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  • NYDFS implements state CRA revisions

    State Issues

    On February 8, NYDFS announced the adoption of updates to the state’s Community Reinvestment Act (CRA) regulation. The final regulation implements amendments to Banking Law § 28-b, and allows the Department to obtain necessary data to evaluate how well regulated banking institutions are serving minority- and women-owned businesses in their communities. These findings will be integrated into institutions’ CRA ratings, NYDFS said. As previously covered by InfoBytes, NYDFS issued proposed revisions last October, announcing that the modifications are intended to minimize compliance burdens by making sure the regulation’s proposed language complements requirements in the CFPB’s proposed rulemaking for collecting data on credit access for small and minority- and women-owned businesses. The final regulation details how regulated institutions must collect and submit the necessary data to NYDFS while abiding by fair lending laws. Regulated institutions must inquire as to whether a business applying for a loan or credit is minority- or women-owned or both, and submit a report to the Department providing application details, such as the date of application, type of credit applied for and the amount, whether the application was approved or denied, and the size and location of the business. The final regulation also includes a form for regulated institutions to use to obtain the required data from business loan applications. NYDFS said it will publish a data submission template in the coming months for regulated institutions to use during CRA evaluations. The final regulation takes effect August 8, and provides for a compliance date six months following the publication of the Notice of Adoption in the State Register. Regulated institutions will also have an additional transition period of three months from the compliance date to comply with certain provisions.

    State Issues State Regulators NYDFS Bank Regulatory New York CRA Agency Rule-Making & Guidance Fair Lending

  • District Court dismisses CFPB redlining action against nonbank lender

    Courts

    On February 3, the U.S. District Court for the Northern District of Illinois dismissed with prejudice claims that a Chicago-based nonbank mortgage company and its owner violated ECOA by engaging in discriminatory marketing and applicant outreach practices. The CFPB sued the defendants in 2020 alleging fair lending violations, including violations of ECOA and the CFPA, predicated, in part, on statements made by the company’s owner and other employees during radio shows and podcasts from 2014 through 2017. (Covered by a Special Alert.) The complaint (which was later amended) marked the first time a federal regulator has taken a public enforcement action against a nondepository institution based on allegations of redlining.

    The Bureau claimed that the defendants discouraged African Americans from applying for mortgage loans from the company and redlined African American neighborhoods in the Chicago area by (i) discouraging their residents from applying for mortgage loans from the company; and (ii) discouraging nonresidents from applying for loans from the company for homes in these neighborhoods. The defendants moved to dismiss with prejudice, arguing that the Bureau improperly attempted to expand ECOA’s reach “beyond the express and unambiguous language of the statute.” The defendants explained that while the statute “regulates behavior towards applicants for credit, it does not regulate any behavior relating to prospective applicants who have not yet applied for credit.” The Bureau countered that courts have consistently recognized Regulation B’s discouragement prohibition even when applied to prospective applicants.

    In dismissing the action with prejudice, the court applied step one of Chevron framework (which is to determine “whether Congress has directly spoken to the precise question at issue”) when reviewing whether the Bureau’s interpretation of ECOA in Regulation B is permissible. Explaining that ECOA’s plain text “clearly and unambiguously prohibits discrimination against applicants”—defined as a person who applies for credit—the court concluded (citing to case law in support of its decision) that Congress’s directive only prohibits discrimination against applicants and does not apply to prospective applicants. The court stressed that the agency’s authority to enact regulations is not limitless and that the statute’s use of the term “applicant” clearly marks the boundary of ECOA.

    The court also rejected the Bureau’s argument that ECOA’s delegation of authority to the Bureau to adopt rules to prevent evasion means the anti-discouragement provision must be sustained provided it reasonably relates to ECOA’s objectives. The Bureau pointed to the U.S. Supreme Court’s decision in Mourning v. Fam. Publ’ns Serv., Inc. (upholding the “Four Installment Rule” under similar delegation language in TILA), but the court held that Mourning does not permit it to avoid Chevron’s two-step framework. Because the anti-discouragement provision does not survive the first step, the court did not reach whether the provision is reasonably related to ECOA’s objectives and dismissed the action with prejudice. The remaining claims, which depend on the ECOA claim, were also dismissed with prejudice.

