In a blog post published last Friday, Patrice Ficklin, Associate Director of the CFPB’s Office of Fair Lending, outlined the CFPB’s fair lending priorities for 2017.
Ms. Ficklin wrote that, going forward, the CFPB will increase its focus in the following three areas:
Redlining: The CFPB “will continue to evaluate whether lenders have intentionally avoided lending in minority neighborhoods.”
Mortgage and Student Loan Servicing: The CFPB “will determine whether some borrowers who are behind on their mortgage or student loan payments may have more difficulty working out a new solution with the servicer because of their race or ethnicity.”
Small Business Lending: “Congress expressed concern that women-owned and minority-owned businesses may experience discrimination when they apply for credit, and has required the CFPB to take steps to ensure their fair access to credit.”
Although the CFPB entered into consent orders in 2015 and 2016 to settle claims of alleged redlining, by identifying redlining as a 2017 focus, Ms. Ficklin appears to be signaling a ramping up of CFPB enforcement activity targeting redlining in 2017. In its Fall 2016 Supervisory Highlights issued last month, the CFPB highlighted its supervisory interest in redlining by listing the factors it considers in assessing redlining risk in examinations and describing how the CFPB conducts its analysis of redlining risk.
The CFPB has also previously signaled its interest in fair lending issues relating to mortgage and student loan servicing. In a “Mortgage Servicing Special Edition” of its Supervisory Highlights issued in July 2016, the CFPB noted that it would be conducting targeted reviews of fair lending issues for mortgage servicers. In a September 2016 blog post, the CFPB highlighted research that “underscores the disproportionate impact of student debt on communities of color.”
In February 2016, the CFPB released a list of its policy priority areas for the next two years that include small business lending. That release highlighted the CFPB’s plans to build a small business lending team and begin market research and outreach for rulemaking on business lending data collection and to continue to examine small business lenders for fair lending compliance. Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. Such data includes the race, sex, and ethnicity of the principal owners of the business. In April 2016, the CFPB announced that it had filled the position of Assistant Director for the Office of Small Business Lending Markets, whose responsibilities including leading the CFPB’s team involved in developing rules to implement Section 1071.
In stating that Congress “has required the CFPB to take steps to ensure [women-owned and minority-owned businesses] their fair access to credit,” Ms. Ficklin is presumably referring to Section 1071 rulemaking. (In its Fall 2016 rulemaking agenda, the CFPB gave a March 2017 estimated date for prerule activities related to small business lending.) We believe there is also a strong likelihood of increased CFPB supervisory and enforcement activity targeting small business lending even before the completion of Section 1071 rulemaking.
Perhaps noteworthy for its absence from the areas of fair lending focus identified by Ms. Ficklin is auto finance, which has been an area of CFPB focus for several years. In her blog post, Ms. Ficklin commented that “we have examined over a dozen of the nation’s largest auto lenders and achieved important market awareness and movement, and we believe that a wide range of supervisory compliance solutions tailored to each lender will work to secure and advance our progress in protecting consumers.”
The CFPB’s approach to fair lending supervision and enforcement could be significantly impacted by the presidential election results. In particular, a new CFPB Director and/or the new Attorney General may cause the CFPB to move away from its use of the disparate impact theory of liability as a basis for alleging fair lending violations.