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FDIC updates Consumer Compliance Examination Manual’s UDAAP provisions
On June 17, the FDIC announced updates to its Consumer Compliance Examination Manual (CEM). The CEM includes supervisory policies and examination procedures for FDIC examination staff when evaluating financial institutions’ compliance with federal consumer protection laws and regulations. The June update modifies Section VII Unfair, Deceptive, or Abusive Acts or Practices to reflect the FDIC’s existing supervisory authority regarding UDAP and UDAAP under Section 5 of the FTC Act, and Sections 1031 and 1036 of the Dodd-Frank Act, respectively. Among other updates, the new Section VII changes language related to the Equal Credit Opportunity Act and Fair Housing Act to add a reference to Dodd-Frank UDAAP provisions. The updated section provides the following:
ECOA prohibits discrimination in any aspect of a credit transaction against persons on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to contract), the fact that an applicant’s income derives from any public assistance program, and the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The FHA prohibits creditors involved in residential real estate transactions from discriminating against any person on the basis of race, color, religion, sex, handicap, familial status, or national origin. FTC UDAPs and Dodd-Frank UDAAPs that target or have a disparate impact on consumers in one of these prohibited basis groups may violate the ECOA or the FHA, as well as the FTC Act or the Dodd-Frank Act. Moreover, some state and local laws address discrimination against additional protected classes, e.g., handicap in non-housing transactions, or sexual orientation. Such conduct may also violate the FTC Act or the Dodd-Frank Act.
With respect to the legal standards for “unfair” and “deceptive” under the FTC Act and Dodd-Frank, Section VII notes that these standards are “substantially similar.”
Special Alert: DOJ settles claims of algorithmic bias
On June 21, the United States Department of Justice announced that it had secured a “groundbreaking” settlement resolving claims brought against a large social media platform for allegedly engaging in discriminatory advertising in violation of the Fair Housing Act. The settlement is one of the first significant federal actions involving claims of algorithmic bias and may indicate the complexity of applying “disparate impact” analysis under the anti-discrimination laws to complex algorithms in this area of increasingly intense regulatory focus.
CFPB releases guide for accessing HMDA lending patterns
On June 13, the CFPB published a guide to assist a range of stakeholders accessing publicly available HMDA data on lending patterns that may result in racial and economic inequality due to redlining practices or other “unjustified disparities.” Through the Beginner’s Guide to Accessing and Using Home Mortgage Disclosure Act Data, stakeholders can better understand the sources and meanings of various HMDA data types as well as the financial institutions that are required to maintain, report, and publicly disclose loan-level information about mortgage applications and loans. According to the Bureau, HMDA data can provide insights on whether lenders are serving the housing needs of their communities and help guide policy decisions.
DOJ: $4.5 million judgment in case targeting Hispanic homeowners
On June 10, the DOJ announced that the U.S. District Court for the Middle District of Florida entered a consent order against several defendants accused of violating the Fair Housing Act by targeting Hispanic homeowners for predatory mortgage loan modification services. After several Hispanic homeowners filed discrimination complaints with HUD, the agency conducted an investigation, issued charges of discrimination, and referred the matter to the DOJ for litigation. According to the DOJ’s complaint, the defendants targeted Hispanic homeowners with deceptive Spanish-language advertising “that falsely promised to cut their mortgage payments in half” and guaranteed “lower payments in a specific timeframe in exchange for thousands of dollars of upfront fees and continuing monthly fees of as much as $550, which defendants claimed were ‘non-refundable.’” The DOJ further contended that many of the targeted Hispanic homeowners (who had limited English proficiency) were told not to communicate with their lenders and were instructed to stop making monthly mortgage payments; however, the defendants allegedly “did little or nothing to obtain the promised loan modifications,” leading to defaults and foreclosures.
The consent order, reached in partnership with the Civil Rights Division’s Housing Section, enters a nearly $4.6 million judgment (which is mostly suspended) against the defendants to compensate harmed homeowners. Of this amount, $95,000 in total will go to three individuals who intervened as plaintiffs in the DOJ’s lawsuit. Defendants must also pay a $5,000 civil penalty. In addition to monetary relief, the consent order permanently enjoins defendants “from providing any mortgage relief assistance services, including, but not limited to, mortgage loan modification, foreclosure rescue, or foreclosure defense services.” The consent order also imposes training and reporting/recordkeeping requirements for defendants’ other real-estate activities.
HUD announces $65,000 payment for FHA violations
On June 2, HUD announced a conciliation agreement with a mortgage lender to resolve allegations that it engaged in discriminatory lending practices based on race and national origin, in violation of the Fair Housing Act (FHA). The agreement arises from a complaint filed with HUD by the National Community Reinvestment Coalition (NCRC), which alleged that testing in the Seattle-Tacoma area revealed that Black and Hispanic testers were treated differently than White testers who sought housing loans. While the respondent denied that it provided less favorable treatment to testers based on race or national origin, it has agreed to pay $65,000 to NCRC and will “contribute an additional $10,000 to a Seattle-area non-profit organization specializing in providing financial literacy and housing education and counseling for persons in majority-minority census tracts in the Seattle-Tacoma-Bellevue metropolitan area.” The respondent will also conduct an event in the Seattle metro area to improve homeownership rates of Black homebuyers and will provide additional fair lending training to employees. The conciliation agreement does not constitute an admission by respondent or evidence of a finding by HUD of a violation of the FHA.
