collecting invaluable
information that will inform the
Bureau’s work and future policymaking,
the event introduced the Bureau to
certain local organizations in the Twin
Cities area that were previously
unaware of the Bureau’s work and
resources. The event also served as a
conduit for bringing together local
organizations involved in providing
small business microlending in the
Twin Cities area that had not previously
connected. The Bureau anticipates that
these groups will continue to benefit
from working together to help small
businesses and their communities in the
Twin Cities area.
2.2.3
1071
Bureau Symposium on Section
In April 2019, the Bureau announced
a symposia series exploring consumer
protections in today’s dynamic financial
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services marketplace.32 The series is
aimed at stimulating a proactive and
transparent dialogue to assist the Bureau
in its policy development process,
including possible future rulemakings.
During each symposium, the Bureau
hosts a discussion panel of experts with
a variety of viewpoints on the topic.
On November 6, 2019, the Bureau
held a symposium on section 1071 of
the Dodd-Frank Act.33 Section 1071
amended ECOA to require, subject to
rules prescribed by the Bureau, financial
institutions to collect, report, and make
public certain information concerning
credit applications made by womenowned, minority-owned, and small
businesses. The symposium provided a
public forum for the Bureau and the
public to hear various perspectives on
the small business lending marketplace
and the Bureau’s upcoming
implementation of section 1071.
The event featured remarks by
Director Kraninger. The symposium also
consisted of two panels of experts. The
first panel focused on the current state
of, and future outlook for, the small
business lending marketplace. The
second panel included a discussion of
the implementation of section 1071.
Additional information regarding this
symposium, including the agenda, the
panelists’ written statements, and a
video of the event is available on the
Bureau’s website.34 Information about
the Bureau’s efforts to implement
section 1071 can be found in section
4.2.2 of this Report.
3. Interagency Coordination and
Engagement
Throughout 2019, the Bureau
coordinated its fair lending regulatory,
supervisory, and enforcement activities
with other Federal agencies and State
regulators to promote consistent,
efficient, and effective enforcement of
Federal fair lending laws. This
interagency engagement sought to
address current and emerging fair
lending risks. Interagency engagement
occurs in numerous ways, including
through several interagency
organizations.
The Federal Financial Institutions
Examination Council (FFIEC) is
currently chaired by Director
32 Consumer
Fin. Prot. Bureau, Consumer
Financial Protection Bureau Announces Symposia
Series (Apr. 8, 2019), https://
www.consumerfinance.gov/about-us/newsroom/
bureau-announces-symposia-series/.
33 Consumer Fin. Prot. Bureau, CFPB Symposium:
Section 1071 of the Dodd-Frank Act (Nov. 6, 2019),
https://www.consumerfinance.gov/about-us/events/
archive-past-events/cfpb-symposium-section-1071dodd-frank-act/.
34 Id.
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Kraninger.35 Through the FFIEC, the
Bureau has robust engagement with
other partner agencies that focus on fair
lending issues.
For example, the Bureau currently
chairs the FFIEC HMDA/Community
Reinvestment Act Data Collection
Subcommittee of the FFIEC Task Force
on Consumer Compliance (Task Force).
The Task Force oversees FFIEC projects
and programs involving HMDA data
collection and dissemination, the
preparation of the annual FFIEC budget
for processing services, and the
development and implementation of
other related HMDA processing projects
as directed by the Task Force.
Additionally, the Bureau, the Federal
Trade Commission (FTC), HUD, FDIC,
FRB, NCUA, OCC, DOJ, and the Federal
Housing Finance Agency (FHFA),
comprise the Interagency Task Force on
Fair Lending (Fair Lending Task Force).
Currently, the Bureau chairs the Fair
Lending Task Force, which meets
regularly to discuss fair lending
enforcement efforts, share current
methods of conducting supervisory and
enforcement fair lending activities, and
coordinate fair lending policies.
Further, the Bureau also participates
in the Interagency Working Group on
Fair Lending Enforcement, a standing
working group of Federal agencies—
DOJ, HUD, and FTC—that meets
regularly to discuss issues specifically
relating to fair lending enforcement. The
agencies use these meetings to discuss
fair lending developments and trends,
methodologies for evaluating fair
lending risks and violations, and
coordination of fair lending enforcement
efforts.
In addition to these established
interagency working groups, Bureau
personnel meet periodically and on an
ad hoc basis with DOJ, HUD, and the
prudential regulators to coordinate the
Bureau’s fair lending work.
4. Guidance and Rulemaking
4.1 HMDA and Regulation C
Rulemaking and Guidance
4.1.1 Regulation C 2019 Notice of
Proposed Rulemaking and Final Rule
In May 2019, the Bureau issued a
Notice of Proposed Rulemaking
35 Collectively, the FRB, FDIC, NCUA, OCC, and
the Bureau comprise the FFIEC. The FFIEC is a
‘‘formal interagency body empowered to prescribe
uniform principles, standards, and report forms for
the [F]ederal examination of financial institutions’’
by the member agencies listed above and the State
Liaison Committee ‘‘and to make recommendations
to promote uniformity in the supervision of
financial institutions.’’ Fed. Fin. Inst. Examination
Council, https://www.ffiec.gov (last visited March 30,
2020). The State Liaison Committee was added to
FFIEC in 2006 as a voting member.
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(NPRM) 36 proposing two alternatives to
amend Regulation C to increase the
threshold for reporting data about
closed-end mortgage loans. The
proposed amendments would increase
the threshold so that institutions
originating fewer than either 50 closedend mortgage loans, or alternatively, 100
closed-end mortgage loans, in either of
the two preceding calendar years would
not have to report such data as of
January 1, 2020. The proposed rule also
proposed to adjust the threshold for
reporting data about open-end lines of
credit by extending to January 1, 2022,
the current temporary threshold of 500
open-end lines of credit and setting a
threshold at 200 open-end lines of credit
upon the expiration of the proposed
extension of the temporary threshold.
In October 2019, the Bureau issued a
Final Rule 37 amending Regulation C to
adjust the threshold for reporting data
about open-end lines of credit by
extending to January 1, 2022, the
current temporary threshold of 500
open-end lines of credit. The Final Rule
announced that any change to the
closed-end mortgage loan reporting
threshold and permanent open-end
threshold to take effect upon expiration
of the temporary threshold would be
addressed in a later rule.
The Final Rule also further
implements the partial exemptions from
HMDA’s requirements that EGRRCPA
recently added to HMDA. In August
2018, the Bureau issued an interpretive
and procedural rule to implement and
clarify the EGRRCPA amendments to
HMDA (2018 HMDA Rule).38 The 2018
HMDA Rule clarifies that insured
depository institutions and insured
credit unions covered by a partial
exemption have the option of reporting
exempt data fields as long as they report
all data fields within any exempt data
point for which they report data;
clarifies that only loans and lines of
credit that are otherwise HMDA
reportable count toward the thresholds
for the partial exemptions; clarifies
which of the data points in Regulation
C are covered by the partial exemptions;
designates a non-universal loan
identifier for partially exempt
transactions for institutions that choose
not to report a universal loan identifier;
and clarifies the exception to the partial
exemptions for insured depository
36 Home Mortgage Disclosure (Regulation C), 84
FR 20972 (May 13, 2019).
37 Home Mortgage Disclosure (Regulation C), 84
FR 57946 (Oct. 29, 2019).
38 Partial Exemptions from the Requirements of
the Home Mortgage Disclosure Act Under the
Economic Growth, Regulatory Relief, and Consumer
Protection Act (Regulation C), 83 FR 45325 (Sept.
7, 2018).
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institutions with less than satisfactory
examination histories under the
Community Reinvestment Act of 1977.
This final rule incorporates into
Regulation C these interpretations and
procedures, with minor adjustments, by
adding new § 1003.3(d) relating to the
partial exemptions and making various
amendments to the data compilation
requirements in § 1003.4. The Final
Rule further implements EGRRCPA by
addressing certain additional
interpretive issues relating to the partial
exemptions that the 2018 HMDA Rule
did not specifically address, such as
how to determine whether a partial
exemption applies to a transaction after
a merger or acquisition. The provisions
in the final rule implementing the
EGRRCPA took effect on January 1,
2020.
4.1.2 Regulation C Data Points and
Coverage 2019 Advance Notice of
Proposed Rulemaking
In May 2019, the Bureau issued an
ANPR relating to the data points that the
Bureau’s 2015 HMDA Rule added to
Regulation C or revised to require
additional information.39 Additionally,
the ANPR relates to the requirement that
institutions report certain business- or
commercial-purpose transactions under
Regulation C. The Bureau currently is
reviewing the comments received and
expects to issue a Notice of Proposed
Rulemaking (NPRM) later in 2020.
4.1.3 HMDA Public Data Disclosure
Guidance
The Bureau has decided to commence
a new notice-and-comment rulemaking
to govern HMDA data disclosure. In its
2015 final rule to implement the DoddFrank Act amendments to HMDA, the
Bureau adopted a balancing test to
determine whether and how HMDA
data should be modified prior to its
disclosure to the public in order to
protect applicant and borrower privacy
while also fulfilling HMDA’s public
disclosure purposes.40 The Bureau
sought comment in 2017 on its
proposed application of the balancing
test to the 2018 data,41 and issued final
policy guidance in late 2018.42
In consideration of stakeholder
comments urging that determinations
concerning the disclosure of loan-level
HMDA data be effectuated through more
formal processes, the Bureau has
decided to commence a new notice-andcomment rulemaking to govern HMDA
39 Home
Mortgage Disclosure (Regulation C), 84
FR 20049 (May 8, 2019).
40 80 FR 66128, 66134 (Oct. 28, 2015).
41 Disclosure of Loan-Level HMDA Data, 82 FR
44586 (Sept. 25, 2017).
42 84 FR 649 (Jan. 31, 2019).
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data disclosure. The Bureau expects to
issue a NPRM later in 2020. The Bureau
plans to consider the HMDA data points
and public disclosure proposed rules
concurrently.
4.1.4
2018 HMDA Data Release
In August 2019, on behalf of the
FFIEC, the Bureau released data on
mortgage lending transactions at U.S.
financial institutions covered by
HMDA.43 Covered institutions include
banks, savings associations, credit
unions, and mortgage companies. The
HMDA data covers 2018 lending
activity. Many of the data points were
available for the first time in the 2018
HMDA data. Certain smaller-volume
financial institutions are not required to
report all these data, pursuant to the
EGRRCPA, as described above in section
4.1.1
With the data, the Bureau released
two Data Point articles. The first
describes the historical data points in
the 2018 HMDA data, as well as recent
trends in mortgage and housing
markets.44
The second introduces the new and
revised data points in the 2018 HMDA
data and provides some initial
observations about the nation’s
mortgage market in 2018 based on those
new or revised data points.45
Earlier, in March 2019, Modified
LARs data were published for
approximately 5,400 financial
institutions.46 The Modified LARs
contain loan-level information for 2018
on individual HMDA filers, modified to
protect privacy.
4.1.5
HMDA Guidance and Resources
The Bureau created many resources to
help facilitate compliance with
Regulation C, including an Executive
Summary of HMDA rule changes; Small
Entity Compliance Guide; Key Dates
Timeline, Institutional and
Transactional Coverage Charts;
Reportable HMDA Data Chart; sample
43 Consumer Fin. Prot. Bureau, FFIEC Announces
Availability of 2018 Data on Mortgage Lending
(Aug. 30, 2019), https://www.consumerfinance.gov/
about-us/newsroom/ffiec-announces-availability2018-data-mortgage-lending/.
44 Consumer Fin. Prot. Bureau, Data point: 2018
mortgage market activity and trends, (Aug. 30,
2019), https://www.consumerfinance.gov/dataresearch/research-reports/data-point-2018mortgage-market-activity-and-trends/.
45 Consumer Fin. Prot. Bureau, Data Point:
Introducing New and Revised Data Points in HMDA
(Aug. 30, 2019), https://www.consumerfinance.gov/
data-research/research-reports/introducing-newrevised-data-points-hmda/.
46 Consumer Fin. Prot. Bureau, HMDA Modified
Loan Application Registers Released (Mar. 29,
2019), https://www.consumerfinance.gov/about-us/
newsroom/hmda-modified-loan-applicationregisters-released/.
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data collection form, and Frequently
Asked Questions (FAQs), in addition to
downloadable Webinars that provide an
overview of the HMDA rule. The Bureau
also provides on its website an
Interactive Bureau Regulations version
of Regulation C.
HMDA resources are routinely
updated throughout the year to ensure
HMDA reporters have the most up-todate information. For example, in
September 2019, the Bureau released
the 2020 Filing Instructions Guide (FIG)
and the Supplemental Guide for
Quarterly Filers. Together with the
FFIEC, in March 2019, the Bureau also
published the 2019 edition of the
HMDA Getting it Right Guide. The
Bureau also worked with the FFIEC to
publish data submission resources for
HMDA filers and vendors on its
Resources for HMDA Filers website.
4.2 ECOA and Regulation B
Rulemaking and Guidance
4.2.1 Statement on Collection of
Demographic Information by
Community Development Financial
Institutions
In July 2019, the Bureau issued a
statement regarding the collection of
demographic information by financial
institutions that are Community
Development Financial Institutions
(CDFIs) receiving assistance from the
U.S. Department of the Treasury’s
Community Development Financial
Institutions Fund (CDFI Fund).47
The Bureau became aware that some
financial institutions that are certified
CDFIs receiving assistance from the
CDFI Fund have inquired whether they
are subject to ECOA and Regulation B’s
general prohibition on a creditor
collecting certain information about an
applicant for credit, such as the
applicant’s race or ethnicity.
The statement explains that CDFIs
receiving Federal financial assistance
from the CDFI Fund may collect
demographic information on the
individuals the CDFI serves, consistent
with the ECOA and its implementing
Regulation B, provided the collection of
the information is for the purpose of
complying with the regulatory
requirements of the CDFI Fund.
4.2.2 Small Business Data Collection
As described earlier in this report,
section 1071 of the Dodd-Frank Act
amends ECOA to require, subject to
47 Consumer Fin. Prot. Bureau, Statement on
Collection of Demographic Information by
Community Development Financial Institutions
(July 29, 2019), https://www.consumerfinance.gov/
policy-compliance/guidance/supervisory-guidance/
statement-collection-demographic-informationcommunity-development-financial-institutions/.
