CFPB Releases Annual Fair Lending Report (UPDATED) | Ballard Spahr LLP

The CFPB recently published its fair lending annual report covering its fair lending business in 2021.

In the report’s discussion of its risk-based approach to prioritizing Fair Lending monitoring and enforcement activities, the CFPB indicates that much of its enforcement and monitoring efforts focused on advancing its priorities of promoting racial and economic equity and promoting economic recovery related to the COVID -19 pandemic. It also identifies the following additional areas of focus in Fair Lending oversight: “mortgage origination and pricing, small business loans, student loan origination work, policies and procedures regarding geographic and [income types] exclusions in the subscription and on the use of artificial intelligence (AI) and machine learning models [in evaluating applicants for credit].” For these areas, the CFPB identifies the following specific challenges:

  • Origin of mortgage – redlining (and whether lenders intentionally discouraged potential applicants living or seeking credit in minority neighborhoods from applying for credit); assess whether there is discrimination in underwriting and pricing processes such as piloting; and HMDA Data Integrity and Validation Reviews (both as stand-alone reviews and in preparation for the ECOA reviews that follow).
  • Small business lending – assess whether there are any disparities in application, underwriting and pricing processes, redlining and whether there are weaknesses in fair lending compliance.
  • Origin of student loans – lender’s underwriting or pricing policies and practices.

Discussion of the Fair Lending Enforcement Report indicates that in 2021, the Bureau announced four Fair Lending Enforcement Actions. One of these actions is a lawsuit brought jointly with the DOJ and the OCC against Trustmark National Bank (TNB) which alleged that TNB engaged in loan discrimination by redoubling predominantly black and Hispanic neighborhoods in Memphis, Tennessee. Another is CFPB lawsuit against online lender LendUp which included allegations that LendUp violated the ECOA and Rule B by failing to provide accurate and timely notices of adverse action to consumers whose loan applications were denied.

The other two enforcement actions that the CFPB refers to as “fair lending” actions are the CFPB lawsuits against Libre by Nexus and JPay. The Free Trial targeted activities for immigrants seeking bail for release from federal detention centers, the majority of whom are said to be “Spanish speakers, most of whom cannot read or write English and many of whom cannot read or write in any language.” The immigrants’ limited English proficiency was the basis of a CFPB complaint that the defendants engaged in abusive acts and practices in violation of the UDAAP ban on the CFPA.

The JPay lawsuit involved prepaid cards that JPay issued to formerly incarcerated individuals upon release from prison. The cards contained the balance of funds owed to former inmates upon their release, including money from their police station and any “door money” to which they were entitled under state or local law. The CFPB alleged that JPay engaged in unfair, deceptive and abusive acts and practices in violation of the CFPA’s UDAAP prohibition through conduct that included charging fees to consumers who were required to obtain a JPay debit card to access the money owed to them. at the time of their release from prison and false declarations of charges. Neither the CFPB press release nor Director Chopra’s statement on the lawsuit mention concerns about vulnerable populations or discrimination. However, in her introductory message to the report, Fair Lending Director Patrice Ficklin said, “In the United States, those incarcerated and those reentering society are overwhelmingly men of color. The CFPB will continue to fight against discrimination that manifests itself in unfair, deceptive or abusive acts and practices.

Ms. Ficklin’s comment would appear to confirm that the CFPB’s decision to include these lawsuits in the report and label them “fair loan enforcement” despite the absence of any apparent “loan” or “credit” in the two cases is related to CFPB’s recent announcement that he intends to use his UDAAP authority to challenge discrimination even where fair lending laws do not apply, even though this announcement came months after these lawsuits were filed. Although the report does not directly reference the CFPB announcement in the section on ongoing investigations into the application of Fair Lending, the CFPB states that it is “reviewing potential discriminatory behavior, including ECOA and injustice, as well as illegal behavior targeting vulnerable populations”.

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