It has been a busy week in the fair lending space. Last week, the CFPB issued a white paper describing its proxying methodology for imputing race and ethnicity when analyzing fair lending compliance on non-mortgage credit products along with a proposed rule to oversee nonbank auto finance companies. This week, the Federal Financial Institutions Examination Council released the 2013 Home Mortgage Disclosure Act (“HMDA”) data, and the Federal Reserve released its own analysis of the data.
The CFPB proposed a new rule on September 17, 2014, that would enable the Bureau to oversee nonbank auto finance companies. With the proposal, the CFPB takes another step toward expanding its supervisory authority over nonbanks. The Bureau released the proposed rule along with a report on recent examinations of bank auto lending activities and a white paper describing its proxying methodology for imputing race and ethnicity when analyzing fair lending compliance on non-mortgage credit products.
The Home Mortgage Disclosure Act requires residential mortgage lenders to collect race and ethnicity information about loan applicants, and lenders, regulators and others routinely use this information to statistically evaluate whether there is a risk that a lender has discriminated against borrowers on a prohibited basis. With regard to other types of credit, with respect to which federal law generally prohibits the collection of demographic information, lenders and other interested parties must impute credit applicants’ race and ethnicity using proxies. For example, a lender could use the racial composition of the census tract in which a consumer resides to assign an assumed race to the consumer. Although proxying provides a way to evaluate fair lending risk in the absence of actual demographic data, there historically has not been a generally-accepted methodology for performing the proxy process, and this has made it particularly challenging to evaluate fair lending compliance for non-mortgage credit products.
By: Melanie Brody, Anjali Garg*
*Ms. Garg is a Law Clerk and is not admitted to practice law.
CFPB (the “Bureau”) released a report to Congress on its fair lending activities on April 30, 2014. The report highlights the activities of the Office of Fair Lending and Equal Opportunity from July 21, 2012 through December 31, 2013. It provides an overview of the Bureau’s supervision activities and highlights the data collection activities of the Bureau in the areas of mortgage lending, auto finance, and other credit markets. The report explains how the Bureau uses its complaint database, along with regular supervision programs, in order to prioritize its fair lending activities. It also highlights recent CFPB bulletins on indirect auto lending and HMDA reporting.
On May 4-7, 2014 the Mortgage Bankers Association will hold its annual Legal Issues and Regulatory Compliance Conference in San Diego, CA. Several K&L Gates partners from the Consumer Financial Services Group will be presenting at the conference.
Melanie Brody will address “A Look Ahead: HMDA and Fair Lending” on Sunday, May 4, at 4:35 pm.
Krista Cooley will participate on a panel on Tuesday, May 6, at 3:15 pm, entitled “False Claims, Indemnifications, Repurchases and Rescissions.” She will discuss how the False Claims Act is affecting participants in HUD’s Federal Housing Administration loan program.
Andrew Glass will speak on Sunday, May 4, at 1:50 pm in the Litigation Forum on Fair Lending, explaining the status of fair lending/servicing litigation, and specifically the status of challenges to the disparate impact rule, the status of the municipal lawsuits against banks for “predatory” lending, and the HUD complaints by NFHA challenging the maintenance of properties held in REO.
Paul Hancock will address fair lending issues on Tuesday, May 6, at 1:30 pm.
Kris Kully will discuss Dodd-Frank Act amendments to RESPA and TILA on the ever-popular “Essentials: Alphabet Soup of Federal Laws,” on Sunday, May 4, at 1:50 pm.
Larry Platt will speak on Monday, May 5, at 3:15 pm on the “Deep Dive” panel for QRM, the Future of the Secondary Market, and GSE Reform.
Phil Schulman will participate on the panel entitled “A Look Ahead: TILA/RESPA,” on Sunday, May 4, at 3:15 p.m., and then will continue the discussion on the integrated disclosure forms on Monday, May 5, at the “Deep Dive: RESPA/TILA” panel at 3:15 pm.
Nanci Weissgold will present on two panels at the conference. On Sunday, May 4, at 12:30 pm, Nanci will present on a panel entitled “Essentials: Servicing Rule,” focusing on the basics of the CFPB’s Mortgage Servicing Rules. Nanci also will provide more insights into the national servicing standards on the “Deep Dive: Servicing: New Rules, New Developments” panel to be held Monday, May 5, at 1:30 pm.
We look forward to seeing you in San Diego!
By: Melanie Brody, Anjali Garg*
*Ms. Garg is a law clerk and is not admitted to practice law.
On March 24, 2014, the Fifth Circuit issued an opinion in Inclusive Communities Project, Inc. v. Texas Department of Housing and Community Affairs applying HUD’s discriminatory effects rule and burden-shifting analysis to a Fair Housing Act claim. This is the first circuit court to apply the rule since it took effect on March 18, 2013. Read More
Recognizing that many creditors will be inclined to originate only “qualified mortgages” (“QM loans”) when the CFPB’s ability-to-repay rule takes effect in January, five federal regulators yesterday announced that a creditor’s decision to offer only QM loans will not elevate the creditor’s fair lending risk, absent other factors. Read More
On September 3, 2013, K&L Gates LLP filed a brief as amici curiae before the United States Supreme Court in Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., a case in which the Court will consider whether the Fair Housing Act recognizes a disparate-impact theory of liability. The brief addresses the effect that the Court’s recognition of the disparate-impact theory would have on the residential mortgage lending industry and was filed on behalf of the American Financial Services Association, the Consumer Mortgage Coalition, the Independent Community Bankers of America, and the Mortgage Bankers Association. A copy of the as-filed brief is available here. The Court is likely to schedule oral argument in the matter for late 2013 or early 2014.
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Today, the Supreme Court granted certiorari in the appeal titled Township of Mount Holly, New Jersey v. Mt. Holly Gardens Citizens in Action, Inc., et al., No. 11-1507, agreeing to consider whether the Fair Housing Act allows claims under the disparate impact theory of discrimination. The disparate impact doctrine imposes liability on defendants for actions undertaken without discriminatory intent but which nonetheless have an allegedly disproportionately harmful effect on protected classes of persons.
In an increasingly complex battle among the branches of the federal government, the Solicitor General recently urged the Supreme Court to deny certiorari in the appeal titled Township of Mount Holly, New Jersey v. Mt. Holly Gardens Citizens in Action, Inc., et al., No. 11-1507. The Mt. Holly matter seeks review of whether the Fair Housing Act recognizes a disparate impact theory of discrimination and if so, how courts are to analyze such claims. A disparate impact theory imposes liability on defendants for actions that are undertaken without discriminatory intent but that nonetheless have a disproportionately harmful effect on particular groups of individuals. The Supreme Court had previously granted certiorari to review these same questions in the appeal titled Magner v. Gallagher, No. 10-1032, which appeal the defendants subsequently withdrew under circumstances garnering review by Congress.