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NYDFS announces fair lending settlements with indirect auto lenders
On June 29, NYDFS announced settlements with two New York banks to resolve allegations that the banks violated New York Executive Law § 296-a while engaged in indirect automobile lending. NYDFS alleged that the banks’ practices resulted in members of protected classes paying higher interest rates that were not based on creditworthiness. According to NYDFS, the banks failed to monitor “dealers that were charging members of protected classes, namely race and ethnicity, more in discretionary Dealer Markups than borrowers identified as non-Hispanic White.”
Under the terms of the first consent order, the bank—which had voluntarily discontinued its indirect auto lending program in November 2017—agreed to pay a $275,000 civil money penalty, provide restitution to eligible impacted borrowers, and make a $50,000 contribution to local community development organizations. The second bank agreed to “move to a flat-fee business model in connection with indirect auto lending,” provide restitution to impacted borrowers, and undertake fair lending compliance remediation efforts to increase its monitoring of dealers participating in its indirect auto lending program. The consent order also requires the payment of a $350,000 civil money penalty.
CFPB issues summer supervisory highlights
On June 29, the CFPB released its summer 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto loan servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination and servicing, payday lending, private education loan origination, and student loan servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between January and December of 2020. Highlights of the examination findings include:
- Auto Loan Servicing. Bureau examiners identified unfair acts or practices related to lender-placed collateral protection insurance (CPI), including instances where servicers charged unnecessary CPI or charged for CPI after repossession. Examiners also identified unfair acts or practices related to payoff amounts where consumers had ancillary product rebates due, and also found unfair or deceptive acts or practices related to payment application.
- Consumer Reporting. The Bureau found deficiencies in consumer reporting companies’ (CRCs) FCRA compliance related to the following requirements: (i) accuracy; (ii) security freezes applicable to certain CRCs; and (iii) ID theft block requests. Specifically, examiners found that CRCs continued to include information from furnishers despite receiving furnisher dispute responses that “suggested that the furnishers were no longer sources of reliable, verifiable information about consumers.” Additionally, the report noted instances where furnishers failed to update and correct information or conduct reasonable investigations of direct disputes.
- Debt Collection. The report found that examiners found instances of FDCPA violations where debt collectors (i) made calls to a consumer’s workplace; (ii) communicated with third parties; (iii) failed to stop communications after receiving a written request or a refusal to pay; (iv) harassed consumers regarding their inability to pay; (v) communicated, and threatened to communicate, false credit information to CRCs; (vi) made false representations or used deceptive collection means; (vii) entered inaccurate information regarding state interest rate caps into an automated system; (viii) unlawfully initiated wage garnishments; and (ix) failed to send complete validation notices.
- Deposits. The Bureau discussed violations related to Regulation E and Regulation DD, including error resolution violations, issues with provisional credits, failure to investigate, failure to remediate errors, and overdraft opt-in and disclosure violations.
- Fair Lending. The report noted instances where examiners cited violations of HMDA/ Regulation C involving HMDA loan application register inaccuracies, and instances where lenders, among other things, violated ECOA/Regulation B “by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas (MSAs) from applying for credit.”
- Mortgage Origination. The Bureau cited violations of Regulation Z and the CFPA related to loan originator compensation, title insurance disclosures, and deceptive waivers of borrowers’ rights in security deed riders and loan security agreements.
- Mortgage Servicing. The Bureau cited violations of Regulation X, including those related to dual tracking violations, misrepresentations regarding foreclosure timelines, and PMI terminations.
- Payday Lending. The report discussed violations of the CFPA for payday lenders, including falsely representing an intent to sue or that a credit check would not be run, and presenting deceptive repayment options to borrowers that were contractually eligible for no-cost repayment plans.
- Private Education Loan Origination. Bureau examiners identified deceptive acts or practices related to the marketing of private education loan rates.
