Category: Fair Lending/Anti-Discrimination

1
Justices Sotomayor and Scalia Lead the Way as the Supreme Court Hears Argument on the Fair Housing Act Disparate-Impact Question
2
CFPB Issues Guidance to Mortgage Lenders on Verifying Disability Income
3
U.S. District Court Strikes Down HUD’s Fair Housing Act Disparate Impact Rule
4
2013 HMDA Data is Now Available; Mortgage Lenders Should Consider Evaluating Redlining Risk
5
CFPB Proposes New Rule to Oversee Nonbank Auto Finance Companies
6
Big Data takes a Big Step: CFPB Offers Insight into Its Fair Lending Proxy Methodology
7
CFPB Releases Fair Lending Report to Congress
8
K&L Gates Consumer Financial Services Group to Present at MBA Legal Issues Conference in San Diego
9
5th Circuit Applies HUD Discriminatory Effects Rule to Fair Housing Act Case
10
Federal Regulators Alleviate Fair Lending Concerns Regarding QM Origination

Justices Sotomayor and Scalia Lead the Way as the Supreme Court Hears Argument on the Fair Housing Act Disparate-Impact Question

By: Paul F. Hancock, Andrew C. Glass, Roger L. Smerage, and Olivia Kelman

On January 21, 2015, the United States Supreme Court heard oral argument in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. (the “Texas DHCA case”). The case presents the question whether the Fair Housing Act recognizes a disparate-impact theory of liability. See Tex. Dep’t of Hous. & Cmty. Affairs v. The Inclusive Cmtys. Project, Inc., — S. Ct. —, 2014 WL 4916193 (Oct. 2, 2014) (No. 13-1371) (granting petition for writ of certiorari). Under that theory, a plaintiff may challenge a defendant’s policies or practices that are neutral on their face (that is, do not reflect any intent to discriminate) but that purportedly have a disproportionate effect on groups sharing certain statutorily-defined characteristics such as race or national origin. The Supreme Court has expressed strong interest in the issue, granting certiorari three times in the last four terms to decide the question, only to have the parties settle just before oral argument in the previous two matters. See Magner v. Gallagher, S. Ct. No. 10-1032, and Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., S. Ct. No. 11-1507. At argument in the Texas DHCA case, the public was finally able to hear the nature of the Court’s interest in the issue.

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CFPB Issues Guidance to Mortgage Lenders on Verifying Disability Income

By: Melanie Brody, Stephanie C. Robinson, Jay M. Willis

On Tuesday, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) issued a compliance bulletin, CFPB Bulletin 2014-03, to help lenders avoid discrimination against recipients of Social Security Administration (“SSA”) disability income in violation of the Equal Credit Opportunity Act and its implementing regulation, Regulation B.

Creditors may occasionally feel stuck between a rock and a hard place when underwriting mortgage loans for disability income recipients. On the one hand, creditors have a legal obligation to ensure that applicants are able to repay any credit extended. When an applicant receives public assistance, Regulation B expressly allows creditors to consider the length of time that such assistance is likely to continue. On the other hand, while SSA provides recipients with disability benefits documentation, that documentation generally does not detail how long benefits will last. Creditors seeking to responsibly underwrite mortgage loans must somehow make that determination on their own.

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U.S. District Court Strikes Down HUD’s Fair Housing Act Disparate Impact Rule

By: Paul F. Hancock, Andrew C. Glass, Roger L. Smerage, and Olivia Kelman

On Monday, November 3, 2014, Judge Richard J. Leon of the U.S. District Court for the District of Columbia struck down the disparate impact rule promulgated by the U.S. Department of Housing and Urban Development (“HUD”) in March 2013 under the Fair Housing Act.  The court held that HUD had issued the rule—codified at 24 C.F.R. § 100.500—in contravention of the plain language of the Fair Housing Act.  The case is styled American Insurance Association, et al. v. United States Department of Housing & Urban Development, et al., Case No. 1:13-cv-00966-RJL (D.D.C.).

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2013 HMDA Data is Now Available; Mortgage Lenders Should Consider Evaluating Redlining Risk

By: Melanie Brody, Anjali Garg*
*Ms. Garg is not admitted in D.C. She is supervised by Stephanie Robinson, a member of the D.C. Bar.

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.

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CFPB Proposes New Rule to Oversee Nonbank Auto Finance Companies

By: Melanie Brody, Anjali Garg*
*Ms. Garg is not admitted in D.C. She is supervised by Stephanie Robinson, a member of the D.C. Bar.

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.

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Big Data takes a Big Step: CFPB Offers Insight into Its Fair Lending Proxy Methodology

By: Melanie BrodyAnjali Garg*
*Ms. Garg is not admitted in D.C. She is supervised by Stephanie Robinson, a member of the D.C. Bar.

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.

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CFPB Releases Fair Lending Report to Congress

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.

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K&L Gates Consumer Financial Services Group to Present at MBA Legal Issues Conference in San Diego

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!

 

 

5th Circuit Applies HUD Discriminatory Effects Rule to Fair Housing Act Case

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

Federal Regulators Alleviate Fair Lending Concerns Regarding QM Origination

By: Stephanie C. Robinson, Andrew L. Caplan

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

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