Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • CFPB releases LEP statement

    Agency Rule-Making & Guidance

    On January 13, the CFPB released fair-lending guidance for financial institutions that provide services to borrowers with limited English proficiency (LEP). As previously covered by InfoBytes, last July the Bureau issued a request for information that sought, among other things, information on ways to provide clarity under the Equal Credit Opportunity Act (ECOA) and/or Regulation B related to meeting the credit needs of LEP borrowers. During a 2020 roundtable focusing on LEP issues, the Bureau was also urged to publish additional guidance to assist financial institutions in expanding products and services to LEP consumers while also maintaining compliance with statutes and regulations. The Statement Regarding the Provision of Financial Products and Services to Consumers with Limited English Proficiency (Statement) incorporates feedback received from stakeholder groups, advocacy organizations, financial institutions, financial regulators, and trade associations. The Statement addresses, among other challenges, issues “related to balancing legal requirements and practical considerations” and potential UDAAP risks associated with offering support in certain non-English languages but not in others. The Statement further provides principles and guidance to assist financial institutions when making decisions related to assisting LEP consumers. Additionally, the Statement also includes key considerations and guidelines for institutions to use when developing compliance solutions for providing products and services in non-English languages to LEP consumers, while at the same time complying with Dodd-Frank, ECOA, and other applicable laws and regulations.

    Agency Rule-Making & Guidance CFPB Limited English Proficiency Fair Lending ECOA Regulation B Dodd-Frank

  • Court stays HUD’s DI rule

    Courts

    On October 25, the U.S. District Court for the District of Massachusetts issued an order granting a preliminary injunction and stay of effective date of HUD’s disparate impact regulation under the Fair Housing Act (Final Rule). As previously covered by a Buckley Special Alert, in September, HUD issued the Final Rule, which is intended to align its disparate impact regulation, adopted in 2013 (2013 Rule), with the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. Among other things, the Final Rule includes 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.

    According to the order, two fair housing organizations (collectively, “plaintiffs”) filed the action against HUD seeking to vacate the Final Rule under the Administrative Procedures Act (APA) and subsequently filed for a preliminary injunction and stay, arguing, among other things, that the changes to the 2013 Rule are “arbitrary and capricious.” The court noted that the Final Rule “constitutes a significant overhaul to HUD’s interpretation of disparate impact standards,” and that the alterations to the 2013 Rule “appear inadequately justified.” The court further explained that the Final Rule’s “massive changes pose a real and substantial threat of imminent harm” to the plaintiffs by increasing “the burdens, costs, and effectiveness of disparate impact liability.” Lastly, the court noted that HUD did not identify any “particularized” harm to the government or public should the injunction be granted. Thus, the court granted the preliminary injunction and stayed the implementation date until further order.

    Courts HUD Disparate Impact Fair Housing Act Fair Lending Administrative Procedures Act

  • Nonbank lender argues CFPB redlining action is flawed

    Courts

    On October 23, a Chicago-based nonbank mortgage company moved to dismiss a CFPB redlining action on the grounds that the Bureau’s complaint “improperly seek[s]” to expand ECOA to “prospective applicants.” As previously covered by a Buckley Special Alert, in July, the Bureau filed a complaint against the mortgage company alleging the mortgage company engaged in redlining in violation of ECOA and the Consumer Financial Protection Act. The Bureau argued, among other things, that the company redlined African American neighborhoods in the Chicago area by discouraging their residents from applying for mortgage loans from the company and by discouraging nonresidents from applying for loans from the company for homes in these neighborhoods. To support its arguments, the Bureau cited to (i) a number of racially disparaging comments allegedly made by the owner and employees on the company’s broadcasts; (ii) the company’s comparatively low application volume from African American neighborhoods and applicants; (iii) its lack of specific marketing targeting the African American community in Chicago; (iv) and its failure to employ African American mortgage loan officers.

