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  • New York Attorney General announces settlement with auto dealership over deceptive practices targeting non-English speakers

    State Issues

    On July 5, the New York Attorney General announced a settlement with an auto dealership to resolve allegations that it engaged in deceptive practices targeted towards non-English speakers. The auto dealership allegedly misled consumers about the actual cost of their purchases and offered false refinancing promises. According to the announcement, the dealership allegedly (i) provided English documents to non-English speaking consumers containing loan terms and aftermarket items different from those discussed during the actual sale, including “supplemental service contracts, gap insurance policies, or special protections for tires, fabric, glass, or paint that added thousands of dollars to the auto sale or lease contracts”; and (ii) told consumers it would refinance their loans at a lower rate after receiving complaints of overcharges and unwanted aftermarket items. However, the Attorney General asserts that the dealership failed to honor the refinancing promises. Under the terms of the settlement, the dealership is required to reform its business practices, refrain from engaging in the alleged deceptive business practices, modify its employee training and complaint handling process, and produce sales and lending documents in languages for non-English speakers prior to the signing of any documentation in English. The dealership must also pay over $423,000 to cover restitution, penalties, fees, and costs to the state.

    State Issues State Attorney General Fair Lending Settlement Auto Finance

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  • District Court rules city failed to prove bank engaged in discriminatory lending practices

    Courts

    On June 29, the U.S. District Court for the Southern District of Florida granted a national bank’s Motion for Summary Judgment against the City of Miami Gardens (City) on the City’s claims that the bank allegedly made loans to minority borrowers that were more expensive than those given to non-minority borrowers, resulting in greater rates of default and foreclosure, which led to reduced property values in the City and decreased the City’s property tax revenue. (See previous Buckley Sandler Special Alert on a 2017 Supreme Court ruling addressing whether cities have standing to bring discriminatory lending claims under the FHA to recover lost tax revenue and upkeep costs). The court, siding with the bank, found the City had failed to present sufficient evidence to support a claim of discriminatory lending. According to the order, the parties agreed that the bank had not made any predatory loans during the limitations period. Because the City only identified two types of loans from a total of 153 loans issued by the bank during the limitations period as having been made at a higher cost to minorities, the record was insufficient to show the bank’s policies produced “statistically imbalanced lending patterns” and failed to support a claim for disparate impact. The judge further determined that the bank established that there were “legitimate nondiscriminatory reasons that motivated the different pricing,” and that “the City ultimately cannot carry its burden to show by a preponderance of the evidence that [the bank’s] reasons for the price differentials were a mere pretext for discrimination.” On these bases, the court granted the motion.

    Courts Fair Lending Disparate Impact

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  • HUD publishes ANPR on Disparate Impact Regulation

    Agency Rule-Making & Guidance

    On June 20, HUD published an advance notice of proposed rulemaking (ANPR) in the Federal Register seeking comment on potential amendments to its the 2013 Disparate Impact Regulation, which implements the Fair Housing Act’s disparate impact standard, as well as the 2016 Application of the Fair Housing Act’s Discriminatory Effects Standard to Insurance (supplement). The notice requests comments on whether the 2013 regulation and the 2016 supplement are consistent with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.  (Covered by a Buckley Sandler Special Alert.) While HUD is seeking feedback on any potential changes to the regulation, the agency is particularly interested in, among other things, (i) whether the burden-shifting framework appropriately assigns burdens of production and persuasion; and (ii) whether the regulation should provide defenses or safe harbors to claims of liability. Comments on the notice are due by August 20. 

    Agency Rule-Making & Guidance Federal Issues HUD FHA Disparate Impact Fair Lending U.S. Supreme Court

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  • Trump signs legislation repealing CFPB auto guidance, Mulvaney praises action; CFPB to reexamine ECOA requirements

    Federal Issues

    On May 21, President Trump signed resolution S.J. Res. 57, which repeals CFPB Bulletin 2013-02 on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). The president’s signature completes the disapproval process under the Congressional Review Act (CRA), which began after the Government Accountability Office (GAO) issued a letter in December 2017 to Senator Pat Toomey (R-Pa) stating that “the Bulletin is a general statement of policy and a rule” that is subject to override under the CRA. The Senate passed the disapproval measure in April and the House approved it in the beginning of May. (Previously covered by InfoBytes here.)