    The firm will be sending out a Special Alert in the next few business days providing additional thinking on this decision.

    Courts Enforcement Redlining Consumer Finance Fair Lending CFPB CFPA ECOA Discrimination Regulation B

  • HUD proposes streamlined AFFH rule

    Agency Rule-Making & Guidance

    Recently, HUD announced plans to publish a notice of proposed rulemaking (NPRM) entitled “Affirmatively Furthering Fair Housing” (AFFH). The new rule will update a 2015 final rule that was intended to implement the Fair Housing Act’s statutory mandate that HUD ensure that recipients of its funding work to further fair housing, which was repealed by the Trump administration. In 2021, the Biden administration published an interim final rule to restore certain definitions and certifications to its regulations implementing the Fair Housing Act’s requirement to affirmatively further fair housing (covered by InfoBytes here). “This proposed rule is a major step towards fulfilling the law’s full promise and advancing our legal, ethical, and moral charge to provide equitable access to opportunity for all,” HUD Secretary Marcia L. Fudge said in an announcement.

    The NPRM incorporates much of the 2015 AFFH rule and will streamline the required fair housing analysis for states, local communities, and public housing agencies. Program participants would be required to ensure protected classes have equitable access to affordable housing opportunities, by, for example, submitting an equity plan to HUD every five years. HUD-accepted equity plan analysis, goals, and strategies would then be incorporated into program participants’ subsequent planning documents. Program participants would also be required to conduct and submit annual progress evaluations. Both the equity plans and annual progress evaluations would be made available online.

    HUD further explained that the NPRM is intended to simplify required fair housing analysis, increase transparency for public review and comment, improve compliance oversight, provide a process for regular progress evaluations, and enhance accountability, among other things. Comments on the NPRM are due April 24. HUD’s quick reference guide provides additional information.

    Agency Rule-Making & Guidance HUD Discrimination Consumer Finance Fair Lending Fair Housing Fair Housing Act

  • OCC updates fair lending booklet of Comptroller’s Handbook

    On January 12, the OCC released a revised version of the “Fair Lending” booklet of the Comptroller’s Handbook. The revised booklet replaces the prior booklet issued in January 2010. The revised booklet also rescinds related OCC Bulletin 2010-4, “Compliance Policy: Fair Lending – Revised Booklet.” The revised booklet includes new and clarified details and risk factors for a variety of examination scenarios, and updates references to supervisory guidance, sound risk management practices, and applicable legal standards, including changes to laws and regulations since the prior booklet was published, as well as the OCC's current approach to fair lending examinations.

    Bank Regulatory Federal Issues OCC Fair Lending Comptroller's Handbook

  • District Court grants summary judgment to bank in discriminatory lending suit

    Courts

    On December 19, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a national bank with respect to discriminatory lending allegations brought by the County of Cook in Illinois (County). As previously covered by InfoBytes, the County alleged that the bank’s lending practices were discriminatory and led to an increase in foreclosures among Black and Latino borrowers, causing the County to incur financial injury, including foreclosure-related and judicial proceeding costs and municipal expenses due to an increase in vacant properties. In 2021, the court denied the bank’s motion to dismiss the alleged Fair Housing Act violations after determining that all the County had to do was show a reasonable argument that the bank’s lending practices resulted in foreclosures, and that the bank failed to dispute that the County properly alleged a financial injury sufficient to support standing.

    The court explained in its December 19 order, however, that two of the County’s expert witnesses did not make valid comparisons when measuring the denial rate for minority borrowers compared to white borrowers. According to the court, the expert witnesses failed to properly account for the financial conditions of the borrowers seeking mortgage modifications, leaving the County with “no other evidentiary basis to establish that [the bank] engaged in intentionally discriminatory servicing practices that caused minority borrowers to disproportionately suffer default and foreclosure.” The court found that, accordingly, the County cannot demonstrate “intentional discrimination against minority borrowers that proximately caused the County’s injuries, and its disparate treatment claim accordingly cannot survive summary judgment.” Additionally, the court found that the County failed to cite authority for its arguments that the bank can be liable for loans it purchased “and for which it did not commit any discriminatory acts in servicing” or for loans it originated but sold and never serviced.