    In support of its motion to dismiss, the mortgage company argued that the Bureau’s complaint is “flawed” by seeking to expand the reach of ECOA to “prospective applicants” and regulate the company’s behavior before a credit transaction begins. In addition to expanding the application of ECOA, the company argued that the Bureau is attempting to impose—through Regulation B’s “discouragement” definition—(i) “affirmative requirements to target advertising to specific racial or ethnic groups”; (ii) “a demographic hiring quota”; and (iii) “a requirement to have business success with specific racial or ethnic groups.” Moreover, the company argued the Bureau’s interpretation of ECOA and Regulation B violates the company’s First Amendment rights by attempting to regulate “the content and viewpoint of protected speech . . . in a way that is unconstitutionally overbroad and vague.” Lastly, the company argued the Bureau similarly violated the Fifth Amendment’s due process clause by seeking to enforce Regulation B’s definition of “discouragement,” because it is unconstitutionally vague.

    Courts ECOA CFPB Enforcement Regulation B CFPA Redlining Fair Lending Mortgages Nonbank

  • District court allows Georgia counties’ disparate impact claims to proceed

    Courts

    On September 18, the U.S. District Court for the Northern District of Georgia denied a national bank’s motion to dismiss claims that the bank and its subsidiaries’ (collectively, “defendants”) mortgage originating and servicing practices and policies had a disparate impact on, and resulted in disparate treatment of, minority borrowers, in violation of the Fair Housing Act (FHA). The plaintiffs, three Georgia counties, filed a second amended complaint raising two disparate impact claims and one disparate treatment claim under the FHA, claiming the defendants’ lending and servicing practices—which included allegedly targeting minority borrowers for higher cost loan products, approving unqualified minority borrowers for loans they could not afford, and providing less favorable terms for loan modifications—were “designed to reduce the overall equity minority borrowers located within their counties had in their homes.” The practices, among other things, allegedly caused African-American and Latino borrowers to receive disproportionately higher cost mortgage loans than similarly situated white, non-Latino borrowers, creating an increase in defaults and foreclosures, and causing the plaintiffs to incur alleged damages, including out-of-pocket foreclosure-related costs and increased municipal expenses, and loss of property tax revenues due to decreased home values.

    The defendants moved to dismiss, asserting, among other things, that the plaintiffs failed to properly allege their disparate impact claims under Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a previous Buckley Special Alert). The defendants also argued that the plaintiffs’ municipal “economic injuries were not proximately cause by the [d]efendants’ discriminatory policies under [City of Miami Garden v. Wells Fargo & Co.]” (covered by InfoBytes here), and that the plaintiffs failed to allege specific allegations within the FHA’s two-year statute of limitations.

    The court granted the motion in part and denied it in part. With respect to the disparate impact claims, the court applied Inclusive Communities and held that the plaintiffs identified several specific policies that caused the alleged disparate impact. The court also rejected the statute of limitations arguments and held that the plaintiffs “‘can prove a set of facts’ showing a timely violation of the FHA.” The court dismissed certain of the counties’ injury claims—the plaintiffs’ attempts to recover franchise tax and municipal expenses (police, fire, and sanitation services related to vacant or foreclosed-upon properties)—ruling that plaintiffs failed to establish proximate cause and “explain how their municipal services injuries ‘are anything more than merely foreseeable consequences’ of [the d]efendants’ discriminatory acts.”

    Courts Fair Lending Disparate Impact Fair Housing Act

  • Special Alert: HUD finalizes new disparate impact regulation

    Federal Issues

    The Department of Housing and Urban Development earlier this month issued a final disparate impact regulation under the Fair Housing Act (Final Rule). HUD’s new Final Rule is intended to align its disparate impact regulation, adopted in 2013 (2013 Rule), with the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (Inclusive Communities). While the new Final Rule is a notable development, the relatively recent Supreme Court decision makes it unclear to what extent courts and federal agencies will look to the rule for guidance.

