Where have all the CFPB fair loan cases gone?
Despite assurances from the Consumer Financial Protection Bureau that it is serious in its fight against violations of the fair lending right, the CFPB’s shortage of enforcement action on redlining and other discriminatory practices in two years is worrying consumer and civil rights advocates.
Under Kathy Kraninger’s leadership, the CFPB has filed virtually no fair loan enforcement orders, unlike the Obama administration. In the past year, the agency has issued only an action related to equity loans, fining Freedom Mortgage $ 1.75 million for alleged violations of the Home Mortgage Disclosure Act.
But neither Kraninger nor his predecessor Mick Mulvaney have filed any further orders or reported any violations of the Equal Credit Opportunity Act to the Justice Department in the past two years.
Industry lawyers say CFPB still focuses on fair loan reviews, and Kraninger told lawmakers in October that the agency was investigating. Yet the lack of public enforcement activity over such a long period of time worries critics of agencies who say discrimination in the financial services industry still exists and is a barrier to the financial well-being of minorities.
“The lack of fair loan cases is not because we have succeeded in ending discrimination,” said Vanita Gupta, president and CEO of the Leadership Conference on Civil and Human Rights and former head of the Civil Rights Division of the Ministry of Justice. “However, this reflects our new reality: law enforcement in this area has largely stopped. The CFPB and the Ministry of Justice have an obligation to seek out discriminatory activities – which remain illegal – and to fight on behalf of the injured parties. . “
Under the Trump administration, the office has expressed a desire to withdraw from enforcement actions in general and fair loan investigations in particular. In an April speech, Kraninger said the agency was refocusing on supervision rather than execution. And last year Mulvaney had bare the Office of Fair Lending of the agency’s enforcement powers.
The decline in CFPB fair loan cases can be attributed to a number of other factors. Mulvaney had put in place a temporary halt to all enforcement measures after arriving on board. Discrimination and redlining cases also take longer.
“This could suggest that the industry is monitoring its fair lending compliance better, or that cases are taking longer to develop,” said Tim Burniston, senior advisor and regulatory strategist at Wolters Kluwer.
“Regulators continue to do fair lending reviews and fair lending is still a high priority, but why the number of model and practice cases has decreased I cannot deal with except that they are taking time. time to develop. ”
He added that a drop in fair loan cases and referrals is not limited to CFPB.
“There is not only a substantial drop in the benchmark activity of the CFPB at the DOJ, but also a substantial drop in all the other banking regulators who have [ECOA] responsibilities too, he said.
The agency was more active in enforcing fair lending rules under the Obama administration. The CFPB has made 40 loan discrimination referrals to the Justice Department since 2011, peaking at 15 in 2014, but falling to just two in 2017.
Lawyers defending the institutions targeted by the CFPB say the office continues to focus on fair loan reviews through its non-public oversight work. The bureau has conducted reviews of a number of non-bank mortgage lenders over the past two years, lawyers said, but the reviews ended without any findings of redlining or discrimination.
“We have seen good activity on the oversight side with equitable loans, but nothing that will go public, and much of it started a long time ago,” said Christopher Willis, partner at Ballard Spahr.
Others said the office had not prioritized fair loan enforcement action because Republicans had long opposed the agency’s use of the “disparate impact” theory. , according to which lenders can be held responsible for racial discrimination even if it was not intentional.
When Congress passed a resolution Last year, to repeal CFPB guidelines on discrimination in auto loans, Mulvaney, now White House chief of staff, told consumer advocates that the CFPB could no longer pursue disparate impact claims, according to some who attended a meeting with him.
Although the Supreme Court upheld the disparate impact theory under the Fair Housing Act in 2015, the High Court decision 5-4 has been interpreted as limiting the ability of consumers and federal agencies to file claims. . The High Court said plaintiffs had to prove that a defendant’s policies were at the root of the alleged disparity.
Consumers should also follow a five-step framework for proving discrimination under a August proposal by the Ministry of Housing and Urban Development. They would have to demonstrate that a policy or practice is “arbitrary, contrived and unnecessary” to go ahead with a claim.
Some fear that the CFPB will go further by re-examine how he enforces the ECOA, the 1974 law that protects consumers from discrimination based on race, sex, age and other variables.
“We know that communities of color are disproportionately harmed and the government must take responsibility for enforcing the law,” Gupta said. “The withdrawal from loan execution, coupled with the administration’s attack on disparate impact, which provides tools to challenge the more common and less overt discrimination based on implicit biases, makes communities more vulnerable than never.”
Consumer advocates also point to a proposal on HMDA data that Kraninger released in May that would potentially exempt 85% of banks and credit unions from HMDA reports. HMDA data is used to investigate and identify violations of fair lending law.
In October, the CFPB granted a second two-year exemption from HMDA requirements to institutions that offer fewer than 500 open-ended lines of credit. Kraninger also plans to reopen the Obama-era HMDA rule written in 2015 to make those exemptions permanent.
“They have made it easier to mask patterns of discrimination by increasing the reporting threshold, making it more difficult for civil rights lawyers or state attorneys general to draw conclusions when data is not available,” he said. said Linda Jun, senior policy advisor at Americans for Financial Reform, a nonprofit coalition. “So besides not going after the bad guys in two years, they make it a lot harder to find these patterns of discrimination.”
Against the backdrop of so many changes to equity lending, House Democrats in October grilled the bureau’s efforts to unearth discrimination in mortgage lending in Kraninger in October.
“This is the first time in its history that there has been a six month period where there has been no discrimination in lending occurring in this country,” said Representative Joyce Beatty, D-Ohio. . “Do you really expect me to believe him?” “
Kraninger reiterated his commitment to a fair loan.
“I can assure you that we have fair loan reviews, fair loan investigations that are open and ongoing,” she told Beatty. Law enforcement cases “are certainly not a measure of when discrimination occurs in the market, but it is our best effort to review referrals from other agencies, review our complaints, review what is happening. goes into the market where we conduct investigations and careers the attorneys in the office conduct those investigations where they can based on the facts and circumstances and bring them to fruition or close them. “
In response to a question from Rep. Alma Adams, DN.C., Kraninger said the CFPB has historically performed 13 fair loan reviews at any given time and under her leadership has had 10 reviews.
“I can assure you that I am committed to this,” Kraninger said. “Part of this is also the recruiting process to recruit more reviewers. We have 300 examiners who have completed fair loan training and are able to participate in fair loan exams. I am committing again to a similar level, not an exact level, but an ongoing commitment to equitable lending, I have promised and believe I am achieving. ”
Yet the goal of fair lending has changed dramatically under Kraninger and Mulvaney. One of Mulvaney’s first steps in 2018 was to dismantle the CFPB Equitable Loans Office. He removed his enforcement powers and put the office under a separate division focused on advocacy and education. The Bureau’s Fair Lending, Enforcement and Oversight Office does not have a separate Fair Lending Unit.
“They seem to be in a fashion where they are more restricted on [fair lending] right now, ”Willis said.
Yet others have suggested that if Kraninger takes legal action for fair loans, it will happen closer to the 2020 presidential election.
“The CFPB may have consumer abuse lawsuits to take, but they may wait until the election is near before they table or deploy anything, but it will likely be something very minimal,” said Jeanetta Williams. , president of the NAACP Salt Lake. Branch and Tri-State Conference of Idaho, Nevada, and Utah.