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rules prescribed by the Bureau, financial
institutions to collect, report, and make
public certain information concerning
credit applications made by womenowned, minority-owned, and small
businesses. The amendments to ECOA
made by the Dodd-Frank Act require
that specific data be collected,
maintained, and reported, including but
not limited to: the type of loan applied
for, the amount of credit applied for, the
type of action taken with regard to each
application, the census tract of the
principal place of business of the loan
applicant, and the race, sex, and
ethnicity of the principal owners of the
business. The Dodd-Frank Act also
provides authority for the Bureau to
require any additional data that the
Bureau determines would aid in
fulfilling the purposes of section 1071.
The Bureau may adopt exceptions to
any requirement of section 1071 and
may exempt any financial institution
from its requirements, as the Bureau
deems necessary or appropriate to carry
out section 1071’s purposes.
The Bureau issued an RFI in 2017
seeking public comment on, among
other things, the types of credit products
offered, and the types of data currently
collected by lenders in this market, and
the potential complexity, cost of, and
privacy issues related to, small business
data collection.
In connection with its Spring 2019
rulemaking agenda,48 the Bureau
announced its intention to recommence
work to develop rules to implement
section 1071 of the Dodd-Frank Act.
In November 2019, the Bureau hosted
a symposium on small business data
collection. The information received in
response to the 2017 RFI and the
symposium will help the Bureau
determine how to implement the statute
efficiently while minimizing burdens on
lenders.
In addition, the Bureau is working to
conduct a survey of lenders to obtain
estimates of one-time costs lenders of
varying sizes would incur to collect and
report data pursuant to section 1071.
The Bureau anticipates that its next step
will be the release of materials in
advance of convening a panel under the
Small Business Regulatory Enforcement
Fairness Act (SBREFA), in conjunction
with the Office of Management and
Budget and the Small Business
Administration’s Chief Counsel for
Advocacy, to consult with
representatives of small businesses that
may be affected by the rulemaking.49
48 Consumer Fin. Prot. Bureau, Regulatory
Agenda, https://www.consumerfinance.gov/policycompliance/rulemaking/regulatory-agenda/ (Last
visited Apr. 29, 2020).
49 Id.
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Also, during 2019, the Bureau was
involved in litigation regarding the
implementation of section 1071 of the
Dodd-Frank Act. Information
concerning the litigation can be found
in section 5 of this Report.
5. Amicus Program and Other Litigation
The Bureau files amicus curiae, or
‘‘friend-of-the-court,’’ briefs in
significant court cases concerning
Federal consumer financial protection
laws, including ECOA. These amicus
briefs provide the courts with the
Bureau’s views on significant consumer
financial protection issues. Information
regarding the Bureau’s amicus program,
including a description of the amicus
briefs it previously filed, is available on
the Bureau’s website.50
During 2019, the Bureau was involved
in litigation regarding section 1071 of
the Dodd-Frank Act. On May 14, 2019,
the California Reinvestment Coalition
filed a lawsuit in the U.S. District Court
for the Northern District of California
against the Bureau seeking an order
compelling the Bureau to issue rules
implementing section 1071 of the DoddFrank Act. On June 27, 2019, an
amended complaint was filed adding
the National Association for Latino
Community Asset Builders and two
individuals as plaintiffs in the lawsuit.
The Bureau answered and the parties
filed cross-motions for summary
judgment. Information about the
Bureau’s efforts to implement section
1071 can be found in section 4.2.2 of
this Report.
6. Fair Lending Supervision And
Enforcement
6.1 Risk-Based Prioritization
Because Congress charged the Bureau
with responsibility for overseeing many
lenders and products, the Bureau has
long-used a risk-based approach to
prioritize supervisory examinations and
enforcement activity. This approach
helps ensure that the Bureau focuses on
areas that present substantial risk of
credit discrimination for consumers.51
This same approach continued in 2019.
As part of the prioritization process,
the Bureau identifies emerging
developments and trends by monitoring
key consumer financial markets. If this
market intelligence identifies fair
lending risks in a particular market that
50 https://www.consumerfinance.gov/policycompliance/amicus/.
51 For additional information regarding the
Bureau’s risk-based approach in prioritizing
supervisory examinations, see section 3.2.3, RiskBased Approach to Examinations, Supervisory
Highlights Summer 2013, https://
files.consumerfinance.gov/f/201308_cfpb_
supervisory-highlights_august.pdf.
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require further attention, that
information is incorporated into the
prioritization process to determine the
type and extent of attention required to
address those risks.
The prioritization process
incorporates a number of additional
factors, including: Tips and leads from
industry whistleblowers, advocacy
groups, and government agencies;
supervisory and enforcement history;
consumer complaints; and results from
analysis of HMDA and other publicly
available data.
6.1.1 Fair Lending Supervisory and
Enforcement Priorities
Through its annual risk-based
prioritization process for 2019, the
Bureau focused its fair lending
supervision efforts on mortgage
origination, small business lending,
student loan origination, and debt
collection and model use.
As in previous years, the Bureau’s
mortgage origination work continued to
focus on: (1) Redlining and whether
lenders intentionally discouraged
prospective applicants living or seeking
credit in minority neighborhoods from
applying for credit; (2) assessing
whether there is discrimination in
underwriting and pricing processes
including steering; and (3) HMDA data
integrity and validation (which supports
ECOA exams) as well as HMDA
diagnostic work (monitoring and
assessing new rule compliance).
The Bureau’s small business lending
work focused on assessing whether (1)
there is discrimination in the
application, underwriting, and pricing
processes, (2) creditors are redlining,
and (3) there are weaknesses in fair
lending related compliance management
systems (CMS).
The Bureau’s student loan origination
work focused on whether there is
discrimination in policies and practices
governing underwriting and pricing. In
the area of debt collection and model
use, the Bureau’s work focused on
whether there is discrimination in
policies and practices governing auto
servicing and credit card collections,
including the use of models that predict
recovery outcomes.
The Bureau also continued to enforce
Federal fair lending laws, including
ECOA and HMDA. One key area on
which the Bureau focused its fair
lending enforcement efforts was
addressing potential discrimination in
mortgage lending, including the
unlawful practice of redlining.
6.2 Fair Lending Supervision
In 2019, the Bureau initiated 26
supervisory events at financial services
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institutions under the Bureau’s
jurisdiction to determine compliance
with Federal laws intended to ensure
the fair, equitable, and
nondiscriminatory access to credit for
both individuals and communities,
including ECOA and HMDA.
Consistent with BCFP Bulletin 2018–
01,52 the Bureau issues Matters
Requiring Attention (MRAs) to correct
violations of Federal consumer financial
law, remediate harmed consumers, and
address weaknesses in CMS that
examiners found are directly related to
violations of Federal consumer financial
law. MRAs include timeframes for
periodic reporting of efforts taken to
address these matters, as well as
expected timeframes for
implementation. The Bureau also uses
Supervisory Recommendations (SRs) to
address the Bureau’s supervisory
concerns related to financial
institutions’ CMS. SRs do not include
provisions for periodic reporting nor
expected timelines for implementation.
In 2019, the Bureau provided MRAs
directing entities to take corrective
actions that will be monitored by the
Bureau through follow-up supervisory
events. The Bureau also issued SRs in
2019 relating to supervisory concerns
related to weak fair lending CMS,
including weak policies and procedures,
risk assessments, fair lending testing,
and/or fair lending training.
6.3 Fair Lending Supervisory
Developments
6.3.1 Updated ECOA Baseline Review
Modules and HMDA Examination
Procedures
In April 2019, the Bureau updated its
ECOA Baseline Review Modules 53 and
its HMDA Examination Procedures.54
The ECOA Baseline Review Modules
consist of five modules that CFPB
examination teams use to conduct
ECOA Baseline Reviews to evaluate how
institutions’ CMS identify and manage
fair lending risks under ECOA. In
addition, examination teams use
Module 2: Fair Lending CMS to review
52 Consumer Fin. Prot. Bureau, BCFP Bulletin
2018–01: Changes to Types of Supervisory
Communications (Sept. 25, 2018), https://
files.consumerfinance.gov/f/documents/bcfp_
bulletin-2018-01_changes-to-supervisorycommunications.pdf.
53 Consumer Fin. Prot. Bureau, ECOA Baseline
Review Procedures (Apr. 1, 2019), https://
www.consumerfinance.gov/policy-compliance/
guidance/supervision-examinations/equal-creditopportunity-act-ecoa-baseline-review-procedures/.
54 Consumer Fin. Prot. Bureau, HMDA
Examination Procedures (Apr. 1, 2019), https://
www.consumerfinance.gov/policy-compliance/
guidance/supervision-examinations/homemortgage-disclosure-act-hmda-examinationprocedures/.
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a supervised entity’s fair lending CMS
as part of an ECOA Targeted Review,
supplemented with additional modules
from these procedures as necessary.
A HMDA review includes
transactional testing for HMDA data
accuracy conducted using the HMDA
Examination Procedures within the
CFPB Supervision and Examination
Manual. The updated HMDA
Examination Procedures include
updates to reflect the Bureau’s
interpretive and procedural rule, issued
in August 2018, which implements and
clarifies section 104 of EGRRCPA.
reported inaccurate race, ethnicity, and
sex information and that much of
Freedom’s loan officers’ recording of
this incorrect information was
intentional. For example, certain loan
officers were told by managers or other
loan officers that, when applicants did
not provide their race or ethnicity, they
should select non-Hispanic white
regardless of whether that was accurate.
Under the terms of the consent order,
Freedom must pay a civil money
penalty of $1.75 million and take steps
to improve its compliance management
to prevent future violations.
6.4 Fair Lending Enforcement
The Bureau has the statutory
authority to bring actions to enforce the
requirements of HMDA and ECOA. In
this regard, the Bureau has the authority
to engage in research, conduct
investigations, file administrative
complaints, hold hearings, and
adjudicate claims through the Bureau’s
administrative enforcement process.
The Bureau also has independent
litigating authority and can file cases in
Federal court alleging violations of fair
lending laws under the Bureau’s
jurisdiction. Like other Federal bank
regulators, the Bureau is required to
refer matters to DOJ when it has reason
to believe that a creditor has engaged in
a pattern or practice of lending
discrimination.55
6.4.2 ECOA Referrals to the
Department of Justice
The Bureau must refer to the DOJ a
matter when it has reason to believe that
a creditor has engaged in a pattern or
practice of lending discrimination in
violation of ECOA.57 The Bureau also
may refer other potential ECOA
violations to the DOJ.58 In 2019, the
Bureau referred three matters to the DOJ
involving discrimination pursuant to
section 706(g) of ECOA. The first
referral involved discrimination based
on a pattern or practice of redlining in
mortgage origination based on race. The
second referral resulted from
discrimination based on receipt of
public assistance income in mortgage
origination. Lastly, the third referral
involved discrimination based on race
and national origin in auto origination.
6.4.1 Public Enforcement Actions
In 2019, the Bureau filed one fair
lending public enforcement action: In
the Matter of Freedom Mortgage
Corporation (File No. 2019–BCFP–
0007). The Bureau announced the
settlement with Freedom Mortgage
Corporation (Freedom) on June 5,
2019.56 Freedom is a mortgage lender
with its principal place of business in
Mount Laurel, New Jersey, and one of
the ten largest HMDA reporters
nationwide. For each year from 2013
through 2016, it originated more than
50,000 home-purchase loans, including
refinancings of home-purchase loans.
Freedom is required to collect, record,
and report data on HMDA-covered
transactions to comply with HMDA and
Regulation C.
According to the consent order, the
Bureau found that Freedom violated
HMDA and Regulation C by submitting
mortgage-loan data for 2014 to 2017 that
contained numerous and intentional
errors. The Bureau found that Freedom
55 15
U.S.C. 1691e(h).
Fin. Prot. Bureau, Consumer
Financial Protection Bureau Settles with Freedom
Mortgage Corporation (Jun, 5, 2019), https://
www.consumerfinance.gov/about-us/newsroom/
bureau-settles-freedom-mortgage-corporation/.
56 Consumer
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6.4.3 Implementing Enforcement
Orders
When an enforcement action is
resolved through a public enforcement
order, the Bureau (together with DOJ,
when relevant) takes steps to ensure that
the respondent or defendant complies
with the requirements of the order.
Depending on the specific requirements
of individual public enforcement orders,
the Bureau may take steps to ensure that
borrowers who are eligible for
compensation receive remuneration and
that the defendant has complied with
the injunctive provisions of the order,
including implementing a
comprehensive fair lending compliance
management system. Throughout 2019,
the Bureau continued to implement and
oversee compliance with the two public
enforcement orders described below.
On June 29, 2016, the Bureau and the
DOJ announced a joint action against
BancorpSouth Bank (BancorpSouth) for
discriminatory mortgage lending
practices that harmed African
Americans. The consent order, which
was entered by the Court on July 25,
57 15
U.S.C. 1691e(g).
58 Id.
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2016, required BancorpSouth to pay $4
million in direct loan subsidies in
minority neighborhoods in Memphis; 59
at least $800,000 for community
programs, advertising, outreach, and
credit repair; $2.78 million to African
American consumers who were
unlawfully denied or overcharged for
loans; and a $3 million penalty.60 On
June 25, 2018, the Bureau announced
that participation materials were mailed
to potentially eligible African American
borrowers identified as harmed by
BancorpSouth’s alleged discrimination
in mortgage lending between 2011 and
2015, notifying them how to receive
redress. Starting on March 15, 2019,
checks were mailed to African
American borrowers who were
confirmed as eligible to receive a
payment.
59 ‘‘Majority-minority neighborhoods’’ or
‘‘minority neighborhoods’’ refers to census tracts
with a minority population greater than 50 percent.
60 Consent Order, United States v. BancorpSouth
Bank, No. 1:16-cv-00118–GHD–DAS (N.D. Miss.
July 25, 2016), ECF No. 8, https://
files.consumerfinance.gov/f/documents/201606_
cfpb_bancorpSouth-consent-order.pdf.
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On February 2, 2016, working with
the DOJ, the Bureau ordered Toyota
Motor Credit Corporation (Toyota Motor
Credit) to pay up to $21.9 million in
damages to harmed African American
and Asian and/or Pacific Islander
borrowers for unlawful
discrimination.61 On December 29,
2017, participation materials were
mailed to potentially eligible borrowers
whom Toyota Motor Credit overcharged
for their auto loans notifying them how
to participate in the settlement fund. On
February 1, 2019, checks were mailed to
eligible, participating consumers.