    Federal Issues HUD Disparate Impact Agency Rule-Making & Guidance Fair Housing Act FHA Fair Lending Special Alerts

  • HUD finalizes new disparate impact standard

    Agency Rule-Making & Guidance

    On September 4, HUD released the final rule amending agency’s interpretation of the Fair Housing Act’s disparate impact standard (also known as the “2013 Disparate Impact Regulation”). The final rule, among other things, seeks to  (i) codify the burden-shifting framework from the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a Buckley Special Alert); (ii) create a uniform standard for determining when a policy or practice has a discriminatory effect in violation of the Fair Housing Act; and (iii) codify HUD’s position that its rule is not intended to infringe on the states’ regulation of insurance. Based on public feedback, the final rule largely adopts the August 2019 proposed rule (covered by InfoBytes here) with a number of clarifying and substantive changes.

    A Special Alert from Buckley on the details of the final rule will soon be available. 

    Agency Rule-Making & Guidance Fair Housing Act Fair Lending HUD Disparate Impact

  • CFPB issues Summer 2020 Supervisory Highlights

    Federal Issues

    On September 4, the CFPB released its summer 2020 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of consumer reporting, debt collection, deposits, fair lending, mortgage servicing, and payday lending. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between September and December of 2019. Highlights of the examination findings include:

    • Consumer Reporting. The Bureau cited violations of the FCRA’s requirement that lenders first establish a permissible purpose before they obtain a consumer credit report. Additionally, the report notes instances where furnishers failed to review account information and other documentation provided by consumers during direct and indirect disputes. The Bureau notes that “[i]nadequate staffing and high daily dispute resolution requirements contributed to the furnishers’ failure to conduct reasonable investigations.”
    • Debt Collection. The report states that examiners found one or more debt collectors (i) falsely threatened consumers with illegal lawsuits; (ii) falsely implied that debts would be reported to credit reporting agencies (CRA); and (iii) falsely represented that they operated or were employed by a CRA.
    • Deposits. The Bureau discusses violations related to Regulation E and Regulation DD, including requiring waivers of consumers’ error resolution and stop payment rights and failing to fulfill advertised bonus offers.
    • Fair Lending. The report notes instances where examiners cited violations of ECOA, including intentionally redlining majority-minority neighborhoods and failing to consider public assistance income when determining a borrower’s eligibility for mortgage modification programs.
    • Mortgage Servicing. The Bureau cited violations of Regulation Z and Regulation X, including (i) failing to provide periodic statements to consumers in bankruptcy; (ii) charging forced-placed insurance without a reasonable basis; and (iii) various errors after servicing transfers.
    • Payday Lending. The report discusses violations of the Consumer Financial Protection Act for payday lenders, including (i) falsely representing that they would not run a credit check; (ii) falsely threatening lien placement or asset seizure; and (iii) failing to provide required advertising disclosures.

    The report also highlights the Bureau’s recently issued rules and guidance, including the various responses to the CARES Act and the Covid-19 pandemic.

    Federal Issues CFPB Consumer Reporting Debt Collection Deposits Fair Lending Mortgage Servicing Payday Lending Supervision Examination CARES Act Covid-19

  • 9th Circuit affirms some of Oakland’s claims against national bank

    Courts

    On August 26, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the district court’s decision to partially dismiss an action brought by the City of Oakland, alleging a national bank violated the Fair Housing Act (FHA) and California Fair Employment and Housing Act. As previously covered by InfoBytes, Oakland alleged that the national bank violated the FHA and the California Fair Employment and Housing Act by providing 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) reduced spending in Oakland’s fair-housing programs. The district court dismissed the City’s municipal expenditure claims, but allowed claims based on decreased property tax revenue to continue. The district court also held that the City could pursue its claims for injunctive and declaratory relief. 