- Student Loan Servicing. Bureau examiners found several types of misrepresentations servicers made regarding consumer eligibility for the Public Service Loan Forgiveness (PSLF) program, and identified unfair acts or practices related to a servicer’s “failure to reverse negative consequences of automatic natural disaster forbearances.” Additionally, examiners identified unfair act or practices related to failing to honor consumer payment allocation instructions or providing inaccurate monthly payment amounts to consumers after a loan transfer.
The report also highlights recent supervisory program developments and enforcement actions.
HUD proposes restoring 2013 discriminatory effects rule
On June 25, HUD published a notice of proposed rulemaking (NPRM) that would rescind the agency’s 2020 disparate impact regulation (2020 Rule) and reinstate the agency’s 2013 rule (2013 Rule). The 2020 Rule (covered by a Buckley Special Alert) was intended to align its disparate impact regulation, adopted in 2013, with the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. The 2020 Rule included, among other things, a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. Prior to the effective date of the 2020 Rule, the U.S. District Court for the District of Massachusetts issued a preliminary injunction staying HUD’s implementation and enforcement of the 2020 Rule.
After a period of reconsideration, “HUD is proposing to recodify its previously promulgated rule titled, ‘Implementation of the Fair Housing Act’s Discriminatory Effects Standard’[], which, as of the date of publication of this [NPRM], remains in effect due to the preliminary injunction,” the NPRM stated, adding that HUD “believes the 2013 Rule better states Fair Housing Act jurisprudence and is more consistent with the Fair Housing Act's remedial purposes.” HUD emphasized that the 2013 Rule codified longstanding judicial and agency consensus concerning discriminatory effects law. “Under the 2013 rule, the discriminatory effects framework was straightforward: a policy that had a discriminatory effect on a protected class was unlawful if it did not serve a substantial, legitimate, nondiscriminatory interest or if a less discriminatory alternative could also serve that interest,” HUD said in its press release. “The 2020 rule complicated that analysis by adding new pleading requirements, new proof requirements, and new defenses, all of which made it harder to establish that a policy violates the Fair Housing Act. HUD now proposes to return to the 2013 rule’s straightforward analysis.” Comments on the NPRM are due August 24.
HUD restores AFFH definitions and certifications
On June 10, HUD published an interim final rule (IFR) to restore certain definitions and certifications to its regulations implementing the Fair Housing Act’s requirement to affirmatively further fair housing (AFFH). The IFR also reinstates a process where HUD will provide technical assistance and other support to funding recipients engaged in fair housing planning. The IFR essentially repeals HUD’s 2020 final rule (covered by a Buckley Special Alert), which was intended to align its disparate impact regulation, adopted in 2013, with the U.S. Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. As previously covered by InfoBytes, earlier in January, President Biden directed HUD to examine the effects of the final rule while emphasizing that HUD has a “statutory duty to ensure compliance with the Fair Housing Act,” and on April 12, the Office of Management and Budget posted notices (covered by InfoBytes here) announcing a pending proposed rule to reinstate HUD’s Discriminatory Effects Standard related to the 2020 final rule.
Among other things, the IFR “restores the understanding of the AFFH obligation for certain [funding recipients] to the previously established understanding by reinstating legally supportable definitions that are consistent with a meaningful AFFH requirement and certifications that incorporate these definitions.” The IFR also notes that HUD will provide technical assistance and support prior to the IFR’s July 31 effective date, due to a requirement that HUD funding recipients certify compliance with their AFFH duties on an annual basis, as well as HUD’s statutory obligation to ensure that it follows the Fair Housing Act’s AFFH requirements. HUD further recognizes that the 2020 final rule “did not interpret the AFFH mandate in a manner consistent with statutory requirements, HUD’s prior interpretations, or judicial precedent,” adding that the agency also failed to “provide sufficient justification for this substantial departure.”
HUD also announced that it will separately restore guidance and resources for funding recipients to use when conducting fair housing planning until the agency finalizes a new regulation to implement the statutory mandate to AFFH. Comments on the IFR are due July 12.