    The repeal responds to concerns that the bulletin improperly attempted to regulate auto dealers, which the Dodd-Frank Act excluded from the Bureau’s authority. In a statement after the president’s signing, CFPB acting Director Mick Mulvaney praised the action and thanked the president and Congress for “reaffirming that the Bureau lacks the power to act outside of federal statutes.” He also stated that the repeal “clarifies that a number of Bureau guidance documents may be considered rules for purposes of the CRA, and therefore the Bureau must submit them for review by Congress. The Bureau welcomes such review, and will confer with Congressional staff and federal agency partners to identify appropriate documents for submission.”

    Additionally, acting Director Mulvaney announced plans to reexamine the requirements of ECOA, “[g]iven a recent Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor.” Although the decision is not identified, it is likely the June 2015 Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which concluded that disparate impact claims are permitted under the Fair Housing Act but acknowledged some limitations on its application. (Covered by a Buckley Sandler Special Alert.) 

    Federal Issues CFPB CFPB Succession Congressional Review Act U.S. Senate U.S. House ECOA Auto Finance Dodd-Frank Fair Lending

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  • DOJ, CFPB agree to early termination of consent order with indirect auto lender

    Lending

    On May 15, the auto lending branch of an international automobile company (indirect auto lender) reported in an 8-K filing that the DOJ and CFPB had reached an agreement that the indirect auto lender has met the requirements for early termination of a consent order entered into in 2016 over allegations of unfair lending practices. As previously covered in InfoBytes, a joint agency investigation under ECOA found that the indirect auto lender’s policies allowed for dealers to mark up a consumer’s interest rate on the retail installment contract above the established risk-based buy rate. The parties currently await final court approval of a joint stipulation and proposed order for early termination of the consent order from three years to two years in the U.S. District Court for the Central District of California.

    Lending Fair Lending DOJ CFPB ECOA Auto Finance Consumer Finance

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  • HUD announces plan to seek public comment on Disparate Impact Regulation

    Federal Issues

    On May 10, the Department of Housing and Urban Development announced its intention to seek public comment on whether the 2013 Disparate Impact Regulation (Regulation), which provides a framework for establishing legal liability for facially neutral practices that have a discriminatory effect under the Fair Housing Act (FHA), is consistent with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.  (Covered by a Buckley Sandler Special Alert.) The Supreme Court upheld the use of a disparate impact theory to establish liability under the Fair Housing Act, but according to HUD’s announcement, the Court only referenced the Regulation in its ruling but did not directly rule upon it.

    As previously covered by InfoBytes, in October 2017, the Treasury Department called on HUD to reconsider the Regulation as it relates to the insurance industry – specifically, to homeowner’s insurance.

     

    Federal Issues HUD FHA Disparate Impact Fair Lending U.S. Supreme Court Mortgages Mortgage Insurance

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  • DOJ settles with Minnesota community bank to resolve fair lending violations

    Lending

    On May 8, the Department of Justice announced a settlement with a Minnesota community bank to resolve allegations that the lender excluded predominantly minority neighborhoods from its mortgage lending service in violation of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). According to the complaint filed in 2017, between 2010 and 2015, the bank engaged in unlawful redlining in and around Minneapolis-St. Paul, Minnesota by meeting the residential credit needs of individuals in majority-white census tracts, but avoided serving similar needs in majority-minority census tracts. The settlement requires the bank to expand its banking services in predominantly minority neighborhoods, including opening one full service branch within the specified census tract. In addition to compliance monitoring and reporting requirements, the bank is also required to (i) employ a Community Development Officer and an Executive leader; (ii) spend a minimum of $300,000 on advertising, outreach, and education and credit repair initiatives; (iii) invest a minimum of $300,000 in a program for special purpose loan subsidies; and (iv) continue to provide fair lending training to all employees.

     

    Lending DOJ Fair Lending Redlining ECOA Fair Housing Mortgage Lenders Mortgage Origination

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  • NYDFS announces investigation into rent-to-own as predatory lending

    Lending

    On April 16, the New York Department of Financial Services (NYDFS) announced an investigation into whether rent-to-own and land installment home purchase agreements constitute unlicensed, predatory mortgage lending in New York. NYDFS acknowledged the ongoing investigation while releasing a consumer alert to New Yorkers about rent-to-own and land installment contract pitfalls. The alert notifies consumers that the agreements may violate certain New York laws and regulations governing fair lending, mortgage protection, interest rates, habitability, and property condition. NYDFS encourages consumers to consider a traditional leasing option and be aware of the state of disrepair the property may be in before signing the agreement.

