Fair Lending Learning Curve

The CFPB may not have examination authority over most community banks, but that doesn’t mean these banks can’t benefit from paying attention to the bureau’s fair-lending priorities. Here’s why

By Mary Thorson Wright

The Consumer Financial Protection Bureau (CFPB) has announced its 2017 fair-lending priorities (see sidebar, page 85). Under Dodd-Frank, the bureau directly supervises depository institutions with total assets of more than $10 billion; the subsidiaries and all other affiliates of those institutions also fall under the CFPB’s authority.

These criteria exclude the majority of community banks, but they can still benefit from the bureau’s fair-lending priorities. This is because of the three ways the CFPB performs as a federal regulator: It shares information among federal bank regulatory agencies; influences interagency examination procedures; and has the authority to administer consumer protection regulatory rulemaking.

air-lending information sharing
Title X of the Dodd-Frank Act created the CFPB’s Office of Fair Lending and Equal Opportunity, which focuses on fair lending and equitable access to credit. It administers fair-lending requirements over CFPB-supervised financial institutions for two laws associated with fair-lending compliance: Regulation B—Equal Credit Opportunity Act (ECOA), and Regulation C—Home Mortgage Disclosure Act (HMDA).

The Fair Housing Act (FHA) and Community Reinvestment Act (CRA) also contribute to the fair-lending evaluations for financial institutions, but the entities under the bureau’s direct purview are supervised by their prudential regulators (the federal agencies associated with their bank charters) for those laws. The bureau and the other federal bank regulatory agencies share examination findings and supervisory information to ensure fair-lending examinations are conducted in a consistent and equitable manner under the Interagency Fair Lending Examination Procedures. The results of examinations affect the shape and vigor of regulatory oversight across the industry, and they often become incorporated into the federal bank regulators’ procedures to supervise fair lending.

Regulatory influence
The Federal Financial Institutions Examination Council (FFIEC), a formal interagency body empowered to prescribe uniform principles, standards and reporting forms for the federal examination of financial institutions, was established in 1979. The federal regulators had previously used regional meetings and local coordination to supervise some of the largest institutions, but it was not until the formation of the FFIEC that examination and supervision policies and procedures, including those for fair lending, became closely coordinated among the agencies.

Upon its activation in 2010, the CFPB joined the other federal financial institution regulatory agencies—the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC)—as a member of the FFIEC. As such, the bureau influences FFIEC policymaking and employment of fair-lending examination procedures across the industry by sharing its expertise, field experience and view of industry data, such as its complaint database.

Consumer protection administration
The CFPB states that, as part of its rulemaking authority, it “implements and enforces federal consumer financial laws to ensure that all consumers have access to markets for consumer financial products and services that are fair, transparent, and competitive.” Under the Dodd-Frank

Act, rulemaking for most of the consumer protection regulations, including Regulations B and C, were transferred from the Federal Reserve Board to the CFPB. The bureau’s regulatory rulemaking authority is broad and affects all banks.

Fair-lending compliance is at once complex and simple, constant and fluid—a moving target that is affected by products, terms, applicants and the swinging regulatory pendulum. In regulatory matters, issues of interest to one agency generally find their way to the other agencies. Information valuable to administering an effective fair-lending compliance program might be gleaned from the federal bank regulators’ guidance about fair-lending examinations, the compliance culture of fair lending, hot topics and managing fair-lending risk.

Community banks can benefit from a blend of the guidance from prudential regulatory agencies and the bureau to get the broadest perspective on the current and future states of fair-lending compliance.

What are the CFPB’s
fair-lending priorities?

In Clue, the classic detective game, players solve a crime from cards that reveal scraps of evidence: the perpetrator, the location of the crime and the murder weapon. The Consumer Financial Protection Bureau (CFPB) provides some straightforward clues to its regulatory compliance initiatives, and future supervision and enforcement targets.

The bureau actively uses social media to reach the financial services industry and the public with regulatory guidance and announcements. It is no surprise that it used its blog (see www.consumerfinance.gov/about-us/blog) on Dec. 16, 2016, to announce the fair-lending compliance priorities for 2017. These coincide with its broader priorities to ensure a fair marketplace, announced on its blog on Feb. 25, 2016. At the same time, the CFPB published a fact sheet with nine overarching priority goals for 2016 and 2017.

The bureau highlighted three fair-lending priorities on which it will increase its focus in the coming year:

  1. Redlining: Determine if lenders have intentionally avoided lending in minority neighborhoods.
  2. Mortgage and student loan servicing: Identify borrowers who may have experienced more difficulty working out solutions to loan payment deficiencies because of their race or ethnicity.
  3. Small-business lending: Determine whether women-owned or minority-owned businesses may experience credit discrimination.

Mary Thorson Wright, a former Federal Reserve manager, is a financial writer in Virginia