6.4.4 Pending Fair Lending
Investigations
In 2019, the Bureau had a number of
ongoing and newly opened fair lending
investigations of institutions. One of the
Bureau’s key areas of focus was
potential discrimination in mortgage
lending, including the unlawful practice
of redlining.
61 Consent Order In re Toyota Motor Credit
Corporation, CFPB No. 2016–CFPB–0002 (Feb. 2,
2016), https://files.consumerfinance.gov/f/201602_
cfpb_consent-order-toyota-motor-creditcorporation.pdf.
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7. Interagency Reporting on ECOA and
HMDA
The Bureau is statutorily required to
file a report to Congress annually
describing the administration of its
functions under ECOA, summarizing
public enforcement actions taken by
other agencies with administrative
enforcement responsibilities under
ECOA, and providing an assessment of
the extent to which compliance with
ECOA has been achieved.62 In addition,
the Bureau’s annual HMDA reporting
requirement calls for the Bureau, in
consultation with HUD, to report
annually on the utility of HMDA’s
requirement that covered lenders
itemize certain mortgage loan data.63
7.1
Reporting on ECOA Enforcement
The enforcement efforts and
compliance assessments made by all the
agencies assigned enforcement authority
under section 704 of ECOA are
discussed in this section.
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63 12
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7.1.1
Public Enforcement Actions
The eleven agencies charged with
administrative enforcement of ECOA
under section 704 are as follows:
• CFPB;
• FDIC;
• FRB;
• NCUA;
64 15
U.S.C. 1691c.
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65 Collectively, the Board of Governors of the
Federal Reserve System (FRB), the Federal Deposit
Insurance Corporation (FDIC), the National Credit
Union Administration (NCUA), the Office of the
Comptroller of the Currency (OCC), and the Bureau
of Consumer Financial Protection (Bureau)
comprise the Federal Financial Institutions
Examination Council (FFIEC). The FFIEC is a
‘‘formal interagency body empowered to prescribe
uniform principles, standards, and report forms for
the [F]ederal examination of financial institutions’’
by the member agencies listed above and the State
Liaison Committee ‘‘and to make recommendations
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• Agricultural Marketing Service
(AMS) of the U.S. Department of
Agriculture (USDA),66
to promote uniformity in the supervision of
financial institutions.’’ Federal Financial
Institutions Examination Council, https://
www.ffiec.gov (last visited March 30, 2020). The
State Liaison Committee was added to FFIEC in
2006 as a voting member.
66 The Grain Inspection, Packers and Stockyards
Administration (GIPSA) was eliminated as a standalone agency within USDA in 2017. The functions
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• Department of Transportation
(DOT);
• Farm Credit Administration (FCA);
• Federal Trade Commission (FTC);
• Securities and Exchange
Commission (SEC); and
• Small Business Administration
(SBA).67
In 2019, none of the 11 ECOA
enforcement agencies brought public
enforcement actions for violations of
ECOA. Below is an overview of the yearto-year combined ECOA enforcement
actions at all Federal agencies since
2012:
7.1.2 Violations Cited During ECOA
Examinations
TABLE 3—ECOA ENFORCEMENT BY
ALL FEDERAL AGENCIES
Total public
enforcement
actions
Calendar year
2012
2013
2014
2015
2016
2017
2018
2019
68 17
................................
................................
................................
................................
................................
................................
................................
................................
9
2
5
3
1
0
0
Among institutions examined for
compliance with ECOA and Regulation
B, the FFIEC agencies reported that the
most frequently-cited violations were as
follows:
TABLE 4—REGULATION B VIOLATIONS CITED BY FFIEC AGENCIES, 2019
Regulation B violations: 2019
FFIEC agencies reporting
12 CFR 1002.4(a), (b), 1002.5(b), 1002.6(b), 1002.7(d)(1): Discrimination ......................................................
Discrimination on a prohibited basis in a credit transaction; Discouragement of prospective applicants on a
prohibited basis; A creditor shall not inquire about the race, color, religion, national origin, or sex of an
applicant or any other person in connection with a credit transaction; Improperly considering receipt of
public assistance in a system of evaluating applicant creditworthiness; Improperly requiring the signature
of the applicant’s spouse or other person.
12 CFR 1002.9(a)(1), (a)(2), (b)(1), (b)(2), (c): Adverse Action ........................................................................
Failure to provide notice to the applicant 30 days after receiving a completed application concerning the
creditor’s approval of, counteroffer or adverse action on the application; failure to provide appropriate notice to the applicant 30 days after taking adverse action on an incomplete application; failure to provide
sufficient information in an adverse action notification, including the specific reasons for the action taken.
12 CFR 1002.12(b)(1): Record Retention .........................................................................................................
Failure to preserve application records.
Among institutions examined for
compliance with ECOA and Regulation
B, the Non-FFIEC agencies reported that
CFPB,69 FDIC,70 FRB,71 OCC.72
CFPB,73 FDIC,74 FRB,75 NCUA,76
OCC.77
CFPB,78 NCUA,79 OCC.80
the most frequently-cited violations
were as follows:
TABLE 5—REGULATION B VIOLATIONS CITED BY NON–FFIEC ECOA AGENCIES, 2019
Regulation B violations: 2019
Non–FFIEC agencies reporting
12 CFR 1002.9(a)(1)(i), (a)(2), (c): Adverse Action ...........................................................................................
Failure to provide notice to the applicant 30 days after receiving a completed application concerning the
creditor’s approval of, counteroffer or adverse action on the application; failure to provide sufficient information in an adverse action notification, including the specific reasons for the action taken; failure to provide ECOA notice.
12 CFR 1002.13: Failure to request and collect information for monitoring purposes .....................................
The AMS, SEC and the SBA reported
that they received no complaints based
on ECOA or Regulation B in 2019. In
2019, the DOT Office of Aviation
Enforcement and Proceedings reported
that it may have received a relatively
small number of consumer inquiries or
complaints concerning credit matters
possibly covered by ECOA, which it
processed informally. The FTC is an
enforcement agency and does not
conduct compliance examinations.
previously performed by GIPSA have been
incorporated into the Agricultural Marketing
Service (AMS), and ECOA reporting now comes
from the Packers and Stockyards Division, Fair
Trade Practices Program, AMS.
67 15 U.S.C. 1691c.
68 This table identifies public enforcement actions
by the year they were initiated (when filed and
announced publicly).
69 12 CFR 1002.4(a), 1002.4(b), 1002.6(b).
70 12 CFR 1002.5(b).
71 12 CFR 1002.4(a).
72 12 CFR 1002.7(d)(1).
73 12 CFR 1002.9(a)(1), (a)(2), (b)(1), (b)(2), (c)(1).
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7.2 Referrals to the Department of
Justice
In 2019, four FFIEC agencies (CFPB,
FDIC, FRB, and NCUA) made a total of
seven referrals to the DOJ involving
discrimination in violation of ECOA. A
brief description of those matters
follows.
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FCA
FCA
As reported in section 6.4.2, in 2019,
the Bureau referred three matters to the
DOJ. Those referrals involved:
Discrimination based on a pattern or
practice of redlining in mortgage
origination based on race;
discrimination based on receipt of
public assistance income in mortgage
origination; and discrimination based
on race and national origin in auto
origination.
74 12
CFR 1002.9(a)(2), (b)(2).
CFR 1002.9(a)(1)(i), (c)(2).
76 12 CFR 1002.9(a)(1), (a)(2), (b)(2).
77 12 CFR 1002.9(a)(1)(i), (a)(1)(ii), (a)(2).
78 12 CFR 1002.12(b)(1).
79 12 CFR 1002.12(b).
80 12 CFR 1002.12(b)(1).
75 12
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In 2019, the FDIC referred two matters
to the DOJ. The first referral involved
discrimination in auto origination on
the prohibited basis of the applicant’s
receipt of income derived from a public
assistance program. The second referral
involved discrimination in the
underwriting of commercial loans on
the prohibited basis of religion.
The FRB referred one matter to the
DOJ in 2019. The referral involved
pricing discrimination based on
national origin, race, and sex.
In 2019, the NCUA referred one
matter to the DOJ involving
7.3
discrimination on the prohibited basis
of age.
TABLE 6—COMBINED ECOA
REFERRALS TO DOJ
Number of
referrals to DOJ
Calendar year
2012
2013
2014
2015
2016
2017
2018
2019
................................
................................
................................
................................
................................
................................
................................
................................
12
24
18
16
20
11
2
7
27407
Reporting on HMDA
The Bureau’s annual HMDA reporting
requirement calls for the Bureau, in
consultation with HUD, to report
annually on the utility of HMDA’s
requirement that covered lenders
itemize loan data in order to disclose
the number and dollar amount of certain
mortgage loans and applications,
grouped according to various
characteristics.81 The Bureau, in
consultation with HUD, finds that
itemization and tabulation of these data
furthers the purposes of HMDA.
APPENDIX A: DEFINED TERMS
Term
Definition
AI ...............................................................
AMS ..........................................................
ANPR ........................................................
Bureau or CFPB .......................................
CDFI ..........................................................
CDFI Fund ................................................
CMS ..........................................................
Dodd-Frank Act .........................................
DOJ ...........................................................
DOT ...........................................................
ECOA ........................................................
EGRRCPA ................................................
FCA ...........................................................
FCRA ........................................................
FDIC ..........................................................
Federal Reserve Board or FRB ................
FFIEC ........................................................
Artificial Intelligence.
Agricultural Marketing Service of the U.S. Department of Agriculture.
Advance Notice of Proposed Rulemaking.
The Bureau of Consumer Financial Protection or Consumer Financial Protection Bureau.
Community Development Financial Institutions.
Community Development Financial Institutions Fund.
Compliance Management System.
The Dodd-Frank Wall Street Reform and Consumer Protection Act.
U.S. Department of Justice.
U.S. Department of Transportation.
The Equal Credit Opportunity Act.
Economic Growth, Regulatory Relief, and Consumer Protection Act.
Farm Credit Administration.
Fair Credit Reporting Act.
Federal Deposit Insurance Corporation.
Board of Governors of the Federal Reserve System.
Federal Financial Institutions Examination Council—the FFIEC member agencies are the Board of
Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation
(FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Bureau of Consumer Financial Protection (Bureau). The State Liaison Committee was added to FFIEC in 2006 as a voting member.
Federal Trade Commission.
Grain Inspection, Packers and Stockyards Administration of the U.S. Department of Agriculture.
Housing counseling agency.
The Home Mortgage Disclosure Act.
U.S. Department of Housing and Urban Development.
Loan Application Registers.
Machine Learning.
Matters Requiring Attention.
No-Action Letter.
The National Credit Union Administration.
Notice of Proposed Rulemaking.
Office of the Comptroller of the Currency.
Office of Fair Lending and Equal Opportunity.
Office of Innovation.
Request for Information.
Small Business Administration.
Small Business Regulatory Enforcement Fairness Act.
Securities and Exchange Commission.
Supervisory Recommendations.
U.S. Department of Agriculture.
FTC ...........................................................
GIPSA .......................................................
HCA ...........................................................
HMDA ........................................................
HUD ..........................................................
LAR ...........................................................
ML .............................................................
MRA ..........................................................
NAL ...........................................................
NCUA ........................................................
NPRM ........................................................
OCC ..........................................................
OFLEO ......................................................
OI ..............................................................
RFI ............................................................
SBA ...........................................................
SBREFA ....................................................
SEC ...........................................................
SR .............................................................
USDA ........................................................
Signing Authority
The Director of the Bureau, having
reviewed and approved this document,
is delegating the authority to
electronically sign this document to
Laura Galban, a Bureau Federal Register
81 12
Liaison, for purposes of publication in
the Federal Register.
Dated: May 5, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer
Financial Protection.
[FR Doc. 2020–09890 Filed 5–7–20; 8:45 am]
BILLING CODE 4810–AM–P
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]]>Agencies
[Federal Register Volume 85, Number 90 (Friday, May 8, 2020)]
[Notices]
[Pages 27395-27407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09890]
[[Page 27395]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Fair Lending Report of the Bureau of Consumer Financial
Protection, April 2020
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Fair Lending Report of the Bureau of Consumer Financial
Protection.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing its eighth Fair Lending Report of the Bureau of Consumer
Financial Protection (Fair Lending Report) to Congress. The Bureau is
committed to ensuring fair, equitable, and nondiscriminatory access to
credit for both individuals and communities. This report describes our
fair lending activities in innovation, outreach, prioritization,
guidance and rulemaking, supervision, and enforcement for calendar year
2019.
DATES: The Bureau released the April 2020 Fair Lending Report on its
website on April 30, 2020.
FOR FURTHER INFORMATION CONTACT: Bobby Conner, Senior Policy Counsel,
Fair Lending, at 1-855-411-2372. If you require this document in an
alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
1. Fair Lending Report of the Bureau of Consumer Financial Protection,
April 2020
Message From Kathleen L. Kraninger, Director
I am pleased to present this Fair Lending Annual Report to Congress
reflecting the Consumer Financial Protection Bureau's fair lending
efforts in 2019.
During the past year, we've worked hard to enhance our fair lending
efforts by leveraging the authorities provided by Congress and the
Bureau's resources to be more effective and comprehensively utilized.
From supervision and enforcement to rulemaking, guidance and education,
the Bureau is dedicated to using all the tools at its disposal to
achieve our mission: Fair, equitable, and nondiscriminatory access to
credit markets for consumers and their communities.
Through our supervision and enforcement work, we strive to foster a
culture of institutional compliance and prevention of consumer harm. As
part of these important efforts, the Bureau continues to vigorously
enforce fair lending laws, including the Equal Credit Opportunity Act
and the Home Mortgage Disclosure Act. Through our rulemaking and
guidance, we articulate to regulated entities clear rules of the road
that protect consumers while promoting competition, transparency, and
fair markets for financial products and services. Through our outreach,
we continue to educate and empower consumers to make informed decisions
that secure their financial well-being.
In addition, the Bureau continues to focus on consumer beneficial
innovation--one of my key priorities--including innovation that
provides fair, equitable, and non-discriminatory access to credit. In
2019, the Bureau issued three new policies to help promote innovation
and facilitate compliance: A revised No-Action Letter Policy, a revised
Trial Disclosure Program Policy, and the Compliance Assistance Sandbox
Policy. We encourage innovators to consider these tools to develop new
financial products and services to better serve consumers.