    On appeal, the 9th Circuit affirmed the court’s denial of the bank’s motion to dismiss as to Oakland’s claims for decreased property tax revenue and the court’s dismissal of Oakland’s claims for increased city expenditures. Specifically, with respect to claims for reduced tax revenue, the appellate court concluded that the “FHA’s proximate-cause requirement is sufficiently broad and inclusive to encompass aggregate, city-wide injuries.” Based on allegations that the City could use statistical regression analysis “to precisely calculate the loss in property values in Oakland’s minority neighborhoods that is attributable to foreclosures caused by [the bank’s] predatory loans,” the 9th Circuit found that Oakland’s claim for decreased property tax revenues “has some direct and continuous relation to [the bank]’s discriminatory lending practices.” Regarding the City’s alleged municipal expenditure injuries, the appellate court 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. Finally, the appellate court held that the City’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.  

    Courts Fair Housing Fair Lending FHA Lending Consumer Finance Mortgages State Issues Appellate Ninth Circuit Fair Housing Act

  • CFPB says it is on track to meet data collection deadlines

    Courts

    On August 24, the CFPB filed another status report in the U.S. District Court for the Northern District of California as required under a stipulated settlement reached in February with a group of plaintiffs, including the California Reinvestment Coalition. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses. Details on the Bureau’s first status update can be found here.

    Among other things, the Bureau noted in the status report that (i) on July 22, it released a “survey of lenders to obtain estimates of the onetime costs that lenders would incur to prepare to collect data required by Section 1071”; and (ii) on August 11, it provided the SBA and the Office of Management and Budget’s Office of Information and Regulatory Affairs a draft Small Business Regulatory Enforcement Fairness Act (SBREFA) outline regarding proposals under consideration and alternatives considered. The status report emphasizes that the Bureau is “on track” to release a SBREFA outline by September 15 and convene a SBREFA panel by October 15, as required by the settlement.

    Courts Federal Issues CFPB Fair Lending Small Business Lending Dodd-Frank Section 1071

  • CFPB requests input on ways to prevent credit discrimination

    Agency Rule-Making & Guidance

    On July 28, the CFPB issued a request for information (RFI) seeking input on ways to create a regulatory environment that expands credit access and ensures consumers and communities are protected from discrimination with respect to any aspect of a credit transaction. The RFI seeks comments to “identify opportunities to prevent credit discrimination, encourage responsible innovation, promote fair, equitable, and nondiscriminatory access to credit, address potential regulatory uncertainty, and develop viable solutions to regulatory compliance challenges under the Equal Credit Opportunity Act (ECOA) and Regulation B.” The RFI is in lieu of a symposium previously planned for this fall on topics related to ECOA. Information received will assist the Bureau in exploring ways to address regulatory compliance challenges, prevent unlawful discrimination, and foster innovation. Among other things, the Bureau seeks comments on ways to provide clarity under ECOA and/or Regulation B related to: (i) disparate impact analysis; (ii) meeting the credit needs of borrowers with limited English proficiency; (iii) special purpose credit programs; (iv) affirmative advertising to disadvantaged groups; (v) small business lending, particularly minority and women-owned firms; (vi) the prohibition of discrimination on the basis of a sexual orientation or gender identity; (vii) the scope of federal preemption of state law; (viii) situations in which “creditors seek to ascertain the continuance of public assistance benefits in underwriting decisions”; (ix) credit underwriting decisions based in part on models using artificial intelligence or machine learning; and (viii) adverse action notices. Comments on the RFI are due 60 days after publication in the Federal Register.

    The same day, Director Kathy Kraninger published a blog post outlining Bureau priorities for ensuring a more inclusive financial system. In addition to the RFI, Kraninger discussed (i) the usefulness of the consumer complaint system in identifying cases of discrimination and fair lending violations; (ii) examinations and enforcement actions; (iii) the Bureau’s request for legislative authority to compensate whistleblowers; and (iv) education efforts focusing on consumers’ rights in the financial marketplace, including those related to disparities in student loan outcomes.

    Agency Rule-Making & Guidance CFPB Fair Lending Consumer Finance ECOA Regulation B

Pages

Upcoming Events