    Courts State Issues Illinois Consumer Finance Discrimination Mortgages Mortgage Servicing Fair Lending Fair Housing Act Disparate Impact Foreclosure

  • NYDFS releases proposed guidance for mitigating climate-related risks

    State Issues

    On December 21, NYDFS proposed guidance for regulated banking and mortgage institutions to support efforts for responding to evolving risks stemming from climate change. The proposed guidance—which was developed to align with the climate-related work of federal and international banking regulators—will aid institutions in identifying, measuring, monitoring, and controlling material climate-related financial risks, consistent with existing risk management principles. Institutions should “minimize and affirmatively mitigate adverse impacts on low- and moderate-income communities while managing climate-related financial risks,” NYDFS said, explaining that the proposed guidance focuses on areas of risk management related to corporate governance, internal control frameworks, risk management processes, data aggregation and reporting, and scenario analysis that also accounts for unknown future risks. Among other things, the proposed guidance warned institutions of the importance of ensuring fair lending is provided to all communities, including low- to moderate-income neighborhoods that may face heightened risks, when managing climate-related financial risks. The proposed guidance also outlined tools institutions should use to measure and protect against climate change risks. NYDFS warned institutions that they may have to directly absorb a greater portion of losses and should plan for insurance coverage premiums to either increase or be withdrawn entirely in areas where climate risks are prevalent.

    NYDFS commented that the proposed guidance serves as a basis for supervisory dialogue and instructed interested parties to provide input as it undertakes a data-driven approach to formulating the final guidance. Comments are due by March 21, 2023. A webinar will be held on January 11, 2023 to provide an overview of the proposed guidance.

    “Regulators must anticipate and respond to new risks to operational resiliency and safety and soundness, jeopardizing an institution’s future,” Superintendent Adrienne A. Harris said. “NYDFS is committed to working with all stakeholders to further refine expectations and finalize guidance appropriate for institutions to address material climate-related financial risks.”

    State Issues State Regulators Bank Regulatory NYDFS Climate-Related Financial Risks Redlining New York Mortgages Risk Management Supervision Fair Lending

  • CFPB issues HMDA technical amendment

    Agency Rule-Making & Guidance

    On December 12, the CFPB issued a technical amendment to the HMDA Rule to reflect the closed-end mortgage loan reporting threshold of 25 mortgage loans in each of the two preceding calendar years. As previously covered by InfoBytes, in September, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations (collectively, “plaintiffs”) that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. The 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200 (covered by InfoBytes here). The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.) As a result of the September 23 order, the threshold for reporting data about closed-end mortgage loans is 25, the threshold established by the 2015 HMDA Rule.

    Agency Rule-Making & Guidance Federal Issues CFPB HMDA Mortgages Regulation C Fair Lending Consumer Finance

  • NYDFS finds racial disparities in mortgage lending

    State Issues

    On December 8, NYDFS announced a second report in an ongoing statewide inquiry into redlining and other forms of housing discrimination by mortgage lenders, particularly non-depository lenders. This report focuses on racial disparities in mortgage lending in Long Island, Rochester, and Syracuse, and follows one on Buffalo (covered by InfoBytes here). The report maps lending activity and details individual institutions' lending in majority-minority neighborhoods and to borrowers identifying as members of a minority group. 

    Analyzing HMDA data, NYDFS’s recent report concluded that: “ In Nassau county, where the population is 41.8 percent non-white, on average, lenders make 35.32 percent of their loans to borrowers identifying as people of color. Among lenders operating in the county, lending to borrowers identifying as people of color ranges from 14.9 percent to 50.22 percent. In Suffolk county, where the population is 33.7 percent non-white, on average, lenders make 22.44 percent of their loans to borrowers identifying as people of color. Among lenders operating in the county, lending to borrowers identifying as people of color ranges from 13.07 percent to 36.85 percent. In the Rochester metro area, where 23.9 percent of the population is non-white, on average lenders make 11.32 percent of their loans to borrowers identifying as people of color, less than half of what would be expected based solely on population make-up. Similarly in the Syracuse metro area, 18.7 percent of the population is non-white, but on average lenders make 8.67 percent of their loans to borrowers identifying as people of color.”