One particular fair lending issue ripe for innovative solutions is
making financial products and services more accessible to consumers who
are unbanked and underbanked, including those who are Limited English
Proficient (LEP). By working on these complex issues together, I am
confident that we can find ways to overcome obstacles and provide
greater access to credit markets, including to LEP consumers.
In 2019, we issued a Request for Information regarding ``Tech
Sprints.'' Tech Sprints gather regulators, technologists, financial
institutions, and subject matter experts from key stakeholders to
collaboratively develop innovative solutions to clearly identified
challenges. We are excited to explore the use of Tech Sprints to
encourage regulatory innovation and collaborate with stakeholders in
developing viable solutions to regulatory compliance challenges. I hope
to announce more about these efforts in the near future.
Finally, in light of recent events concerning the COVID-19
pandemic, I am mindful of the need for additional innovative solutions
that protect America's consumers.
I am proud of the work that is highlighted in this report and
grateful to the Bureau staff who have been instrumental in leading
these efforts. Going forward, we will continue to work on expanding
responsible access to credit and helping to ensure that all consumers
are protected from discrimination.
Sincerely,
Kathleen L. Kraninger
Message From Patrice Alexander Ficklin, Director, Office of Fair
Lending and Equal Opportunity
As we reflect on another year and look ahead to the next, the
Bureau continues to make progress in ensuring fair, equitable, and
nondiscriminatory access to credit for all consumers in America. To
that end, I am honored to share our achievements in this, our eighth
Fair Lending Report.
During the past year, the Office of Fair Lending and Equal
Opportunity (OFLEO) continued to coordinate the Bureau's fair lending
work both internally, and with other governmental agencies, civil
rights organizations, consumer groups, and industry to encourage
consumer-friendly innovation to expand access to credit, especially for
unbanked and underbanked consumers.
Through our work on innovation, we also aim to provide meaningful
guidance to institutions on fair lending compliance in the age of
innovation. In this vein, in 2019, along with four other financial
regulators, the Bureau issued a joint statement about the use of
alternative data in underwriting, seeking to expand fair, equitable,
and nondiscriminatory access to credit. The use of alternative data
such as cash-flow data may improve the speed and accuracy of credit
decisions and expand access to fair and affordable credit to consumers
who currently may not obtain credit in the mainstream credit system,
and the Bureau encourages responsible use of such data to expand access
to credit.
We are particularly excited by our role in launching the Bureau's
first Tech Sprints, which we hope will facilitate the use of innovative
technologies to address challenges experienced by consumers, industry
and regulators.
I look forward to continuing to work with all stakeholders in
protecting America's consumers and expanding access to credit. When
navigating complex fair lending issues, stakeholders should consider
OFLEO as a resource.
Sincerely,
Patrice Alexander Ficklin
1. Innovations in Access to Credit
1.1 Collaboration Between the Office of Fair Lending and Equal
Opportunity and the Office of Innovation
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) established the Bureau's mission to include both fair
lending and
[[Page 27396]]
innovation components. Specifically, the Dodd-Frank Act makes clear
that ``[t]he Bureau is authorized to exercise its authorities under
[F]ederal consumer financial law for the purposes of ensuring that,
with respect to consumer financial products and services . . . (2)
consumers are protected from unfair, deceptive, or abusive acts and
practices and from discrimination . . . and (5) markets for consumer
financial products and services operate transparently and efficiently
to facilitate access and innovation.'' \1\
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\1\ Dodd-Frank Act section 1021(b)(2), (5) (emphasis added).
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The Bureau is also responsible for providing oversight and
enforcement of Federal fair lending laws intended to ensure ``fair,
equitable, and nondiscriminatory access to credit for both individuals
and communities.'' \2\ The Bureau's Office of Fair Lending and Equal
Opportunity (OFLEO) coordinates fair lending work both internally and
externally with Bureau stakeholders, including consumer advocates,
civil rights organizations, industry, academia, and other government
agencies. OFLEO also works closely with the Office of Innovation (OI)
to help encourage innovation in expanding responsible credit access,
including fair, equitable, and nondiscriminatory access to credit to
underserved populations.
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\2\ Dodd-Frank Act sections 1002(13), 1013(c).
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On September 10, 2019, the Bureau, through OI, issued three new
policies to promote innovation and facilitate compliance: A revised No-
Action Letter (NAL) Policy,\3\ a revised Trial Disclosure Program
Policy,\4\ and the Compliance Assistance Sandbox Policy.\5\ The Bureau
is accepting applications under these policies and, as of this report,
has granted two NALs and a NAL template under the revised 2019 NAL
Policy.\6\
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\3\ Consumer Fin. Prot. Bureau, No-Action Letter Policy (Sept.
10, 2019), https://files.consumerfinance.gov/f/documents/cfpb_final-policy-on-no-action-letters.pdf; Policy on No-Action Letters, 84 FR
48229, 48229-48246 (Sept. 6, 2019).
\4\ Consumer Fin. Prot. Bureau, Policy to Encourage Trial
Disclosure Programs (Sept. 6, 2019), https://files.consumerfinance.gov/f/documents/cfpb_final-policy-to-encourage-tdp.pdf; Policy to Encourage Trial Disclosure Programs, 84
FR 48260, 48260-48272 (Sept. 13, 2019).
\5\ Consumer Fin. Prot. Bureau, Policy on the Compliance
Assistance Sandbox (Sept. 6, 2019), https://files.consumerfinance.gov/f/documents/cfpb_final-policy-on-cas.pdf;
Policy on the Compliance Assistance Sandbox, 84 FR 48246, 48246-
48260 (Sept. 13, 2019).
\6\ Consumer Fin. Prot. Bureau, Granted Applications, https://www.consumerfinance.gov/about-us/innovation/granted-applications/.
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As part of its coordination function, OFLEO works with OI regarding
applications to the Bureau's innovation programs that involve fair
lending and access to credit issues.
Review of such applications generally includes consideration of the
potential fair lending risks associated with the proposed product or
service, as well as its potential for expanding access to credit for
underserved or underbanked populations. In addition, after an
application related to fair lending or access to credit has been
granted by the Bureau, the two offices continue to work together, for
example, in reviewing data submitted by the recipient relating to fair
lending and credit access issues.
The Bureau encourages consumer-beneficial innovations, including
those that can help serve populations currently underserved by the
mainstream credit system. Entities are strongly encouraged to contact
the Bureau before applying to any of the innovation programs.
1.2 No-Action Letter Issued to HUD Housing Counseling Agencies
In September 2019, the Bureau issued a NAL under the revised 2019
NAL policy in response to a request by the U.S. Department of Housing
and Urban Development (HUD) on behalf of more than 1,600 housing
counseling agencies (HCAs) that participate in HUD's housing counseling
program.\7\ The NAL was issued after HUD brought concerns to the Bureau
about HCAs and mortgage lenders not entering into agreements that would
fund counseling services due to uncertainty about the application of
the Real Estate Settlement Procedures Act.
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\7\ Consumer Fin. Prot. Bureau, CFPB Issues Policies to
Facilitate Compliance and Promote Innovation (Sept. 10, 2019),
https://www.consumerfinance.gov/about-us/newsroom/bureau-issues-policies-facilitate-compliance-promote-innovation/.
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The more than 1,600 HUD-certified HCAs serve more than one million
households annually. They offer pre-purchase homeownership counseling
to potential borrowers looking to purchase their first home, providing
important information on fair housing, fair lending, and access to
credit issues. With this information, potential borrowers may be better
able to make informed choices based on their financial circumstances to
achieve safe and sustainable homeownership. The NAL is intended to
facilitate HCAs entering into such agreements with lenders and will
enhance the ability of HCAs to obtain funding from additional sources.
At the same time, in response to HUD's application, the Bureau
issued a NAL Template for mortgage lenders under the NAL Policy,
providing a foundation for future NAL applications by mortgage lenders.
1.3 Joint Statement On the Use of Alternative Data in Credit
Underwriting
In December 2019, the Bureau, the Board of Governors of the Federal
Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC),
the Office of the Comptroller of the Currency (OCC), and the National
Credit Union Administration (NCUA) (collectively ``the agencies'')
issued a joint statement on the use of alternative data in underwriting
by banks, credit unions, and non-bank financial firms.\8\
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\8\ Consumer Fin. Prot. Bureau, Federal Regulators Issue Joint
Statement on the Use of Alternative Data in Credit Underwriting
(Dec. 3, 2019), https://www.consumerfinance.gov/about-us/newsroom/federal-regulators-issue-joint-statement-use-alternative-data-credit-underwriting/.
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The purpose of the statement was to provide guidance on the use of
alternative data in underwriting and, to the extent firms are using or
contemplating using alternative data, to encourage responsible use of
such data.
Alternative data includes information not typically found in
consumers' credit reports or customarily provided by consumers when
applying for credit. Alternative data can include cash-flow data
derived from consumers' bank account records.
The statement further explains that a well-designed compliance
management program provides for a thorough analysis of relevant
consumer protection laws and regulations to ensure firms understand the
opportunities, risks, and compliance requirements before using
alternative data. As reflected in the statement, the agencies recognize
that use of alternative data in a manner consistent with applicable
consumer protection laws may improve the speed and accuracy of credit
decisions and may help firms evaluate the creditworthiness of consumers
who currently may not obtain credit in the mainstream credit system.
Additionally, the agencies acknowledge that using alternative data may
enable consumers to obtain additional products and/or more favorable
pricing/terms based on enhanced assessments of repayment capacity.
1.4 Providing Adverse Action Notices When Using Artificial Intelligence
and Machine Learning Models
As part of our consumer protection mission, Congress tasked the
Bureau with ensuring that markets for consumer financial products and
services operate transparently and efficiently to facilitate access and
innovation. One area of innovation the Bureau is monitoring for
[[Page 27397]]
fair lending and access to credit issues is artificial intelligence
(AI), and more specifically, machine learning (ML), a subset of AI.
One important issue is how complex AI models address the adverse
action notice requirements in ECOA and the Fair Credit Reporting Act
(FCRA). ECOA requires creditors to provide consumers with the main
reasons for a denial of credit or other adverse action.\9\ FCRA also
includes adverse action notice requirements.\10\ These notice
provisions serve important anti-discrimination, educational, and
accuracy purposes. There may be questions about how institutions can
comply with these requirements if the reasons driving an AI decision
are based on complex interrelationships.
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\9\ 15 U.S.C. 1691(d)(2).
\10\ 15 U.S.C. 1681m (a).
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The existing regulatory framework has built-in flexibility that can
be compatible with AI algorithms. For example, although a creditor must
provide the specific reasons for an adverse action, the Official
Interpretation to ECOA's implementing regulation, Regulation B,
provides that a creditor need not describe how or why a disclosed
factor adversely affected an application,\11\ or, for credit scoring
systems, how the factor relates to creditworthiness.\12\ Thus, the
Official Interpretation provides an example that a creditor may
disclose a reason for a denial, even if the relationship of that
disclosed factor to predicting creditworthiness may be unclear to the
applicant. This flexibility may be useful to creditors when issuing
adverse action notices based on AI models where the variables and key
reasons are known, but which may rely upon non-intuitive relationships.
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\11\ 12 CFR pt. 1002, comment 9(b)(2)-3.
\12\ Id. at 9(b)(2)-4.
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Another example of this flexibility is that neither ECOA nor
Regulation B mandate the use of any particular list of reasons. Indeed,
the regulation provides that creditors must accurately describe the
factors actually considered and scored by a creditor, even if those
reasons are not reflected on the current sample forms.\13\ This
latitude may be useful to creditors when providing reasons that reflect
alternative data sources and more complex models.
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\13\ 12 CFR pt. 1002, comment 9(b)(2)-2 and app. C, ] 4.
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Industry continues to develop tools to accurately explain complex
AI decisions, and the Bureau expects more methods will emerge. These
developments hold great promise to enhance the ``explainability'' of AI
and facilitate use of AI for credit underwriting compatible with
adverse action notice requirements.
Despite this flexibility, there may still be some regulatory
uncertainty about how certain aspects of the adverse action
requirements apply in the context of AI/ML. Entities are encouraged to
consider the Bureau's new innovation policies as a means to address
these potential compliance issues.
The Bureau welcomes continued dialogue with institutions and
organizations regarding innovative ways to fulfill adverse action
notice requirements when using AI.
1.5 Update on Upstart No-Action Letter
In 2017, the Bureau announced a NAL to Upstart Network, Inc.
(Upstart), a company that uses alternative data and machine learning in
making credit underwriting and pricing decisions.\14\ Upstart's
underwriting model uses traditional underwriting data and various
categories of alternative data, including information related to
borrowers' education and employment history. The NAL, approved under
the Bureau's 2016 NAL policy, references the application of ECOA and
Regulation B to Upstart's use of alternative data and ML for its
underwriting and pricing model. This NAL is specific to the facts and
circumstances of Upstart and does not serve as an endorsement of the
use of any particular variables or modeling techniques in credit
underwriting and pricing. In addition, the NAL does not serve as an
endorsement of Upstart or the products or services it offers.
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\14\ Consumer Fin. Prot. Bureau, CFPB Announces First No-Action
Letter to Upstart Network (Sept. 14, 2017), https://www.consumerfinance.gov/about-us/newsroom/cfpb-announces-first-no-action-letter-upstart-network/.
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As a condition for receiving the NAL, Upstart agreed to a model
risk management and compliance plan that requires it to analyze and
appropriately address risks to consumers, as well as assess the real-
world impact of alternative data and ML. Pursuant to the NAL, Upstart
provides the Bureau with information comparing outcomes from its
underwriting and pricing model (tested model) against outcomes from a
hypothetical model that uses traditional application and credit file
variables and does not employ ML (traditional model). Upstart
independently validated the traditional model through fair lending
testing to ensure that it did not violate antidiscrimination laws.
Since the issuance of the NAL, Upstart has worked to answer several
key questions, including:
Whether the tested model's use of alternative data and ML
expands access to credit, including lower-priced credit, overall and
for various applicant segments, compared to the traditional model.
