The Consumer Financial Protection Bureau (“CFPB”) recently issued its first letter pursuant to a no-action letter policy launched in February 2016. The CFPB developed the policy to encourage innovation in the fintech marketplace by creating a testing ground for new technologies and consumer lending methods, particularly where the applicability or impact of existing regulations is uncertain. To take advantage of the policy, a company must submit an application describing the product, method, or service at issue and identify the specific rules and regulations for which the company seeks guidance. If the application is approved, a no-action letter is issued indicating that the CFPB “has no present intention to recommend initiation of an enforcement or supervisory action” against the applicant with respect to the specific product, method, or service and regulatory concerns covered by the company’s application.
Last Fall, in its 2015 Rulemaking Agenda, the Consumer Financial Protection Bureau (“CFPB”) signaled its intent to “to develop rules to define larger participants in markets for consumer installment loans.” Under the Dodd-Frank Act, the CFPB is authorized to issue “larger participant” rules to define entities in a particular market for consumer financial products or services. The issuance of such rules opens the door for supervisory and examination authority over such entities. Fast forward to Spring 2016, when the CFPB announced that it is accepting complaints from consumers regarding alleged problems with online marketplace loans, and it appears that the CFPB has marketplace lenders squarely in its sights.
On March 22, 2016, the United States Supreme Court issued its first 4-4 split decision since the passing of Justice Antonin Scalia. In Hawkins v. Community Bank of Raymore, No. 14-520 (U.S. Mar. 22, 2016), the Court reviewed whether the Federal Reserve Board (“FRB”) exceeded its authority when it amended Regulation B, implementing the Equal Credit Opportunity Act (“ECOA”), to cover loan “guarantors” as loan “applicants.” In a per curiam opinion, the Court affirmed the determination of the United States Court of Appeals for the Eighth Circuit that (1) the plain language of ECOA excludes loan guarantors from the definition of loan applicants authorized to bring an antidiscrimination suit under the statute, and thus (2) the FRB’s conflicting amendment was not entitled to deference to be afforded to regulations that interpret silent or ambiguous statutory provisions. Yet, the Court’s even split means that Hawkins will be binding precedent only in the Eighth Circuit and not nationwide.
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.
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.