    In the announcement, NYDFS noted that it is currently developing regulations to implement the updated New York Community Reinvestment Act, which expands oversight to non-depository mortgage lenders operating in the state. The insights uncovered through these reports’ investigations will be reflected in these proposed regulations which will be published for public comment in 2023.

    State Issues Bank Regulatory NYDFS New York Mortgages New York CRA Fair Lending Redlining

  • CFPB releases spring 2022 semi-annual report

    Federal Issues

    On December 6, the CFPB issued its semi-annual report to Congress covering the Bureau’s work for the period beginning October 1, 2021 and ending March 31, 2022. The report, which is required by Dodd-Frank, addresses several issues, including complaints received from consumers about consumer financial products or services throughout the reporting period. The report highlighted that the Bureau, among other things, has: (i) conducted an assessment of significant actions taken by state attorneys general and state regulators related to federal consumer financial law; (ii) initiated 21 fair lending supervisory activities to determine compliance with federal laws, including ECOA, HMDA, and UDAAP prohibitions, and engaged in interagency fair lending coordination with other federal agencies and states; (iii) “encouraged lenders to enhance oversight and identification of fair lending risk and to implement policies, procedures, and controls designed to effectively manage HMDA activities, including regarding integrity of data collection”; and (iv) launched a new Diversity, Equity, Inclusion, and Accessibility Strategic Plan to increase workforce and contracting diversity.

    In regard to supervision and enforcement, the report highlighted the Bureau’s public supervisory and enforcement actions and other significant initiatives during the reporting period. Additionally, the report noted rule-related work, including advisory opinions, advance notice of proposed rulemakings, requests for information, and proposed and final rules. These include rules and orders related to the LIBOR transition, fair credit reporting, Covid-19 mortgage and debt collection protections for consumers, small business lending data collection, and automated valuation model rulemaking.

    Federal Issues CFPB Consumer Finance Dodd-Frank Supervision ECOA HMDA UDAAP Diversity Fair Lending Covid-19 Small Business Lending Mortgages

  • OCC senior deputy comptroller discusses fair lending

    On November 14, Senior Deputy Comptroller for Bank Supervision Policy Grovetta Gardineer delivered remarks on behalf of acting Comptroller Michael J. Hsu before the CRA & Fair Lending Colloquium to discuss the agency’s ongoing efforts to ensure its regulated institutions provide fair and equitable credit services. Among other topics, Gardineer mentioned the agency’s initiatives to identify and address discriminatory lending practices, including addressing fair lending in advanced analytics and reducing barriers to financial inclusion. Noting that the banking industry has evolved “rapidly,” Gardineer stated that the OCC has “remained focused on the solid foundation of our mission,” and identified “three strategic goals: (1) agility and learning; (2) credibility and trust; and (3) leadership in supervision.”

    She also said that the OCC is enhancing its risk-based supervisory approach by, among other things, “[r]ecognizing our strategic goal for ‘agility and learning,’” and by “conducting fair lending risk assessments during every supervisory cycle for each bank that engages in retail lending.” Regarding the agency’s efforts to reduce inequality in banking, Gardineer stated that the OCC has taken an active role on the Interagency Task Force on Property Appraisal and Valuation Equity, or PAVE, which is an initiative to evaluate the causes, extent, and consequences of appraisal bias. As previously covered by InfoBytes in March, the thirteen member agencies and offices of the PAVE Task Force came together in an extraordinary interagency effort to issue the Action Plan to Advance Property Appraisal and Valuation Equity, which represents “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.”

    Gardineer also disclosed that the OCC is developing other internal measures to enhance credibility and trust, including measures to “improv[e] supervisory methods for identifying potential discrimination in property valuations.” In regard to addressing fair lending in advanced analytics, Gardineer warned that “the growing use of advanced analytics such as artificial intelligence or machine learning offers both the opportunity to help reduce inequality and to address safety, soundness, and fairness risks,” and emphasized that the agency “supports fair, ethical, responsible, and transparent adoption of advanced analytics, including artificial intelligence and machine learning, in the financial sector.”

    In terms of the future, she highlighted that “the OCC is focused on strengthening our supervision processes and resources devoted to compliance with fair lending laws, while enhancing our ability to remain agile and successfully execute our mission to ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations..”

    Bank Regulatory Federal Issues OCC Fair Lending Consumer Finance Appraisal

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