Whether the tested model's underwriting or pricing
outcomes result in greater disparities than the traditional model with
respect to race, ethnicity, sex, or age, and if so, whether applicants
in different protected class groups with similar model-predicted
default risk actually default at the same rate.
Upstart agreed to allow the Bureau to share key highlights from
simulations and analyses that it conducted pursuant to its model risk
management and compliance plan; the simulations and analyses were not
separately replicated by the Bureau. The following results provided by
Upstart reflect the net effect of both the alternative data and the ML
methodology used in the lender's model as applied to the lender's
applicant pool. The Bureau shared this information in a blog post in
August 2019.\15\
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\15\ Patrice Alexander Ficklin and Paul Watkins, Consumer Fin.
Prot. Bureau, An update on credit access and the Bureau's first No-
Action Letter (Aug. 6, 2019), https://www.consumerfinance.gov/about-us/blog/update-credit-access-and-no-action-letter/.
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The results provided from the access-to-credit comparisons show
that the tested model approves 27% more applicants than the traditional
model, and yields 16% lower average APRs for approved loans.
This reported expansion of credit access reflected in the results
provided occurs across all tested race, ethnicity, and sex segments
resulting in the tested model increasing acceptance rates by 23-29% and
decreasing average APRs by 15-17%.
In many consumer segments, the results provided show that the
tested model significantly expands access to credit compared to the
traditional model. Under the tested model, the results provided reflect
that:
Near prime consumers with FICO scores from 620 to 660 were
approved approximately twice as frequently.
Applicants under 25 years of age are 32% more likely to be
approved.
Consumers with incomes under $50,000 are 13% more likely
to be approved.
With regard to fair lending testing, which compared the tested
model with the traditional model, the approval rate and APR analysis
results provided for minority, female, and 62 and older applicants
showed no disparities that require further fair lending analysis under
the compliance plan. The Bureau continues to monitor the Upstart NAL.
[[Page 27398]]
1.6 Tech Sprints Request for Information
In September 2019, the Bureau, through collaboration between OI,
the Office of Technology and Innovation, and OFLEO, issued a Request
for Information (RFI) seeking comments and information to identify
opportunities to utilize ``Tech Sprints'' to encourage regulatory
innovation.\16\
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\16\ Consumer Fin. Prot. Bureau, Request for Information
Regarding Tech Sprints (Sept. 12, 2019), https://files.consumerfinance.gov/f/documents/cfpb_rfi_tech-sprints.pdf.
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Used successfully by the Financial Conduct Authority in the United
Kingdom, Tech Sprints gather regulators, technologists, financial
institutions, and subject matter experts from key stakeholders for
several days to work together to develop innovative solutions to
clearly identified challenges. Small teams include participants from
both the regulator and a diversity of entities to ensure the inclusion
of regulatory, industry, and technology perspectives. The regulator
assigns a specific regulatory compliance or market problem to each team
and challenges the teams to solve or mitigate the problem using modern
technologies and approaches. The most promising ideas can then be
further developed either in collaboration with the regulator or by
external parties.
Specifically, the RFI stated that the Bureau is interested in using
Tech Sprints to:
Leverage cloud solutions, machine-automated compliance
checks that allow for independent validation by regulators, and other
developments that may reduce or modify the need for regulated entities
to transfer data to the Bureau.
Continue to innovate HMDA data submission, processing, and
publication to help ease burdens, increase flexibility, and resolve
compliance challenges, while satisfying all legal requirements.
Identify new technologies and approaches that can be used
by the Bureau to provide more cost-effective oversight of supervised
entities, effective evaluation of compliance and risk, and closer
interface with financial industry systems and technology that may
include the use, for example, of analytical tools in the review of
mortgage origination data.
Explore other technological approaches to robust and
secure data access or exchange between regulated entities and the
Bureau.
Reduce unwarranted regulatory compliance burdens.
In the RFI, the Bureau sought responses to questions, including:
What regulatory compliance issues, problems, procedures,
or requirements could benefit from innovation through a Bureau Tech
Sprint?
What financial technology or other advances hold the most
promise for helping modernize regulatory compliance?
Other than organizing Tech Sprints, what else might the
Bureau do to encourage innovation in financial products and services?
For example, could advances be encouraged by changes to certain Bureau
rules or policies?
The comment period closed on November 8, 2019, and the Bureau
received 19 comments in response to its RFI. The feedback identified an
interest in organizing Tech Sprints in the areas of HMDA, supervision
data sharing and submission, automated compliance, third-party
technology providers/bank-fintech partnerships, consumer disclosures,
and regulations.
The information provided will help the Bureau identify how
stakeholders can work together to create a regulatory environment (1)
that allows flexible, efficient, and effective innovation to flourish;
(2) where new and/or emerging risks can be identified and managed
effectively; and (3) where consumers have the appropriate level of
protection and suitable access to the benefits of technological
advancement. The information may also help identify responsible
innovations that can be implemented in a consumer-friendly way to help
serve populations currently underserved by the mainstream credit
system. The Bureau expects to announce its first Tech Sprints later in
2020.
2. Outreach: Promoting Fair Lending Compliance and Education
Pursuant to the Dodd-Frank Act, the Bureau regularly engages in
outreach with stakeholders, including civil rights organizations,
consumer advocates, industry, academia, and other government agencies,
to: (1) Educate them about fair lending compliance and access to credit
issues and (2) hear their views on the Bureau's work to inform its
policy decisions.\17\
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\17\ Consumer Fin. Prot. Bureau, Fiscal Year 2020: Annual
performance plan and report, and budget overview, Performance goal
2.1.1, at 69 (Feb. 2020), https://files.consumerfinance.gov/f/documents/cfpb_performance-plan-and-report_fy20.pdf.
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Throughout 2019, OFLEO worked closely with other Bureau offices to
execute the Bureau's fair lending outreach and education efforts.
The Bureau is committed to communicating directly with all
stakeholders on its policies, compliance expectations, and fair lending
priorities, and to receiving valuable input about fair lending issues
and how innovation can promote fair, equitable, and nondiscriminatory
access to credit.
2.1 Educating Stakeholders About Fair Lending Compliance and Access to
Credit Issues
2.1.1 Bureau Blog Posts, Statements, Reports, and Press Releases
The Bureau regularly uses blog posts, statements, reports, and
press releases as tools to timely and effectively communicate with
consumers and other stakeholders on issues, emerging areas of concern,
Bureau initiatives, and more. In 2019, the Bureau published three blog
posts related to fair lending including: an update on credit access and
the Bureau's No-Action Letter with Upstart,\18\ the 2019 report on the
Bureau's Building a Bridge to Credit Visibility symposium,\19\ and the
release of the 2018 Fair Lending Annual Report.\20\ The Bureau's blog
posts, including those related to fair lending, may be accessed at
www.consumerfinance.gov/blog.
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\18\ Patrice Alexander Ficklin and Paul Watkins, Consumer Fin.
Prot. Bureau, An update on credit access and the Bureau's first No-
Action Letter (Aug. 6, 2019), https://www.consumerfinance.gov/about-us/blog/update-credit-access-and-no-action-letter/.
\19\ Patrice Alexander Ficklin and J. Frank Vespa-Papaleo,
Consumer Fin. Prot. Bureau, A report on the Bureau's Building a
Bridge to Credit Visibility Symposium (July 19, 2019), https://www.consumerfinance.gov/about-us/blog/report-credit-visibility-symposium/.
\20\ Patrice Alexander Ficklin, Encouraging innovation in
expanding credit access: 2018 Fair Lending Report to Congress,
Consumer Fin. Prot. Bureau (June 28, 2019), https://www.consumerfinance.gov/about-us/blog/2018-fair-lending-report-congress/.
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The Bureau also issued two statements related to fair lending in
2019: a Statement on Collection of Demographic Information by Community
Development Financial Institutions,\21\ and a Joint Statement with
Federal Regulators on the Use of Alternative Data in Credit
Underwriting.\22\
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\21\ Consumer Fin. Prot. Bureau, Statement on Collection of
Demographic Information by Community Development Financial
Institutions (June. 27, 2019), https://www.consumerfinance.gov/policy-compliance/guidance/supervisory-guidance/statement-collection-demographic-information-community-development-financial-institutions/.
\22\ Consumer Fin. Prot. Bureau, Federal Regulators Issue Joint
Statement on the Use of Alternative Data in Credit Underwriting
(Dec. 3, 2019), https://www.consumerfinance.gov/about-us/newsroom/federal-regulators-issue-joint-statement-use-alternative-data-credit-underwriting/.
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In 2019, the Bureau also issued six press releases related to fair
lending
[[Page 27399]]
topics including: the Bureau's announcement regarding its symposia
series,\23\ the release of certain 2018 HMDA data,\24\ \25\ the
extension of the public comment period for the Advance Notice of
Proposed Rulemaking (ANPR) regarding HMDA data points,\26\ the issuance
of a final HMDA Rule,\27\ the issuance of the Interagency Statement on
the Use of Alternative Data in Credit Underwriting,\28\ and a public
enforcement action against Freedom Mortgage Corporation.\29\ The
Bureau's statements and press releases, including those related to fair
lending, may be accessed at www.consumerfinance.gov/about-us/newsroom.
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\23\ Consumer Fin. Prot. Bureau Announces Symposia Series (Apr.
8, 2019), https://www.consumerfinance.gov/about-us/newsroom/bureau-announces-symposia-series/.
\24\ Consumer Fin. Prot. Bureau, FFIEC Announces Availability of
2018 Data on Mortgage Lending (Aug. 30, 2019), https://www.consumerfinance.gov/about-us/newsroom/ffiec-announces-availability-2018-data-mortgage-lending/.
\25\ Consumer Fin. Prot. Bureau, HMDA Modified Loan Application
Registers Released (Mar. 29, 2019), https://www.consumerfinance.gov/about-us/newsroom/hmda-modified-loan-application-registers-released/.
\26\ Consumer Fin. Prot. Bureau, CFPB Extends Comment Period for
ANPR on HMDA Data Points (Jun. 27, 2019), https://www.consumerfinance.gov/about-us/newsroom/bureau-extends-comment-period-anpr-hmda-data-points/.
\27\ Consumer Fin. Prot. Bureau, Consumer Financial Protection
Bureau Issues Final HMDA Rule to Provide Relief to Smaller
Institutions (Oct. 10, 2019), https://www.consumerfinance.gov/about-us/newsroom/bureau-issues-final-hmda-rule-provide-relief-smaller-institutions/.
\28\ Federal Regulators Issue Joint Statement on the Use of
Alternative Data in Credit Underwriting (Dec. 3, 2019), https://www.consumerfinance.gov/about-us/newsroom/federal-regulators-issue-joint-statement-use-alternative-data-credit-underwriting/.
\29\ Consumer Fin. Prot. Bureau, Consumer Financial Protection
Bureau Settles with Freedom Mortgage Corporation (Jun. 5, 2019),
https://www.consumerfinance.gov/about-us/newsroom/bureau-settles-freedom-mortgage-corporation/.
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2.1.2 Bureau Outreach Engagements With Stakeholders
Bureau staff participated in 63 outreach engagements throughout
2019 to educate external stakeholders about fair lending compliance and
access to credit issues. In most of those engagements, Bureau personnel
also received information and feedback on the Bureau's policy
decisions.
Specifically, in 2019, the Bureau communicated directly with fair
lending, civil rights, consumer and community advocates, and with
industry through speeches, panel remarks, presentations, roundtables, a
webinar, an onsite HMDA Help Desk, and smaller meetings on issues
pertaining to fair, equitable, and nondiscriminatory access to credit.
The Bureau also engaged with stakeholders through the Bureau's website,
consumerfinance.gov. Some examples of the topics covered include: fair
lending supervision and enforcement priorities, innovations in lending,
HMDA and Regulation C, small business lending, the Bureau's Tech
Sprints RFI, access to credit for LEP consumers, providing adverse
action notices when using ML models, and the use of alternative data.
2.1.3 2019 HMDA Warning Letters
In 2019, the Bureau issued warning letters to mortgage-lending
institutions indicating that they may be required to collect, record,
and report data about their mortgage-lending activity under HMDA and
Regulation C, and that they may be in violation of those
requirements.\30\ The letters urged recipients to review their
practices to ensure their compliance with all relevant laws. The
recipients were encouraged to respond to the Bureau to advise if they
have taken, or will take, steps to ensure compliance with the law, or
to tell the Bureau if they if they think their activities do not
trigger HMDA reporting thresholds.
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\30\ On October 27, 2016, the Bureau issued the first round of
HMDA warning letters, https://www.consumerfinance.gov/about-us/newsroom/cfpb-warns-financial-institutions-about-potential-mortgage-lending-reporting-failures/.
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Through these letters the Bureau seeks to increase compliance with
HMDA through enhanced education efforts and direct outreach to
potentially non-compliant mortgage lenders, and to increase HMDA data
quality and completeness through accurate reporting. Since commencing
the issuance of the HMDA warning letters more than 140,000 new mortgage
loan application registers (LARs) that previously went unreported by
the entities have now been reported. The Bureau will follow up on these
letters to ensure compliance, as appropriate.
2.1.4 Supervisory Highlights
Supervisory Highlights has long been a report that anchors the
Bureau's efforts to communicate about the Bureau's supervisory
activity. In March 2019, the Winter 2019 Supervisory Highlights noted
the updates made to HMDA Small Entity Compliance Guide from October 30,
2018.\31\ At that time, the Bureau updated the HMDA Small Entity
Compliance Guide to reflect changes made to the HMDA by section 104(a)
of the Economic Growth, Regulatory Relief, and Consumer Protection Act
(EGRRCPA).
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\31\ Consumer Fin. Prot. Bureau, Supervisory Highlights Winter
2019 at 19 (March 2019), https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-18_032019.pdf.
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All editions of Supervisory Highlights are available at
www.consumerfinance.gov/reports.
2.2 Listening to Stakeholders To Inform the Bureau's Policy Decisions
2.2.1 Bureau Outreach Engagements With Stakeholders
As described above in section 2.1.2, Bureau outreach engagements
serve as a vehicle to hear the views of external stakeholders in order
to inform the Bureau's policy decisions. In these events, Bureau staff
received feedback from stakeholders on issues pertaining to
discrimination and fair, equitable, and nondiscriminatory access to
credit.