GAO reports on CFPB fair lending activities
Last month, the Government Accountability Office delivered a report at the request of Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) on the CFPB’s oversight and enforcement of fair lending laws after the agency’s 2018 reorganization which moved the Office of Fair Lending and Equal Opportunity from the Supervision, Enforcement, and Fair Lending Division to the Office of the Director and shifted certain responsibilities. GAO’s investigation focused on how the Bureau (i) “managed the reorganization of its fair lending activities”; (ii) “monitored and reported on its fair lending performance”; and (iii) used new HMDA data reported by some lenders since 2018 in its fair lending activities. The investigation team examined documents related to the Bureau’s fair lending activities, including strategic and performance reports and policies and procedures, and interviewed Bureau staff. GAO concluded that the Bureau “did not substantially incorporate key practices for agency reform efforts GAO identified in prior work” during the reorganization, and identified challenges related to the reorganization such as “loss of fair lending expertise and specialized data analysts,” which “may have contributed to a decline in enforcement activity in 2018.” The report also pointed out that the Bureau’s decision to stop reporting fair lending supervision and enforcement performance goals and measures has reduced transparency. However, the report noted that the Bureau has incorporated loan-level HMDA data to support its fair lending activities and that the new data points have improved the agency’s ability to compare how different institutions price loans, helping staff identify potentially discriminatory lending practices.
GAO’s report recommended that the Bureau: (i) collect and analyze information on the outcomes of its fair lending reorganization and use that assessment to address any related challenges or unintended consequences; and (ii) “develop and implement performance goals and measures specific to its efforts to supervise and enforce fair lending laws.” The Bureau agreed with both recommendations and affirmed its commitment to implementing them.
District Court allows county’s FHA claims to proceed
On June 1, the U.S. District Court for the Northern District of Illinois denied a national bank’s motion to dismiss claims that its allegedly discriminatory mortgage lending practices violated the Fair Housing Act. According to a complaint filed by the County of Cook in Illinois (County), the increase in foreclosures during the relevant time period were proximately caused by the bank’s mortgage practices, and caused the County to incur financial injury, including foreclosure-related and judicial proceeding costs and municipal expenses due to an increase in vacant properties. The bank filed a motion to dismiss, arguing that that the County did not have standing to sue because “the judicial proceedings and other activities associated with the additional foreclosures” actually “yielded a net benefit to the County.” The court disagreed, ruling that all the County had to do was show a reasonable argument that the bank’s lending practices resulted in foreclosures. The bank “does not dispute that the County has properly alleged in its complaint a financial injury sufficient, at least at the pleading stage, to support standing,” the court wrote.
HUD charges mortgage modification service with Fair Housing Act violations
On April 30, HUD announced a Charge of Discrimination against a California-based mortgage modification service (respondents) for allegedly violating the Fair Housing Act by discriminating against Hispanic homeowners. According to HUD, the complainants alleged that the respondents targeted them for illegal or unfair loan modification assistance based on their national origin, and that as a result, “they were diverted from obtaining legitimate assistance” and “were at risk of foreclosure.” Specifically, the respondents allegedly marketed and sold loan modification services to financially distressed California homeowners, the majority of whom were Hispanic. The allegations claim that most of the advertisements were in Spanish or were aired on Spanish-language stations and contained allegedly deceptive information regarding the respondents’ ability to obtain loan modifications, as well as its payment structure. Additionally, the complainants stated that they were discouraged from seeking free loan modification assistance, and were, among other things, (i) charged fees before the respondents completed the promised mortgage modifications; (ii) advised to stop making payments without being informed about the risks involved in not paying their mortgages; (iii) provided inaccurate information about the respondents’ services, including that clients would receive services from an attorney; and (iv) instructed to stop communicating with their lenders and to instead forward all lender communications to the respondents if threatened with foreclosure. The charge will be heard by a United States Administrative Law Judge unless a party elects to have the case heard in federal district court.
