CFPB's Fair Lending Chief Outlines Enforcement, Rulemaking Priorities

WASHINGTON — For more than a year, banks have complained about the tough enforcement regime and controversial legal theories espoused by the Justice Department's fair lending unit.

But Wednesday's fair lending compliance bulletin from the Consumer Financial Protection Bureau was an important reminder that DOJ has a new partner: the CFPB's Office of Fair Lending and Equal Opportunity.

Hours after the bulletin's release, Patrice Ficklin, the agency's assistant director for fair lending, offered a glimpse into the office's top priorities, including its rulemaking agenda, enforcement opportunities and coordination with other regulators.

"We're truly a horizontal function," Ficklin said at a panel discussion at a National Community Reinvestment Coalition conference in Washington, "because fair lending really does touch every aspect of what the bureau does."

Ficklin said the office, which was created by the Dodd-Frank Act, interacts with different offices and programs across the entire agency, including bank and nonbank supervision, rulemaking and community engagement. But banks expect the office to play its biggest fair lending role through enforcement.

CFPB has authority to enforce just two of the four federal fair lending laws — the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act. The prudential banking regulators continue to enforce the Fair Housing Act and the Community Reinvestment Act.

The agency has independent litigating authority, meaning it can bring its own fair lending cases against banks and nonbanks in federal court. It can also hold adjudication proceedings before the bureau's own administrative judges, which can issue cease and desist orders and penalties, and provide equitable relief for borrowers.

Ficklin said her office is also "co-leading" the agency's fair lending enforcement program and priorities in collaboration with its Office of Enforcement.

The bureau must still refer fair lending violations to the Justice Department when there is evidence of a "pattern or practice" of discrimination, she said. "But we are currently in active dialogue with DOJ regarding these referrals and also regarding opportunities to engage in joint enforcement efforts with DOJ," Ficklin added.

On the supervision front, Ficklin's office is working with the bank and nonbank supervision teams to build out a fair lending supervision program.

"I actually have a fair lending staff member assigned to each and every supervision exam that is conducted by both bank and nonbank supervisors," she said. "Their responsibility is to collaborate with the folks that are under Peggy [Twohig] and Steve [Antonakes'] supervision to ensure that fair lending is covered in every examination."

The bureau must also issue several fair lending rules under Dodd-Frank, including new HMDA and ECOA reporting requirements, as well as rules under the Truth in Lending Act related to steering borrowers into certain products.

Ficklin said her office is working with the agency's rulemaking division now on a rule that would add a number of data fields that are collected under HMDA, including age, rate spread for all loans, collateral value, applicant credit score, total points and fees, prepayment penalty terms and teaser periods, among others.

The Fed had begun work on the rule before CFPB was created, and "most graciously handed over to us a significant body of information and data that were collected through that process," Ficklin said.

"So we're taking that and we're beginning that work and the planning toward implementing the data fields," she said.

The office has also begun work on a rule that would expand reporting requirements under Regulation B — which implements ECOA — for lenders who make loans to small, minority- and women-owned businesses.

And it is in the planning stages of a rule that would amend Regulation Z — which implements TILA — to address "abusive or unfair lending practices that promote disparities among consumers of equal creditworthiness but different race, ethnicity, gender or age," Ficklin said.

Because of the split in fair lending enforcement authority among the various banking regulators, Ficklin said the office is also working closely with other regulators where those statutes overlap.

For example, fair lending exam ratings are often used to provide input into banks' CRA assessments by the prudential regulators, she said. Those assessments also include the collection and analysis of small business lending data.

"One of the ideas that we have in promulgating these rules under Reg B with regard to small, minority- and women-owned business lending is to create synergies wherever possible with the reporting that's already occurring, as well as the additional reporting that we will require under our rule," Ficklin said.

In the compliance bulletin released Wednesday, CFPB said it planned to pursue actions against lenders when their policies have a "disparate impact" on certain groups of borrowers, even if the discrimination was unintentional.

The Justice Department has used the "disparate impact" theory to bring a number of fair lending claims against banks in the past two years, and the Department of Housing and Urban Development released a rule last fall to essentially codify the theory.

While the banking industry has complained about the Justice Department's approach, several observers said CFPB's announcement came as no surprise. The agency already said it planned to examine disparate impact claims under the Equal Credit Opportunity Act in its supervision exam manual released last year.

But Ficklin said the bureau had recently received inquiries about its position, perhaps because of a recent move by the Supreme Court to take up an important disparate impact case, which was ultimately withdrawn.

In addition, April is Fair Housing Month, "so the convergence of those circumstances led us to say, 'This is a good time for us to reaffirm what has already been publicly stated in one way or another,'" she said.