CFPB Fair Lending Updates – Expectations for Enforcement and Regulation in 2013

by K&L Gates LLP

Signaling that 2013 will be another eventful year in the fair lending world, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued two items this month that reveal an ambitious agenda for fair lending enforcement and regulation. On December 6, the Bureau entered into a Memorandum of Understanding (“MOU” or “Agreement”) with the Department of Justice (“DOJ” or “Department”) describing how the two agencies will coordinate their fair lending enforcement efforts. On the same day, the CFPB published its first Fair Lending Report, detailing the Bureau’s fair lending efforts to date and outlining its upcoming plans. The Report explains that the Bureau is “still in the process of building [its] fair lending program” but emphasizes that fair lending is–and will continue to be–a top priority.

MOU between the CFPB and the DOJ Regarding Fair Lending Coordination -

The December 6 MOU between the CFPB and the DOJ outlines the mechanisms for: (1) interagency information sharing and confidentiality; (2) joint investigation and coordination, and; (3) referrals between the agencies. Consistent with Dodd-Frank Act Section 1052, which specifically authorizes the Bureau to engage in joint fair lending investigations with both the Department of Housing and Urban Development and the DOJ, the Agreement reiterates the CFPB and the DOJ’s commitment to sharing information in furtherance of coordinated fair lending enforcement and joint investigations under the Equal Credit Opportunity Act (“ECOA”). The Agreement contains relatively detailed confidentiality undertakings and provides that disclosures of information between the agencies will not constitute public disclosure or a waiver of confidentiality, work product doctrine or any other applicable privileges. Although interagency information sharing is not uncommon, some entities have been wary of turning over privileged information and documents to the CFPB without the assurances of a statutory amendment. Recently, both houses of Congress passed a bill that would amend the Federal Deposit Insurance Act to include the CFPB in the list of regulators with whom a regulated entity may share privileged information without waiving the privilege. President Obama is expected to sign the bill into law.

With regard to joint investigations, the CFPB and the DOJ agree to meet at least quarterly to discuss current fair lending investigations within the purview of both agencies. The MOU provides that the agencies “will strive to avoid unnecessarily duplicative actions,” but emphasizes that the Agreement will not affect either agency’s independent authority to proceed in the manner it deems appropriate. The Agreement also outlines procedures for interagency referrals. Consistent with the ECOA statute and the CFPB’s Supervision and Examination Manual, the CFPB agrees to refer a matter to the DOJ if the CFPB has reason to believe that a creditor has engaged in a pattern or practice of discouraging or denying applications for credit in violation of ECOA. Although not required by ECOA, the CFPB also agrees in the MOU to refer to the DOJ all matters (e.g., matters involving loan pricing) where it has reason to believe that a creditor engaged in a pattern or practice of lending discrimination. After the CFPB refers a matter, the Department will make reasonable efforts to determine within 60 days whether it will investigate the matter further. The Agreement also reiterates the CFPB’s discretionary authority to notify the DOJ of possible violations of other statutes under the enforcement jurisdiction of the DOJ, including the Fair Housing Act and the Servicemembers’ Civil Relief Act. Finally, the MOU states that the DOJ may, in its discretion, notify the CFPB when the DOJ has reason to believe that a creditor violated ECOA or has information that may be relevant to potential violations of other statutes enforced by the CFPB, including the Home Mortgage Disclosure Act (“HMDA”).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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