2.2.2 Bureau Outreach Follow-Up From 2018 Building a Bridge Symposium
In follow-up to the Bureau's September 17, 2018 Building a Bridge
to Credit Visibility symposium, and to increase the Bureau's knowledge
base about innovations in small business lending, the Offices of Fair
Lending and Small Business Lending Markets held two Fair Lending
Roundtables with Minneapolis/St. Paul-area (Twin Cities) stakeholders
involved in small business lending. The event was held on May 8, 2019,
in Minneapolis, Minnesota. Participants at the Roundtables represented
both industry and consumer groups, including community banks, credit
unions, and Community Development Financial Institutions (CDFIs) that
provide small business credit in the Twin Cities area. Also in
attendance were representatives from the Minnesota Credit Union League
and Credit Union National Association.
Aside from collecting invaluable information that will inform the
Bureau's work and future policymaking, the event introduced the Bureau
to certain local organizations in the Twin Cities area that were
previously unaware of the Bureau's work and resources. The event also
served as a conduit for bringing together local organizations involved
in providing small business microlending in the Twin Cities area that
had not previously connected. The Bureau anticipates that these groups
will continue to benefit from working together to help small businesses
and their communities in the Twin Cities area.
2.2.3 Bureau Symposium on Section 1071
In April 2019, the Bureau announced a symposia series exploring
consumer protections in today's dynamic financial
[[Page 27400]]
services marketplace.\32\ The series is aimed at stimulating a
proactive and transparent dialogue to assist the Bureau in its policy
development process, including possible future rulemakings. During each
symposium, the Bureau hosts a discussion panel of experts with a
variety of viewpoints on the topic.
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\32\ Consumer Fin. Prot. Bureau, Consumer Financial Protection
Bureau Announces Symposia Series (Apr. 8, 2019), https://www.consumerfinance.gov/about-us/newsroom/bureau-announces-symposia-series/.
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On November 6, 2019, the Bureau held a symposium on section 1071 of
the Dodd-Frank Act.\33\ Section 1071 amended ECOA to require, subject
to rules prescribed by the Bureau, financial institutions to collect,
report, and make public certain information concerning credit
applications made by women-owned, minority-owned, and small businesses.
The symposium provided a public forum for the Bureau and the public to
hear various perspectives on the small business lending marketplace and
the Bureau's upcoming implementation of section 1071.
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\33\ Consumer Fin. Prot. Bureau, CFPB Symposium: Section 1071 of
the Dodd-Frank Act (Nov. 6, 2019), https://www.consumerfinance.gov/about-us/events/archive-past-events/cfpb-symposium-section-1071-dodd-frank-act/.
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The event featured remarks by Director Kraninger. The symposium
also consisted of two panels of experts. The first panel focused on the
current state of, and future outlook for, the small business lending
marketplace. The second panel included a discussion of the
implementation of section 1071. Additional information regarding this
symposium, including the agenda, the panelists' written statements, and
a video of the event is available on the Bureau's website.\34\
Information about the Bureau's efforts to implement section 1071 can be
found in section 4.2.2 of this Report.
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\34\ Id.
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3. Interagency Coordination and Engagement
Throughout 2019, the Bureau coordinated its fair lending
regulatory, supervisory, and enforcement activities with other Federal
agencies and State regulators to promote consistent, efficient, and
effective enforcement of Federal fair lending laws. This interagency
engagement sought to address current and emerging fair lending risks.
Interagency engagement occurs in numerous ways, including through
several interagency organizations.
The Federal Financial Institutions Examination Council (FFIEC) is
currently chaired by Director Kraninger.\35\ Through the FFIEC, the
Bureau has robust engagement with other partner agencies that focus on
fair lending issues.
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\35\ Collectively, the FRB, FDIC, NCUA, OCC, and the Bureau
comprise the FFIEC. The FFIEC is a ``formal interagency body
empowered to prescribe uniform principles, standards, and report
forms for the [F]ederal examination of financial institutions'' by
the member agencies listed above and the State Liaison Committee
``and to make recommendations to promote uniformity in the
supervision of financial institutions.'' Fed. Fin. Inst. Examination
Council, https://www.ffiec.gov (last visited March 30, 2020). The
State Liaison Committee was added to FFIEC in 2006 as a voting
member.
---------------------------------------------------------------------------
For example, the Bureau currently chairs the FFIEC HMDA/Community
Reinvestment Act Data Collection Subcommittee of the FFIEC Task Force
on Consumer Compliance (Task Force). The Task Force oversees FFIEC
projects and programs involving HMDA data collection and dissemination,
the preparation of the annual FFIEC budget for processing services, and
the development and implementation of other related HMDA processing
projects as directed by the Task Force.
Additionally, the Bureau, the Federal Trade Commission (FTC), HUD,
FDIC, FRB, NCUA, OCC, DOJ, and the Federal Housing Finance Agency
(FHFA), comprise the Interagency Task Force on Fair Lending (Fair
Lending Task Force). Currently, the Bureau chairs the Fair Lending Task
Force, which meets regularly to discuss fair lending enforcement
efforts, share current methods of conducting supervisory and
enforcement fair lending activities, and coordinate fair lending
policies.
Further, the Bureau also participates in the Interagency Working
Group on Fair Lending Enforcement, a standing working group of Federal
agencies--DOJ, HUD, and FTC--that meets regularly to discuss issues
specifically relating to fair lending enforcement. The agencies use
these meetings to discuss fair lending developments and trends,
methodologies for evaluating fair lending risks and violations, and
coordination of fair lending enforcement efforts.
In addition to these established interagency working groups, Bureau
personnel meet periodically and on an ad hoc basis with DOJ, HUD, and
the prudential regulators to coordinate the Bureau's fair lending work.
4. Guidance and Rulemaking
4.1 HMDA and Regulation C Rulemaking and Guidance
4.1.1 Regulation C 2019 Notice of Proposed Rulemaking and Final Rule
In May 2019, the Bureau issued a Notice of Proposed Rulemaking
(NPRM) \36\ proposing two alternatives to amend Regulation C to
increase the threshold for reporting data about closed-end mortgage
loans. The proposed amendments would increase the threshold so that
institutions originating fewer than either 50 closed-end mortgage
loans, or alternatively, 100 closed-end mortgage loans, in either of
the two preceding calendar years would not have to report such data as
of January 1, 2020. The proposed rule also proposed to adjust the
threshold for reporting data about open-end lines of credit by
extending to January 1, 2022, the current temporary threshold of 500
open-end lines of credit and setting a threshold at 200 open-end lines
of credit upon the expiration of the proposed extension of the
temporary threshold.
---------------------------------------------------------------------------
\36\ Home Mortgage Disclosure (Regulation C), 84 FR 20972 (May
13, 2019).
---------------------------------------------------------------------------
In October 2019, the Bureau issued a Final Rule \37\ amending
Regulation C to adjust the threshold for reporting data about open-end
lines of credit by extending to January 1, 2022, the current temporary
threshold of 500 open-end lines of credit. The Final Rule announced
that any change to the closed-end mortgage loan reporting threshold and
permanent open-end threshold to take effect upon expiration of the
temporary threshold would be addressed in a later rule.
---------------------------------------------------------------------------
\37\ Home Mortgage Disclosure (Regulation C), 84 FR 57946 (Oct.
29, 2019).
---------------------------------------------------------------------------
The Final Rule also further implements the partial exemptions from
HMDA's requirements that EGRRCPA recently added to HMDA. In August
2018, the Bureau issued an interpretive and procedural rule to
implement and clarify the EGRRCPA amendments to HMDA (2018 HMDA
Rule).\38\ The 2018 HMDA Rule clarifies that insured depository
institutions and insured credit unions covered by a partial exemption
have the option of reporting exempt data fields as long as they report
all data fields within any exempt data point for which they report
data; clarifies that only loans and lines of credit that are otherwise
HMDA reportable count toward the thresholds for the partial exemptions;
clarifies which of the data points in Regulation C are covered by the
partial exemptions; designates a non-universal loan identifier for
partially exempt transactions for institutions that choose not to
report a universal loan identifier; and clarifies the exception to the
partial exemptions for insured depository
[[Page 27401]]
institutions with less than satisfactory examination histories under
the Community Reinvestment Act of 1977. This final rule incorporates
into Regulation C these interpretations and procedures, with minor
adjustments, by adding new Sec. [thinsp]1003.3(d) relating to the
partial exemptions and making various amendments to the data
compilation requirements in Sec. [thinsp]1003.4. The Final Rule
further implements EGRRCPA by addressing certain additional
interpretive issues relating to the partial exemptions that the 2018
HMDA Rule did not specifically address, such as how to determine
whether a partial exemption applies to a transaction after a merger or
acquisition. The provisions in the final rule implementing the EGRRCPA
took effect on January 1, 2020.
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\38\ Partial Exemptions from the Requirements of the Home
Mortgage Disclosure Act Under the Economic Growth, Regulatory
Relief, and Consumer Protection Act (Regulation C), 83 FR 45325
(Sept. 7, 2018).
---------------------------------------------------------------------------
4.1.2 Regulation C Data Points and Coverage 2019 Advance Notice of
Proposed Rulemaking
In May 2019, the Bureau issued an ANPR relating to the data points
that the Bureau's 2015 HMDA Rule added to Regulation C or revised to
require additional information.\39\ Additionally, the ANPR relates to
the requirement that institutions report certain business- or
commercial-purpose transactions under Regulation C. The Bureau
currently is reviewing the comments received and expects to issue a
Notice of Proposed Rulemaking (NPRM) later in 2020.
---------------------------------------------------------------------------
\39\ Home Mortgage Disclosure (Regulation C), 84 FR 20049 (May
8, 2019).
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4.1.3 HMDA Public Data Disclosure Guidance
The Bureau has decided to commence a new notice-and-comment
rulemaking to govern HMDA data disclosure. In its 2015 final rule to
implement the Dodd-Frank Act amendments to HMDA, the Bureau adopted a
balancing test to determine whether and how HMDA data should be
modified prior to its disclosure to the public in order to protect
applicant and borrower privacy while also fulfilling HMDA's public
disclosure purposes.\40\ The Bureau sought comment in 2017 on its
proposed application of the balancing test to the 2018 data,\41\ and
issued final policy guidance in late 2018.\42\
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\40\ 80 FR 66128, 66134 (Oct. 28, 2015).
\41\ Disclosure of Loan-Level HMDA Data, 82 FR 44586 (Sept. 25,
2017).
\42\ 84 FR 649 (Jan. 31, 2019).
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In consideration of stakeholder comments urging that determinations
concerning the disclosure of loan-level HMDA data be effectuated
through more formal processes, the Bureau has decided to commence a new
notice-and-comment rulemaking to govern HMDA data disclosure. The
Bureau expects to issue a NPRM later in 2020. The Bureau plans to
consider the HMDA data points and public disclosure proposed rules
concurrently.
4.1.4 2018 HMDA Data Release
In August 2019, on behalf of the FFIEC, the Bureau released data on
mortgage lending transactions at U.S. financial institutions covered by
HMDA.\43\ Covered institutions include banks, savings associations,
credit unions, and mortgage companies. The HMDA data covers 2018
lending activity. Many of the data points were available for the first
time in the 2018 HMDA data. Certain smaller-volume financial
institutions are not required to report all these data, pursuant to the
EGRRCPA, as described above in section 4.1.1
---------------------------------------------------------------------------
\43\ Consumer Fin. Prot. Bureau, FFIEC Announces Availability of
2018 Data on Mortgage Lending (Aug. 30, 2019), https://www.consumerfinance.gov/about-us/newsroom/ffiec-announces-availability-2018-data-mortgage-lending/.
---------------------------------------------------------------------------
With the data, the Bureau released two Data Point articles. The
first describes the historical data points in the 2018 HMDA data, as
well as recent trends in mortgage and housing markets.\44\
---------------------------------------------------------------------------
\44\ Consumer Fin. Prot. Bureau, Data point: 2018 mortgage
market activity and trends, (Aug. 30, 2019), https://www.consumerfinance.gov/data-research/research-reports/data-point-2018-mortgage-market-activity-and-trends/.
---------------------------------------------------------------------------
The second introduces the new and revised data points in the 2018
HMDA data and provides some initial observations about the nation's
mortgage market in 2018 based on those new or revised data points.\45\
---------------------------------------------------------------------------
\45\ Consumer Fin. Prot. Bureau, Data Point: Introducing New and
Revised Data Points in HMDA (Aug. 30, 2019), https://www.consumerfinance.gov/data-research/research-reports/introducing-new-revised-data-points-hmda/.
---------------------------------------------------------------------------
Earlier, in March 2019, Modified LARs data were published for
approximately 5,400 financial institutions.\46\ The Modified LARs
contain loan-level information for 2018 on individual HMDA filers,
modified to protect privacy.
---------------------------------------------------------------------------
\46\ Consumer Fin. Prot. Bureau, HMDA Modified Loan Application
Registers Released (Mar. 29, 2019), https://www.consumerfinance.gov/about-us/newsroom/hmda-modified-loan-application-registers-released/.
---------------------------------------------------------------------------
4.1.5 HMDA Guidance and Resources
The Bureau created many resources to help facilitate compliance
with Regulation C, including an Executive Summary of HMDA rule changes;
Small Entity Compliance Guide; Key Dates Timeline, Institutional and
Transactional Coverage Charts; Reportable HMDA Data Chart; sample data
collection form, and Frequently Asked Questions (FAQs), in addition to
downloadable Webinars that provide an overview of the HMDA rule. The
Bureau also provides on its website an Interactive Bureau Regulations
version of Regulation C.
HMDA resources are routinely updated throughout the year to ensure
HMDA reporters have the most up-to-date information. For example, in
September 2019, the Bureau released the 2020 Filing Instructions Guide
(FIG) and the Supplemental Guide for Quarterly Filers. Together with
the FFIEC, in March 2019, the Bureau also published the 2019 edition of
the HMDA Getting it Right Guide. The Bureau also worked with the FFIEC
to publish data submission resources for HMDA filers and vendors on its
Resources for HMDA Filers website.
4.2 ECOA and Regulation B Rulemaking and Guidance
4.2.1 Statement on Collection of Demographic Information by Community
Development Financial Institutions
In July 2019, the Bureau issued a statement regarding the
collection of demographic information by financial institutions that
are Community Development Financial Institutions (CDFIs) receiving
assistance from the U.S. Department of the Treasury's Community
Development Financial Institutions Fund (CDFI Fund).\47\
---------------------------------------------------------------------------
\47\ Consumer Fin. Prot. Bureau, Statement on Collection of
Demographic Information by Community Development Financial
Institutions (July 29, 2019), https://www.consumerfinance.gov/policy-compliance/guidance/supervisory-guidance/statement-collection-demographic-information-community-development-financial-institutions/.
