CFPB Report Reviews 2015 Fair Lending Activities and Notes Continuing Priorities

On April 29, the CFPB released its fourth annual report to Congress on fair lending activities. The report recaps the CFPB’s 2015 supervisory and enforcement efforts around fair lending and identifies ongoing priorities in the areas of: (i) mortgage lending, noting a continuing focus on HMDA data integrity and fair lending risks related to redlining, underwriting, and pricing; (ii) indirect auto lending, noting targeted ECOA reviews in examinations; (iii) credit cards, focusing “on the quality of fair lending compliance management systems and on fair lending risks in underwriting, line assignment, and servicing”; and (iv) other product areas including small-business lending, focusing on risks in underwriting, pricing, and redlining, and offering that “current and future small business lending supervisory activity will help expand and enhance the Bureau’s knowledge in this area, including the credit process; existing data collection processes; and the nature, extent, and management of fair lending risk.” The report highlights that “supervisory work on mortgage servicing has included use of the ECOA Baseline Review Modules … to identify potential fair lending risk in mortgage servicing and inform [its] prioritization of mortgage servicers.” In addition to recaps of its 2015 rulemaking, published guidance and efforts at interagency cooperation (including its MOU and sharing of customer complaints with HUD), the report also indicates that the CFPB had a number of authorized enforcement actions in settlement negotiations or pending investigations at year end in areas including mortgage lending, indirect auto lending, and credit cards.

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FTC Submits Letter to CFPB Regarding ECOA Enforcement and Education Activities

On February 8, the FTC sent the CFPB a letter summarizing the FTC’s enforcement activities related to compliance with the Equal Credit Opportunity Act (ECOA) and implementing Regulation B during 2015. The annual letter reviews the FTC’s responsibilities with regard to ECOA enforcement and education to most non-bank financial service providers. Highlights of the letter include, but are not limited to, (i) the FTC’s public workshop on the growing use of online lead generation in industries such as lending and education; (ii) the FTC’s  Federal Register Notice seeking comments on a proposed survey of consumers regarding their experiences in buying and financing automobiles at dealerships, over which the FTC has broad authority to enforce the FTC Act and ECOA; and (iii) updates to the FTC’s Mortgage Discrimination publication, which includes information about ECOA and warns consumers of illegal practices. Finally, the FTC emphasized that, since 2011, it has brought over 25 cases in the auto purchase and financing industry, “including those in a federal-state effort that yielded more than 200 actions for fraud, deception, and other illegal practices.”          

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CFPB and DOJ Announce Joint Settlement with Indirect Auto Lender over Alleged ECOA Violations

On February 2, the CFPB and the DOJ announced a joint enforcement action against an indirect auto lender for alleged violations of the Equal Credit Opportunity Act (ECOA) and implementing Regulation B. In April 2013, the CFPB and the DOJ began an investigation into the indirect auto lender’s compliance with the ECOA and found that its policies allowed for dealers to mark up a consumer’s interest rate on the retail installment contract above the established risk-based buy rate, known as “dealer markup.” The dealers received greater compensation from the indirect auto lender on loans with a higher interest rate. The DOJ and the CFPB determined that the respondent’s practice of allowing pricing discretion resulted in qualified African-American/Pacific Islander borrowers paying more than qualified white borrowers. To resolve the DOJ and the CFPB’s allegations, the respondent agreed to (i) reduce the amount by which loans can be marked up to only 1.25% above the established buy rate for auto loans with terms of five years or less, and 1% for loans with longer terms; (ii) pay at least $19.9 million in redress to borrowers affected by its finance practices from January 2011 to February 2, 2016, and up to $2 million more from the date of the action until it implements a new pricing and compensation structure, which must be in place by August 2016; and (iii) hire a settlement administrator to ensure that affected borrowers receive compensation.

These enforcement actions are the fourth in a series of joint CFPB and DOJ actions addressing fair lending risks in the indirect auto lending industry.

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House Financial Services Committee: CFPB Removed Safeguards to Achieve Political Goals

On January 20, Republicans on the House Committee on Financial Services issued a report alleging that the CFPB removed a number of safeguards from the claims process after it secured its first settlement with an auto finance company and the company’s subsidiary bank in 2013. The Committee’s most recent report follows a November 2015 report in which the Republican staff (i) criticized the CFPB’s approach for determining discrimination in the auto lending industry; and (ii) questioned the CFPB’s authority to bring claims against banks involved in indirect auto lending under ECOA on a disparate impact theory. According to the more recently published report, the CFPB failed to confirm that funds from the 2013 settlement would be distributed to eligible recipients. Read more…

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FTC Issues Report on Big Data

On January 6, the FTC published a report titled, “Big Data: A Tool for Inclusion or Exclusion? Understanding the Issues.” The report, which draws from information from a September 2014 FTC workshop, as well as public comments and research, primarily focuses on the final stage in the life cycle of big data use by addressing the commercial use of consumer data and its effect on low-income and underserved populations. According to the report, participants in the 2014 workshop expressed concern that potential inaccuracies and biases from big data may lead companies to “exclude low-income and underserved communities from credit and employment opportunities.” For example, the report states that, “if big data analytics incorrectly predicts that particular consumers are not good candidates for prime credit offers, educational opportunities, or certain lucrative jobs, such educational opportunities, employment, and credit may never be offered to these consumers.” In order to minimize legal and ethical risks, and to avoid possible exclusion and/or discrimination, the report suggests that companies should obtain an understanding of various laws that may apply to their big data practices, including the FCRA, equal opportunity laws, and the FTC Act. Read more…

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