On June 26, 2024, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) released its annual Fair Lending Report (the “Report”) for the calendar year 2023. The reporting period ran through December 31, 2023, so any subsequent fair lending developments are not included.
The first section of the Report covers the CFPB’s fair lending enforcement and supervision activities in 2023. Driven by what it calls its “risk-based prioritization process,” the CFPB focused its supervision on (a) mortgage origination, specifically, redlining, appraisals, and Home Mortgage Disclosure Act (“HMDA”) data integrity; (b) credit card marketing and the use of alternative data in digital marketing; and (c) the use of automated systems and models in credit card originations. The Report discusses the two CFPB enforcement actions arising out of the Equal Credit Opportunity Act (“ECOA”) and HMDA. The Report also discloses that the CFPB referred 18 matters to the Department of Justice (“DOJ”) in 2023, whereas the FDIC, NCUA, FRB and OCC combined referred an additional 15 matters to the DOJ, for a total of 33 referrals. This is a dramatic increase from 2022 when the Bureau referred only five ECOA matters to the DOJ, and all agencies with enforcement authority under section 704 of ECOA made only 23 such referrals.
The Report covers the CFPB’s rulemaking related to fair lending, including its Section 1071 data collection rule for small business lenders. The Bureau issued the final rule on March 30, 2023 but then extended compliance dates due to challenges in litigation. The Report also mentions the interagency automated valuation models (“AVMs”) rulemaking. The CFPB, along with the Federal Reserve Board (“FRB”), Office of the Comptroller of the Currency (“OCC”), Federal Deposit Insurance Corporation (“FDIC”), National Credit Union Administration (“NCUA”), and Federal Housing Finance Agency (“FHFA”), had issued a proposed rule to implement quality control standards for AVMs on June 1, 2023. Though not mentioned because it occurred after the end of the reporting period, these agencies began approving their nearly identical final rule on June 20, 2024.
The Report states that “[a]ppraisal bias is a key fair lending priority of the CFPB” and discusses the Federal Financial Institutions Examination Council (“FFIEC”) Appraisal Subcommittee (“ASC”), which includes designees from the CFPB, FDIC, Department of Housing and Urban Development (“HUD”), FRB, OCC, NCUA, and FHFA. The ASC held three public hearings on appraisal bias in 2023, and the fourth hearing occurred in January of 2024. We reported on the hearing and related matters here. The Bureau also filed a joint statement of interest with the DOJ in a case before a federal district court to explain how the Fair Housing Act and ECOA could be applied to lenders relying on discriminatory home appraisals.
The CFPB also mentions an amicus brief that it filed in the Second Circuit urging the court to affirm a judgment for plaintiffs in a reverse redlining matter and a statement of interest filed in federal district court in which it argued that “ECOA covers every aspect of a credit transaction, not just the loan terms in the four corners of the contract.” The report does not mention the Townstone Financial matter in which the CFPB has appealed the district court’s order granting Townstone’s motion to dismiss on the grounds that the ECOA applies only to applicants, not prospective applicants. On December 8, 2023, oral arguments on that appeal were held before a three-judge panel of the Seventh Circuit Court of Appeals.
Notably, the CFPB discusses, throughout the report, the importance of avoiding discrimination on the basis of receipt of public assistance, suggesting that this will continue to be an area of emphasis for the Bureau. The final section of the Report looks forward to how the CFPB will combat “digital discrimination” by focusing on (i) data that proxies for prohibited bases, (ii) fraud screens that “evade or circumvent” fair lending laws, and (iii) less than robust fair lending testing of models, including the failure to search for less discriminatory alternatives, something CFPB exam teams may review using automated debiasing methodologies.
Under Director Chopra’s leadership, the CFPB has promised to aggressively address credit discrimination, and the Report evidences that the Bureau has continued—and will continue—to push the fair lending envelope to achieve this goal.
In related news, it is being reported that Patrice Ficklin, who has led the Bureau’s fair lending office since its inception, has announced that she will be leaving the CFPB to rejoin Fannie Mae as vice president for fair lending risk.
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