CFPB Targets Fair Lending

The Consumer Financial Protection Bureau continues to throw its weight around.  The CFPB is not shy nor is it reluctant to take on some of the biggest financial players in the industry.  The CFPB is still expanding its reach and its intended targets for investigation and prosecution.

Recently, the CFPB issued its draft strategic plan for 2012 to 2018, which identifies for strategic goals and eleven outcomes.  Interestingly, the CFPB is proposing to measure its performance by the number of enforcement actions and examinations.

One specific area identified by the CFPB for enforcement and measurement is fair lending prosecutions.  No other specific area is identified for enforcement.  The implication of this statement is clear – the CFPB is ramping up for aggressive fair lending enforcement actions and examinations.  Fair lending enforcement actions and examinations are going to be separately measured. 

Industries falling under the CFPB’s supervision face significant risks.  Examinations can often lead to investigations.  Compliance becomes important to survive an examination with no deficiencies and to prevent aggressive CFPB investigations. 

In April of this year, CFPB officials stated they were monitoring lender activities to ensure they meet requirements of the Equal Credit Opportunity Act and the Consumer Credit Protection Act.  The CFPB is reportedly investigating whether banks and other financial institutions are engaging in discriminatory lending practices.  The CFPB focus is not limited to the origination of loans but includes loan servicing.

The CFPB has made it clear that it intends to look at loan modifications, collection activity and other aspects of servicing to determine whether members of protected classes are being treated differently. 

Consumer advocates claim that lenders such as banks, mortgage companies, credit card companies, auto dealers, paycheck lenders and others gouge borrowers on loan pricing, and that minorities and other protected classes suffer the worst of the excesses.

The CFPB intends to rely on disparate impact analysis tools, and proxies for race and gender to identify disparate impact of lender originations and servicing.  In conducting such analysis, the CFPB will likely sort through zip codes and census tracks to focus on race and look at first names for gender.

In order to minimize these risks, a company should review its policies, procedures, discretionary underwriting and pricing practices.  The CFPB is likely to conduct statistical reviews for loans that the company has made or purchased to ensure there is no unexplained or improper disparity between protected and non-protected classes, so companies should perform such analyses in advance of the regulator conducting such an analysis.

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