DOJ and EEOC address AI employment decision disability discrimination
On May 12, the DOJ and the Equal Employment Opportunity Commission (EEOC) released a technical assistance document addressing disability discrimination when using artificial intelligence (AI) and other software tools to make employment decisions. According to the announcement, the DOJ’s guidance document, Algorithms, Artificial Intelligence, and Disability Discrimination in Hiring, provides a broad overview of rights and responsibilities in plain language, and, among other things, (i) provides examples of technological tools used by employers; (ii) clarifies that employers must consider the impact on different disabilities when designing or choosing technological tools; (iii) describes employers’ obligations under the ADA when using algorithmic decision-making tools; and (iv) provides information for employees on actions they may take if they believe they have experienced discrimination. The EEOC also released a technical assistance document, The Americans with Disabilities Act and the Use of Software, Algorithms, and Artificial Intelligence to Assess Job Applicants and Employees, which focuses on preventing discrimination against job seekers and employees with disabilities.
National Fair Housing Alliance settles redlining allegations against real estate company
On April 29, the National Fair Housing Alliance (NFHA) announced a settlement agreement with a real estate company resolving allegations that the company perpetuated redlining practices through its policies and procedures. NFHA, along with nine other fair housing organizations, sued the company following an investigation into its practices. The fair housing organizations alleged that the company’s minimum home price policy violated the Fair Housing Act by discriminating against sellers and buyers of homes in communities of color. Limiting or denying services for homes priced under a certain value can “perpetuate racial segregation and contribute to the racial wealth gap” the organizations claimed in the press release. According to the complaint, the company disproportionately withheld its services to homebuyers and sellers in these communities at a higher rate than in White zip codes in multiple major cities across the U.S, thereby disincentivizing homebuying within these communities, reducing housing demand and values, and perpetuating residential segregation. Under the terms of the settlement, the company will make several national operational changes and enhancements, including (i) expanding housing opportunities for consumers in communities of color in major cities throughout the country; (ii) eliminating its minimum housing price policy for a period of five years; and (iii) appointing a fair housing compliance officer, adopting an equal opportunity in housing policy, and developing a fair housing training program. The company will also pay $4 million to go towards expanding homeownership opportunities in the covered cities and to cover conduct monitoring, compliance efforts, litigation fees and costs.
HUD announces $15,000 payment for FHA violations
On April 19, HUD announced a conciliation agreement with a national bank and one if its loan officers to resolve allegations that respondents violated the Fair Housing Act (FHA) by denying a mortgage loan to a couple until after one of the applicants returned to work from maternity leave. Under the FHA, it is unlawful to discriminate in the terms, conditions, or privileges associated with the sale of a dwelling on the basis of race, color, national origin, religion, sex, disability, or familial status, including denying a mortgage loan because an applicant is on maternity leave. In addition to requiring a $15,000 payment be made to the couple, the bank must “adhere to a policy wherein applicants on temporary leave, including parental leave, can be approved for a mortgage prior to returning to active work status,” and provide fair lending training to employees. The conciliation agreement does not constitute an admission by respondents or evidence of a finding by HUD of a violation of the FHA.
CFPB releases semi-annual report
On April 6, the CFPB issued its semi-annual report to Congress covering the Bureau’s work for the period beginning April 1, 2021 and ending September 30, 2021. The report, which is required by Dodd-Frank, addresses several issues, including difficulties faced by consumers in obtaining consumer financial products or services throughout the reporting period. The report highlighted that the Bureau, among other things, has: (i) taken steps to increase workforce and contracting diversity; (ii) carefully observed consumer reporting agencies’ and furnishers’ compliance with Fair Credit Reporting Act accuracy obligations relating to rental information, and outlined specific areas of focus and concern; (iii) hosted a roundtable examining racial bias in home appraisals; (vi) expanded housing efforts into a comprehensive, cross-federal campaign aimed at connecting homeowners and renters facing housing insecurity as a result of the Covid-19 pandemic with the resources available to help them stay in their homes; and (v) launched an initiative to reduce fees that consumers are charged by banks and financial companies. In regard to supervision, enforcement and fair lending, the report highlighted its 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.
DOJ: Property owner’s LEP policies violate FHA
On April 1, the DOJ filed a statement of interest in a 2021 lawsuit alleging defendants violated the Fair Housing Act (FHA) by refusing to rent to applicants with limited English proficiency (LEP) unless someone who speaks and reads English resides in the apartment unit. The complaint, filed in the U.S. District Court for the Northern District of New York, also alleged that the defendants refused offers made by the applicants to bring their own interpreters to translate lease documents and assist with communications.
According to the plaintiff fair housing organization, “the defendants’ LEP exclusion policy imposes an unjustified disparate impact on the basis of national origin and race,” with the defendants’ restrictive language policy acting as “a pretext to discriminate against applicants based on” these protected classes. The defendants moved to dismiss the case, “arguing that their LEP exclusion policy cannot, as a matter of law, violate the FHA” and that HUD’s 2016 HUD Office of General Counsel Guidance on Fair Housing Act Protections for Persons with Limited English Proficiency (2016 HUD LEP Guidance), which explains how restrictive language policies may violate the FHA, is wrong and does not deserve deference by the court.
In its statement of interest, the DOJ agreed with the plaintiff that dismissal of the complaint would be inappropriate. In explaining how policies that screen on the basis of an applicant’s language ability may violate the FHA, the DOJ pointed out that some courts have held that language policies can have an unjustified disparate impact on the basis of national origin or race, while others “have recognized that language polices can serve as proxies or pretexts for intentional discrimination based on national origin or race.” As such the DOJ contended that the defendants’ claim that LEP status is not a protected class under the FHA “misses the point.” The DOJ also defended the 2016 HUD LEP Guidance as a reasonable interpretation of the FHA.