Last Thursday, I had the pleasure of teaching a class on payments and banking products to new lawyers at the American Bar Association’s Consumer Financial Services Institute. I arrived early for the class and got to hear a lunch address on fair lending by Patrice Ficklin, Director of the CFPB’s Office of Fair Lending. In her prepared remarks, Ms. Ficklin discussed the CFPB’s enforcement priorities and areas of interest. Much of what she said tracked information previously released by the CFPB, but the following items caught my attention:
First, she said that the CFPB was starting its first fair-lending-focused exams of business lenders. She expected the exams to provide the CFPB with information about small business loan underwriting criteria and indicated that the exams would help inform the CFPB’s rulemaking under Section 1071 of Dodd-Frank (which is more or less like a HMDA requirement for small business loans). My understanding is that the CFPB does not have examination authority over most small business lenders, so I assume that she was referring to exams of the small business lending operations of banks over which the CFPB does have exam authority. In any event, she listed small business loans as the CFPB’s fourth fair lending product priority after mortgages, auto loans and credit cards.
Second, she said the CFPB is focusing on LGBT consumers and the challenges they face. She suggested that the ECOA’s prohibition against discrimination on the basis of “sex,” includes discrimination on the basis of gender identity and sexual orientation.
Third, Ms. Ficklin indicated that limited English proficiency (“LEP”) borrowers are a priority. In speaking about LEP consumers, she explained that the CFPB had received an inquiry from a consumer who spoke a rare dialect of Hmong that the CFPB’s language services had not supported. Ms. Ficklin proudly stated that the CFPB, within just one day, modified its services to support this rare dialect. I took this example as a suggestion that lenders should be able to do the same as to rare languages spoken by lenders’ customers.
At the conclusion of her remarks, I asked Ms. Ficklin about the practical impact of the Supreme Court’s decision in Inclusive Communities regarding disparate impact. She first noted that the case was decided under the FHA, not the ECOA, such that it had limited application to the ECOA. She then said that some had interpreted language in the case as being helpful to defendants with respect to the burden shifting that takes place under a disparate impact analysis. She said any such language was mere “dicta” and that the case did not lighten or change a defendant’s burden. That the CFPB would take this position is not surprising. Our experience in the exam context has been that the burden rests with the lender to show both a business justification as well as that there is no less discriminatory means of achieving the same result. That is, a lender is guilty until it proves itself innocent.