9th Circuit will rehear Oakland’s Fair Housing Act case en banc
On April 20, a majority of nonrecused active judges of the U.S. Court of Appeals for the Ninth Circuit vacated a three-judge panel’s 2020 Fair Housing Act (FHA) decision and ordered that the case be reheard en banc. As previously covered by InfoBytes, the City of Oakland sued a national bank alleging violations of the FHA and the California Fair Employment and Housing Act, claiming the bank provided minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. Last year, the three-judge panel affirmed both the district court’s denial of the bank’s motion to dismiss claims for decreased property tax revenue, as well as the court’s dismissal of Oakland’s claims for increased city expenditures. Regarding Oakland’s alleged municipal expenditure injuries, the panel agreed with the district court that Oakland’s complaint failed to account for independent variables that may have contributed or caused such injuries and that those alleged injuries therefore did not satisfy the FHA’s proximate-cause requirement. The panel further held that Oakland’s claims for injunctive and declaratory relief were also subject to the FHA’s proximate-cause requirement, and that on remand, the district court must determine whether Oakland’s allegations satisfied this requirement. The bank filed a petition for panel rehearing and rehearing en banc last October, arguing, among other things, that the panel had “fashioned a looser, FHA-specific proximate-case standard” in conflict with the U.S. Supreme Court’s decisions involving the City of Miami (covered by InfoBytes here). Oakland responded by noting, however, that the panel’s decision is consistent with the City of Miami decisions, and that, among other things, the Supreme Court’s decision did not establish “precise boundaries of proximate cause” but rather asked lower courts to define “the contours of proximate cause under the FHA and decide how that standard applies to the City’s claims for lost property-tax revenue and increased municipal expenses.”
Biden administration to reinstate fair housing rules
On April 12, the Office of Management and Budget posted notices pending regulatory review related to two HUD fair housing rules rescinded under the Trump administration. The first notice announces a pending proposed rule to reinstate HUD’s Discriminatory Effects Standard related to a September 2020 final rule issued by the agency, which amended its interpretation of the Fair Housing Act’s 2013 disparate impact standard. As previously covered by a Buckley Special Alert, the final rule was intended to align HUD’s 2013 Rule with the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs et al. v. Inclusive Communities Project, Inc. The final rule included, among other things, a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. Earlier in January, President Biden directed HUD to examine the effects of the final rule, emphasizing that HUD has a “statutory duty to ensure compliance with the Fair Housing Act.” (Covered by InfoBytes here.)
The second notice relates to a pending interim final rule: Affirmatively Furthering Fair Housing; Restoring Statutory Definitions and Certifications. As previously covered by InfoBytes, last July HUD announced plans to terminate the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule, and proposed a new final rule titled “Preserving Community and Neighborhood Choice.” At the time, HUD stated that the AFFH rule was, among other things, overly burdensome, costly, and ineffective.
CFPB delivers 2020 fair lending report to Congress
On April 14, the CFPB issued its annual fair lending report to Congress, which outlines the Bureau’s efforts in 2020 to fulfill its fair lending mandate, while protecting consumers against the resulting economic consequences of the Covid-19 pandemic. According to the report, the Bureau continued to focus on promoting fair, equitable, and nondiscriminatory access to credit, highlighting several fair lending priorities that continued from years past such as mortgage origination, small business lending, and student loan origination. The report also discusses new policy areas and programs for fair lending examinations or investigations, including (i) the Fair Lending Help Desks; (ii) amendments concerning Regulation C, which will increase the permanent threshold for collecting, recording, and reporting data about open-end lines of credit from 100 to 200; and (iii) two HMDA data point articles. Additionally, the report discusses the Bureau’s efforts in expanding access to credit for underserved or underbanked populations, including: (i) hosting the first “Tech Sprint” (covered by InfoBytes here) to encourage regulatory innovation and stakeholder collaboration; (ii) continuing to examine and investigate institutions for compliance with HMDA and ECOA; (iii) engaging with stakeholders to discuss fair lending compliance, issues related to credit access, and policy decisions; and (iv) issuing Supervisory Recommendations relating to weak or nonexistent fair lending policies and procedures, risk assessments, and fair lending training. The report also provides information related to regulation, supervision, enforcement, and education efforts.