---------------------------------------------------------------------------
The Bureau became aware that some financial institutions that are
certified CDFIs receiving assistance from the CDFI Fund have inquired
whether they are subject to ECOA and Regulation B's general prohibition
on a creditor collecting certain information about an applicant for
credit, such as the applicant's race or ethnicity.
The statement explains that CDFIs receiving Federal financial
assistance from the CDFI Fund may collect demographic information on
the individuals the CDFI serves, consistent with the ECOA and its
implementing Regulation B, provided the collection of the information
is for the purpose of complying with the regulatory requirements of the
CDFI Fund.
4.2.2 Small Business Data Collection
As described earlier in this report, section 1071 of the Dodd-Frank
Act amends ECOA to require, subject to
[[Page 27402]]
rules prescribed by the Bureau, financial institutions to collect,
report, and make public certain information concerning credit
applications made by women-owned, minority-owned, and small businesses.
The amendments to ECOA made by the Dodd-Frank Act require that specific
data be collected, maintained, and reported, including but not limited
to: the type of loan applied for, the amount of credit applied for, the
type of action taken with regard to each application, the census tract
of the principal place of business of the loan applicant, and the race,
sex, and ethnicity of the principal owners of the business. The Dodd-
Frank Act also provides authority for the Bureau to require any
additional data that the Bureau determines would aid in fulfilling the
purposes of section 1071. The Bureau may adopt exceptions to any
requirement of section 1071 and may exempt any financial institution
from its requirements, as the Bureau deems necessary or appropriate to
carry out section 1071's purposes.
The Bureau issued an RFI in 2017 seeking public comment on, among
other things, the types of credit products offered, and the types of
data currently collected by lenders in this market, and the potential
complexity, cost of, and privacy issues related to, small business data
collection.
In connection with its Spring 2019 rulemaking agenda,\48\ the
Bureau announced its intention to recommence work to develop rules to
implement section 1071 of the Dodd-Frank Act.
---------------------------------------------------------------------------
\48\ Consumer Fin. Prot. Bureau, Regulatory Agenda, https://www.consumerfinance.gov/policy-compliance/rulemaking/regulatory-agenda/ (Last visited Apr. 29, 2020).
---------------------------------------------------------------------------
In November 2019, the Bureau hosted a symposium on small business
data collection. The information received in response to the 2017 RFI
and the symposium will help the Bureau determine how to implement the
statute efficiently while minimizing burdens on lenders.
In addition, the Bureau is working to conduct a survey of lenders
to obtain estimates of one-time costs lenders of varying sizes would
incur to collect and report data pursuant to section 1071. The Bureau
anticipates that its next step will be the release of materials in
advance of convening a panel under the Small Business Regulatory
Enforcement Fairness Act (SBREFA), in conjunction with the Office of
Management and Budget and the Small Business Administration's Chief
Counsel for Advocacy, to consult with representatives of small
businesses that may be affected by the rulemaking.\49\
---------------------------------------------------------------------------
\49\ Id.
---------------------------------------------------------------------------
Also, during 2019, the Bureau was involved in litigation regarding
the implementation of section 1071 of the Dodd-Frank Act. Information
concerning the litigation can be found in section 5 of this Report.
5. Amicus Program and Other Litigation
The Bureau files amicus curiae, or ``friend-of-the-court,'' briefs
in significant court cases concerning Federal consumer financial
protection laws, including ECOA. These amicus briefs provide the courts
with the Bureau's views on significant consumer financial protection
issues. Information regarding the Bureau's amicus program, including a
description of the amicus briefs it previously filed, is available on
the Bureau's website.\50\
---------------------------------------------------------------------------
\50\ https://www.consumerfinance.gov/policy-compliance/amicus/.
---------------------------------------------------------------------------
During 2019, the Bureau was involved in litigation regarding
section 1071 of the Dodd-Frank Act. On May 14, 2019, the California
Reinvestment Coalition filed a lawsuit in the U.S. District Court for
the Northern District of California against the Bureau seeking an order
compelling the Bureau to issue rules implementing section 1071 of the
Dodd-Frank Act. On June 27, 2019, an amended complaint was filed adding
the National Association for Latino Community Asset Builders and two
individuals as plaintiffs in the lawsuit. The Bureau answered and the
parties filed cross-motions for summary judgment. Information about the
Bureau's efforts to implement section 1071 can be found in section
4.2.2 of this Report.
6. Fair Lending Supervision And Enforcement
6.1 Risk-Based Prioritization
Because Congress charged the Bureau with responsibility for
overseeing many lenders and products, the Bureau has long-used a risk-
based approach to prioritize supervisory examinations and enforcement
activity. This approach helps ensure that the Bureau focuses on areas
that present substantial risk of credit discrimination for
consumers.\51\ This same approach continued in 2019.
---------------------------------------------------------------------------
\51\ For additional information regarding the Bureau's risk-
based approach in prioritizing supervisory examinations, see section
3.2.3, Risk-Based Approach to Examinations, Supervisory Highlights
Summer 2013, https://files.consumerfinance.gov/f/201308_cfpb_supervisory-highlights_august.pdf.
---------------------------------------------------------------------------
As part of the prioritization process, the Bureau identifies
emerging developments and trends by monitoring key consumer financial
markets. If this market intelligence identifies fair lending risks in a
particular market that require further attention, that information is
incorporated into the prioritization process to determine the type and
extent of attention required to address those risks.
The prioritization process incorporates a number of additional
factors, including: Tips and leads from industry whistleblowers,
advocacy groups, and government agencies; supervisory and enforcement
history; consumer complaints; and results from analysis of HMDA and
other publicly available data.
6.1.1 Fair Lending Supervisory and Enforcement Priorities
Through its annual risk-based prioritization process for 2019, the
Bureau focused its fair lending supervision efforts on mortgage
origination, small business lending, student loan origination, and debt
collection and model use.
As in previous years, the Bureau's mortgage origination work
continued to focus on: (1) Redlining and whether lenders intentionally
discouraged prospective applicants living or seeking credit in minority
neighborhoods from applying for credit; (2) assessing whether there is
discrimination in underwriting and pricing processes including
steering; and (3) HMDA data integrity and validation (which supports
ECOA exams) as well as HMDA diagnostic work (monitoring and assessing
new rule compliance).
The Bureau's small business lending work focused on assessing
whether (1) there is discrimination in the application, underwriting,
and pricing processes, (2) creditors are redlining, and (3) there are
weaknesses in fair lending related compliance management systems (CMS).
The Bureau's student loan origination work focused on whether there
is discrimination in policies and practices governing underwriting and
pricing. In the area of debt collection and model use, the Bureau's
work focused on whether there is discrimination in policies and
practices governing auto servicing and credit card collections,
including the use of models that predict recovery outcomes.
The Bureau also continued to enforce Federal fair lending laws,
including ECOA and HMDA. One key area on which the Bureau focused its
fair lending enforcement efforts was addressing potential
discrimination in mortgage lending, including the unlawful practice of
redlining.
6.2 Fair Lending Supervision
In 2019, the Bureau initiated 26 supervisory events at financial
services
[[Page 27403]]
institutions under the Bureau's jurisdiction to determine compliance
with Federal laws intended to ensure the fair, equitable, and
nondiscriminatory access to credit for both individuals and
communities, including ECOA and HMDA.
Consistent with BCFP Bulletin 2018-01,\52\ the Bureau issues
Matters Requiring Attention (MRAs) to correct violations of Federal
consumer financial law, remediate harmed consumers, and address
weaknesses in CMS that examiners found are directly related to
violations of Federal consumer financial law. MRAs include timeframes
for periodic reporting of efforts taken to address these matters, as
well as expected timeframes for implementation. The Bureau also uses
Supervisory Recommendations (SRs) to address the Bureau's supervisory
concerns related to financial institutions' CMS. SRs do not include
provisions for periodic reporting nor expected timelines for
implementation. In 2019, the Bureau provided MRAs directing entities to
take corrective actions that will be monitored by the Bureau through
follow-up supervisory events. The Bureau also issued SRs in 2019
relating to supervisory concerns related to weak fair lending CMS,
including weak policies and procedures, risk assessments, fair lending
testing, and/or fair lending training.
---------------------------------------------------------------------------
\52\ Consumer Fin. Prot. Bureau, BCFP Bulletin 2018-01: Changes
to Types of Supervisory Communications (Sept. 25, 2018), https://files.consumerfinance.gov/f/documents/bcfp_bulletin-2018-01_changes-to-supervisory-communications.pdf.
---------------------------------------------------------------------------
6.3 Fair Lending Supervisory Developments
6.3.1 Updated ECOA Baseline Review Modules and HMDA Examination
Procedures
In April 2019, the Bureau updated its ECOA Baseline Review Modules
\53\ and its HMDA Examination Procedures.\54\
---------------------------------------------------------------------------
\53\ Consumer Fin. Prot. Bureau, ECOA Baseline Review Procedures
(Apr. 1, 2019), https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/equal-credit-opportunity-act-ecoa-baseline-review-procedures/.
\54\ Consumer Fin. Prot. Bureau, HMDA Examination Procedures
(Apr. 1, 2019), https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/home-mortgage-disclosure-act-hmda-examination-procedures/.
---------------------------------------------------------------------------
The ECOA Baseline Review Modules consist of five modules that CFPB
examination teams use to conduct ECOA Baseline Reviews to evaluate how
institutions' CMS identify and manage fair lending risks under ECOA. In
addition, examination teams use Module 2: Fair Lending CMS to review a
supervised entity's fair lending CMS as part of an ECOA Targeted
Review, supplemented with additional modules from these procedures as
necessary.
A HMDA review includes transactional testing for HMDA data accuracy
conducted using the HMDA Examination Procedures within the CFPB
Supervision and Examination Manual. The updated HMDA Examination
Procedures include updates to reflect the Bureau's interpretive and
procedural rule, issued in August 2018, which implements and clarifies
section 104 of EGRRCPA.
6.4 Fair Lending Enforcement
The Bureau has the statutory authority to bring actions to enforce
the requirements of HMDA and ECOA. In this regard, the Bureau has the
authority to engage in research, conduct investigations, file
administrative complaints, hold hearings, and adjudicate claims through
the Bureau's administrative enforcement process. The Bureau also has
independent litigating authority and can file cases in Federal court
alleging violations of fair lending laws under the Bureau's
jurisdiction. Like other Federal bank regulators, the Bureau is
required to refer matters to DOJ when it has reason to believe that a
creditor has engaged in a pattern or practice of lending
discrimination.\55\
---------------------------------------------------------------------------
\55\ 15 U.S.C. 1691e(h).
---------------------------------------------------------------------------
6.4.1 Public Enforcement Actions
In 2019, the Bureau filed one fair lending public enforcement
action: In the Matter of Freedom Mortgage Corporation (File No. 2019-
BCFP-0007). The Bureau announced the settlement with Freedom Mortgage
Corporation (Freedom) on June 5, 2019.\56\ Freedom is a mortgage lender
with its principal place of business in Mount Laurel, New Jersey, and
one of the ten largest HMDA reporters nationwide. For each year from
2013 through 2016, it originated more than 50,000 home-purchase loans,
including refinancings of home-purchase loans. Freedom is required to
collect, record, and report data on HMDA-covered transactions to comply
with HMDA and Regulation C.
---------------------------------------------------------------------------
\56\ Consumer Fin. Prot. Bureau, Consumer Financial Protection
Bureau Settles with Freedom Mortgage Corporation (Jun, 5, 2019),
https://www.consumerfinance.gov/about-us/newsroom/bureau-settles-freedom-mortgage-corporation/.
---------------------------------------------------------------------------
According to the consent order, the Bureau found that Freedom
violated HMDA and Regulation C by submitting mortgage-loan data for
2014 to 2017 that contained numerous and intentional errors. The Bureau
found that Freedom reported inaccurate race, ethnicity, and sex
information and that much of Freedom's loan officers' recording of this
incorrect information was intentional. For example, certain loan
officers were told by managers or other loan officers that, when
applicants did not provide their race or ethnicity, they should select
non-Hispanic white regardless of whether that was accurate.
Under the terms of the consent order, Freedom must pay a civil
money penalty of $1.75 million and take steps to improve its compliance
management to prevent future violations.
6.4.2 ECOA Referrals to the Department of Justice
The Bureau must refer to the DOJ a matter when it has reason to
believe that a creditor has engaged in a pattern or practice of lending
discrimination in violation of ECOA.\57\ The Bureau also may refer
other potential ECOA violations to the DOJ.\58\ In 2019, the Bureau
referred three matters to the DOJ involving discrimination pursuant to
section 706(g) of ECOA. The first referral involved discrimination
based on a pattern or practice of redlining in mortgage origination
based on race. The second referral resulted from discrimination based
on receipt of public assistance income in mortgage origination. Lastly,
the third referral involved discrimination based on race and national
origin in auto origination.
---------------------------------------------------------------------------
\57\ 15 U.S.C. 1691e(g).
\58\ Id.
---------------------------------------------------------------------------
6.4.3 Implementing Enforcement Orders
When an enforcement action is resolved through a public enforcement
order, the Bureau (together with DOJ, when relevant) takes steps to
ensure that the respondent or defendant complies with the requirements
of the order. Depending on the specific requirements of individual
public enforcement orders, the Bureau may take steps to ensure that
borrowers who are eligible for compensation receive remuneration and
that the defendant has complied with the injunctive provisions of the
order, including implementing a comprehensive fair lending compliance
management system. Throughout 2019, the Bureau continued to implement
and oversee compliance with the two public enforcement orders described
below.
On June 29, 2016, the Bureau and the DOJ announced a joint action
against BancorpSouth Bank (BancorpSouth) for discriminatory mortgage
lending practices that harmed African Americans. The consent order,
which was entered by the Court on July 25,
[[Page 27404]]
2016, required BancorpSouth to pay $4 million in direct loan subsidies
in minority neighborhoods in Memphis; \59\ at least $800,000 for
community programs, advertising, outreach, and credit repair; $2.78
million to African American consumers who were unlawfully denied or
overcharged for loans; and a $3 million penalty.\60\ On June 25, 2018,
the Bureau announced that participation materials were mailed to
potentially eligible African American borrowers identified as harmed by
BancorpSouth's alleged discrimination in mortgage lending between 2011
and 2015, notifying them how to receive redress. Starting on March 15,
2019, checks were mailed to African American borrowers who were
confirmed as eligible to receive a payment.
