CFPB to Pursue Discriminatory Lenders
by Anna DeSimone
President & Founder
On April 18, 2012, the Consumer Financial Protection Bureau (CFPB) issued Bulletin 2012 -04 to provide guidance regarding compliance with the fair lending requirements of the Equal Credit Opportunity Act (ECOA).
The CFPB stated it will use all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers. The CFPB has compiled educational information to help consumers identify and avoid credit discrimination.
In a Compliance Bulletin released in conjunction with the announcement, the CFPB reaffirmed its commitment to enforcing the ECOA and will use the “disparate impact effects test” in fair lending examinations and enforcement actions by recognizing the disparate impact doctrine.
Banks and nonbanks under Bureau supervision will be monitored for potential fair lending violations including practices with unlawful discriminatory effects. The CFPB Compliance Bulletin applies to all institutions under the Bureau’s jurisdiction and applies to credit products including mortgages, credit cards, student loans, and auto loans.
The CFPB states that it will continue to adhere to the fair lending principles outlined in Regulation B. Consistent with other federal supervisory and law enforcement agencies, the CFPB reaffirms that the legal doctrine of disparate impact remains applicable as the Bureau exercises its supervision and enforcement authority to enforce compliance with the ECOA and Regulation B.
Interagency Task Force on Fair Lending, which was composed of ten federal agencies, including the Department of Justice, each of the federal prudential agencies with regulatory authority over financial institutions, and the Federal Trade Commission, released the Policy Statement on Discrimination in Lending in 1994.
The Policy Statement notes that the courts have recognized the following methods of proving lending discrimination under the ECOA:
- Overt evidence of discrimination
- Evidence of disparate treatment
- Evidence of disparate impact
The CFPB concurs with the Policy Statement. In addition, the Bureau’s ECOA Examination Procedures, Mortgage Origination Examination Procedures, and Mortgage Servicing Examination Procedures also adopt and reference the Interagency Fair Lending Examination Procedures, including those designed to identify evidence of disparate impact. The applicability of disparate impact doctrine, also known as the “effects test,” to credit transactions is reflected in the legislative history of the ECOA.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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