    Lending State Issues NYDFS Rent-to-Own Predatory Lending Fair Lending Mortgages

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  • District Court grants Illinois county a chance to establish proximate cause in FHA lawsuit

    Courts

    On March 26, the U.S. District Court for the Northern District of Illinois issued a ruling that Cook County (the County) may move forward with a lawsuit against a national bank (the Bank) for allegedly violating the Fair Housing Act (FHA) by engaging in discriminatory lending practices, holding that the County “‘is entitled to a chance to prove its case’” and establish proximate cause. In 2015, the district court dismissed the County’s complaint against the Bank on the grounds that the alleged facts did not fall within the scope of the FHA, and that the County itself was not an “‘aggrieved person’ entitled to sue under the [FHA].” However, the County filed a second amended complaint after the Supreme Court issued a 2017 ruling (previously covered in a Buckley Sandler Special Alert), which held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, but that such injuries must be proximately caused by the alleged misconduct rather than simply a foreseeable result.

    In granting in part and denying in part the Bank’s motion to dismiss the County’s second amended complaint, the district court ruled that the County may proceed on its FHA claims only “to the extent they allege that [the Bank’s] equity-stripping practice directly resulted in increased expenditures” by the County, “in connection with administering and processing an increased number of foreclosures.” According to the court, foreclosures in majority-minority neighborhoods were more likely to occur than in neighborhoods with fewer minority residents. “Statistical analysis could establish the likelihood that a loan modification denial would lead to foreclosure, and therefore could help a factfinder assess how many unnecessary foreclosures [the] County processed as a result of [the Bank’s] conduct,” the district court stated. Other claims such as “lost property tax revenue, increased demand for County services” including housing-related counseling, and “diminished racial balance and stability” were dismissed because they would require estimating too many variables. Additionally, in response to the Bank’s challenge that the County’s suit was barred by the FHA’s statute of limitations, the district court ruled that the challenge is premature because it is not apparent when the County “‘knew or should have known’” that the Bank’s equity-stripping practice was an actionable violation under the FHA.

    Courts FHA State Issues Fair Lending

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  • CFPB Succession: Mulvaney removes Fair Lending office enforcement power; Warren sends payday congressional inquiry

    Federal Issues

    On February 1, it was reported that Mulvaney has moved The Office of Fair Lending and Equal Opportunity from the Supervision, Enforcement and Fair Lending division (SEFL) of the CFPB to the Office of the Director. According to sources, Mulvaney sent an email which states that the Fair Lending office will now be focused on “advocacy, coordination and education” as opposed to the day-to-day responsibility of enforcement and supervision oversight, which will remain in the SEFL division. A spokesperson for the acting director stated, “by elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities...by combining these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness.”

    On January 31, Senator Elizabeth Warren and five other Democratic members of congress sent a letter to the CFPB inquiring about the Bureau’s decision to reconsider its final rule addressing payday loans, vehicle title loans, and certain other extensions of credit, as previously covered by InfoBytes. The letter expresses dissatisfaction with the lack of explanation for this decision and for the CFPB’s decision to end a multiyear investigation into a national installment loan lender (previously covered by InfoBytes here). The letter requests specific information related to the payday rule decision, such as, (i) lists of personnel involved in providing legal advice and lists of meetings attended by political appointees related to the payday decision; (ii) an explanation of the analysis that lead to the decision; and (iii) information related to communications with certain members of the payday loan industry. Interestingly, the letter is addressed to Leandra English as “Acting Director” of the CFPB and Mick Mulvaney as “Director” of the Office of Management and Budget.

    As for Leandra English’s litigation, on January 31, English filed her corrected Appellant’s Brief with the U.S. Court of Appeals for the D.C. Circuit. The brief does not raise any significantly new arguments. The government’s response is due by February 23.  Additionally, on February 1, a judge for the U.S. District Court for the Southern District of New York dismissed a similar complaint brought by a NY credit union (previously covered by InfoBytes here). In granting the government’s motion to dismiss, the judge agreed that the credit union did not allege a “concrete and particularized injury caused by CFPB actions under Mulvaney’s leadership” and therefore, did not have standing to bring the action.   

    Federal Issues CFPB Succession Fair Lending Payday Lending Enforcement English v. Trump

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