---------------------------------------------------------------------------
\59\ ``Majority-minority neighborhoods'' or ``minority
neighborhoods'' refers to census tracts with a minority population
greater than 50 percent.
\60\ Consent Order, United States v. BancorpSouth Bank, No.
1:16-cv-00118-GHD-DAS (N.D. Miss. July 25, 2016), ECF No. 8, https://files.consumerfinance.gov/f/documents/201606_cfpb_bancorpSouth-consent-order.pdf.
---------------------------------------------------------------------------
On February 2, 2016, working with the DOJ, the Bureau ordered
Toyota Motor Credit Corporation (Toyota Motor Credit) to pay up to
$21.9 million in damages to harmed African American and Asian and/or
Pacific Islander borrowers for unlawful discrimination.\61\ On December
29, 2017, participation materials were mailed to potentially eligible
borrowers whom Toyota Motor Credit overcharged for their auto loans
notifying them how to participate in the settlement fund. On February
1, 2019, checks were mailed to eligible, participating consumers.
---------------------------------------------------------------------------
\61\ Consent Order In re Toyota Motor Credit Corporation, CFPB
No. 2016-CFPB-0002 (Feb. 2, 2016), https://files.consumerfinance.gov/f/201602_cfpb_consent-order-toyota-motor-credit-corporation.pdf.
---------------------------------------------------------------------------
6.4.4 Pending Fair Lending Investigations
In 2019, the Bureau had a number of ongoing and newly opened fair
lending investigations of institutions. One of the Bureau's key areas
of focus was potential discrimination in mortgage lending, including
the unlawful practice of redlining.
7. Interagency Reporting on ECOA and HMDA
The Bureau is statutorily required to file a report to Congress
annually describing the administration of its functions under ECOA,
summarizing public enforcement actions taken by other agencies with
administrative enforcement responsibilities under ECOA, and providing
an assessment of the extent to which compliance with ECOA has been
achieved.\62\ In addition, the Bureau's annual HMDA reporting
requirement calls for the Bureau, in consultation with HUD, to report
annually on the utility of HMDA's requirement that covered lenders
itemize certain mortgage loan data.\63\
---------------------------------------------------------------------------
\62\ 15 U.S.C. 1691f.
\63\ 12 U.S.C. 2807.
---------------------------------------------------------------------------
7.1 Reporting on ECOA Enforcement
The enforcement efforts and compliance assessments made by all the
agencies assigned enforcement authority under section 704 of ECOA are
discussed in this section.
BILLING CODE 4810-AM-P
[[Page 27405]]
[GRAPHIC] [TIFF OMITTED] TN08MY20.018
BILLING CODE 4810-AM-C
7.1.1 Public Enforcement Actions
The eleven agencies charged with administrative enforcement of ECOA
under section 704 are as follows:
---------------------------------------------------------------------------
\64\ 15 U.S.C. 1691c.
---------------------------------------------------------------------------
CFPB;
FDIC;
FRB;
NCUA;
OCC; \65\
---------------------------------------------------------------------------
\65\ Collectively, the Board of Governors of the Federal Reserve
System (FRB), the Federal Deposit Insurance Corporation (FDIC), the
National Credit Union Administration (NCUA), the Office of the
Comptroller of the Currency (OCC), and the Bureau of Consumer
Financial Protection (Bureau) comprise the Federal Financial
Institutions Examination Council (FFIEC). The FFIEC is a ``formal
interagency body empowered to prescribe uniform principles,
standards, and report forms for the [F]ederal examination of
financial institutions'' by the member agencies listed above and the
State Liaison Committee ``and to make recommendations to promote
uniformity in the supervision of financial institutions.'' Federal
Financial Institutions Examination Council, https://www.ffiec.gov
(last visited March 30, 2020). The State Liaison Committee was added
to FFIEC in 2006 as a voting member.
---------------------------------------------------------------------------
Agricultural Marketing Service (AMS) of the U.S.
Department of Agriculture (USDA),\66\
---------------------------------------------------------------------------
\66\ The Grain Inspection, Packers and Stockyards Administration
(GIPSA) was eliminated as a stand-alone agency within USDA in 2017.
The functions previously performed by GIPSA have been incorporated
into the Agricultural Marketing Service (AMS), and ECOA reporting
now comes from the Packers and Stockyards Division, Fair Trade
Practices Program, AMS.
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[[Page 27406]]
Department of Transportation (DOT);
Farm Credit Administration (FCA);
Federal Trade Commission (FTC);
Securities and Exchange Commission (SEC); and
Small Business Administration (SBA).\67\
---------------------------------------------------------------------------
\67\ 15 U.S.C. 1691c.
---------------------------------------------------------------------------
In 2019, none of the 11 ECOA enforcement agencies brought public
enforcement actions for violations of ECOA. Below is an overview of the
year-to-year combined ECOA enforcement actions at all Federal agencies
since 2012:
---------------------------------------------------------------------------
\68\ This table identifies public enforcement actions by the
year they were initiated (when filed and announced publicly).
Table 3--ECOA Enforcement by All Federal Agencies
------------------------------------------------------------------------
Total public
Calendar year enforcement
actions
------------------------------------------------------------------------
2012................................................. \68\ 17
2013................................................. 9
2014................................................. 2
2015................................................. 5
2016................................................. 3
2017................................................. 1
2018................................................. 0
2019................................................. 0
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7.1.2 Violations Cited During ECOA Examinations
Among institutions examined for compliance with ECOA and Regulation
B, the FFIEC agencies reported that the most frequently-cited
violations were as follows:
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\69\ 12 CFR 1002.4(a), 1002.4(b), 1002.6(b).
\70\ 12 CFR 1002.5(b).
\71\ 12 CFR 1002.4(a).
\72\ 12 CFR 1002.7(d)(1).
\73\ 12 CFR 1002.9(a)(1), (a)(2), (b)(1), (b)(2), (c)(1).
\74\ 12 CFR 1002.9(a)(2), (b)(2).
\75\ 12 CFR 1002.9(a)(1)(i), (c)(2).
\76\ 12 CFR 1002.9(a)(1), (a)(2), (b)(2).
\77\ 12 CFR 1002.9(a)(1)(i), (a)(1)(ii), (a)(2).
\78\ 12 CFR 1002.12(b)(1).
\79\ 12 CFR 1002.12(b).
\80\ 12 CFR 1002.12(b)(1).
Table 4--Regulation B Violations Cited by FFIEC Agencies, 2019
------------------------------------------------------------------------
Regulation B violations: 2019 FFIEC agencies reporting
------------------------------------------------------------------------
12 CFR 1002.4(a), (b), 1002.5(b), CFPB,\69\ FDIC,\70\
1002.6(b), 1002.7(d)(1): Discrimination. FRB,\71\ OCC.\72\
Discrimination on a prohibited basis in a
credit transaction; Discouragement of
prospective applicants on a prohibited
basis; A creditor shall not inquire about
the race, color, religion, national
origin, or sex of an applicant or any
other person in connection with a credit
transaction; Improperly considering
receipt of public assistance in a system
of evaluating applicant creditworthiness;
Improperly requiring the signature of the
applicant's spouse or other person..
12 CFR 1002.9(a)(1), (a)(2), (b)(1), CFPB,\73\ FDIC,\74\
(b)(2), (c): Adverse Action. FRB,\75\ NCUA,\76\
Failure to provide notice to the applicant OCC.\77\
30 days after receiving a completed
application concerning the creditor's
approval of, counteroffer or adverse
action on the application; failure to
provide appropriate notice to the
applicant 30 days after taking adverse
action on an incomplete application;
failure to provide sufficient information
in an adverse action notification,
including the specific reasons for the
action taken..
12 CFR 1002.12(b)(1): Record Retention..... CFPB,\78\ NCUA,\79\
OCC.\80\
Failure to preserve application records. ...........................
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Among institutions examined for compliance with ECOA and Regulation
B, the Non-FFIEC agencies reported that the most frequently-cited
violations were as follows:
Table 5--Regulation B Violations Cited by Non-FFIEC ECOA Agencies, 2019
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Regulation B violations: 2019 Non-FFIEC agencies
------------------------------------------------------reporting---------
12 CFR 1002.9(a)(1)(i), (a)(2), (c): FCA
Adverse Action.
Failure to provide notice to the applicant ...........................
30 days after receiving a completed
application concerning the creditor's
approval of, counteroffer or adverse
action on the application; failure to
provide sufficient information in an
adverse action notification, including the
specific reasons for the action taken;
failure to provide ECOA notice.
12 CFR 1002.13: Failure to request and FCA
collect information for monitoring
purposes.
------------------------------------------------------------------------
The AMS, SEC and the SBA reported that they received no complaints
based on ECOA or Regulation B in 2019. In 2019, the DOT Office of
Aviation Enforcement and Proceedings reported that it may have received
a relatively small number of consumer inquiries or complaints
concerning credit matters possibly covered by ECOA, which it processed
informally. The FTC is an enforcement agency and does not conduct
compliance examinations.
7.2 Referrals to the Department of Justice
In 2019, four FFIEC agencies (CFPB, FDIC, FRB, and NCUA) made a
total of seven referrals to the DOJ involving discrimination in
violation of ECOA. A brief description of those matters follows.
As reported in section 6.4.2, in 2019, the Bureau referred three
matters to the DOJ. Those referrals involved: Discrimination based on a
pattern or practice of redlining in mortgage origination based on race;
discrimination based on receipt of public assistance income in mortgage
origination; and discrimination based on race and national origin in
auto origination.
[[Page 27407]]
In 2019, the FDIC referred two matters to the DOJ. The first
referral involved discrimination in auto origination on the prohibited
basis of the applicant's receipt of income derived from a public
assistance program. The second referral involved discrimination in the
underwriting of commercial loans on the prohibited basis of religion.
The FRB referred one matter to the DOJ in 2019. The referral
involved pricing discrimination based on national origin, race, and
sex.
In 2019, the NCUA referred one matter to the DOJ involving
discrimination on the prohibited basis of age.
Table 6--Combined ECOA Referrals to DOJ
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Number of
Calendar year referrals to DOJ
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2012................................................. 12
2013................................................. 24
2014................................................. 18
2015................................................. 16
2016................................................. 20
2017................................................. 11
2018................................................. 2
2019................................................. 7
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7.3 Reporting on HMDA
The Bureau's annual HMDA reporting requirement calls for the
Bureau, in consultation with HUD, to report annually on the utility of
HMDA's requirement that covered lenders itemize loan data in order to
disclose the number and dollar amount of certain mortgage loans and
applications, grouped according to various characteristics.\81\ The
Bureau, in consultation with HUD, finds that itemization and tabulation
of these data furthers the purposes of HMDA.
---------------------------------------------------------------------------
\81\ 12 U.S.C. 2807.
Appendix A: Defined Terms
------------------------------------------------------------------------
Term Definition
------------------------------------------------------------------------
AI................................................ Artificial
Intelligence.
AMS............................................... Agricultural
Marketing Service
of the U.S.
Department of
Agriculture.
ANPR.............................................. Advance Notice of
Proposed
Rulemaking.
Bureau or CFPB.................................... The Bureau of
Consumer Financial
Protection or
Consumer Financial
Protection Bureau.
CDFI.............................................. Community
Development
Financial
Institutions.
CDFI Fund......................................... Community
Development
Financial
Institutions Fund.
CMS............................................... Compliance
Management System.
Dodd-Frank Act.................................... The Dodd-Frank Wall
Street Reform and
Consumer Protection
Act.
DOJ............................................... U.S. Department of
Justice.
DOT............................................... U.S. Department of
Transportation.
ECOA.............................................. The Equal Credit
Opportunity Act.
EGRRCPA........................................... Economic Growth,
Regulatory Relief,
and Consumer
Protection Act.
FCA............................................... Farm Credit
Administration.
FCRA.............................................. Fair Credit
Reporting Act.
FDIC.............................................. Federal Deposit
Insurance
Corporation.
Federal Reserve Board or FRB...................... Board of Governors
of the Federal
Reserve System.
FFIEC............................................. Federal Financial
Institutions
Examination
Council--the FFIEC
member agencies are
the Board of
Governors of the
Federal Reserve
System (FRB), the
Federal Deposit
Insurance
Corporation (FDIC),
the National Credit
Union
Administration
(NCUA), the Office
of the Comptroller
of the Currency
(OCC), and the
Bureau of Consumer
Financial
Protection
(Bureau). The State
Liaison Committee
was added to FFIEC
in 2006 as a voting
member.
FTC............................................... Federal Trade
Commission.
GIPSA............................................. Grain Inspection,
Packers and
Stockyards
Administration of
the U.S. Department
of Agriculture.
HCA............................................... Housing counseling
agency.
HMDA.............................................. The Home Mortgage
Disclosure Act.
HUD............................................... U.S. Department of
Housing and Urban
Development.
LAR............................................... Loan Application
Registers.
ML................................................ Machine Learning.
MRA............................................... Matters Requiring
Attention.
NAL............................................... No-Action Letter.
NCUA.............................................. The National Credit
Union
Administration.
NPRM.............................................. Notice of Proposed
Rulemaking.
OCC............................................... Office of the
Comptroller of the
Currency.
OFLEO............................................. Office of Fair
Lending and Equal
Opportunity.
OI................................................ Office of
Innovation.
RFI............................................... Request for
Information.
SBA............................................... Small Business
Administration.
SBREFA............................................ Small Business
Regulatory
Enforcement
Fairness Act.
SEC............................................... Securities and
Exchange
Commission.
SR................................................ Supervisory
Recommendations.
USDA.............................................. U.S. Department of
Agriculture.
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Signing Authority
The Director of the Bureau, having reviewed and approved this
document, is delegating the authority to electronically sign this
document to Laura Galban, a Bureau Federal Register Liaison, for
purposes of publication in the Federal Register.
Dated: May 5, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-09890 Filed 5-7-20; 8:45 am]
BILLING CODE 4810-AM-P
