Morrison & Foerster LLP

On August 3, 2020, the Consumer Financial Protection Bureau (CFPB) published a Request for Information (RFI) that seeks comment on ways to clarify the Equal Credit Opportunity Act’s (ECOA) implementing regulation, Regulation B, to expand access to credit and improve protections against credit discrimination. The CFPB states that the RFI is one way in which it is “continuing to explore ways to ensure nondiscriminatory access to credit as well as cutting-edge issues at the intersection of fair lending and innovation, including how innovation can increase access to credit for all consumers . . . without unlawful discrimination.” According to the CFPB, comments provided in response to the RFI will help the agency “continue to explore ways to address regulatory compliance challenges” associated with Regulation B. Comments on the RFI are due by October 2, 2020.

Relatedly, a few days prior, CFPB Director Kathleen Kraninger published a blog post on the agency’s actions to build a more “inclusive” financial system. Director Kraninger wrote that the public can assist the CFPB in creating “real and sustainable changes in our financial system so that African Americans and other minorities have equal opportunities to build wealth and close the economic divide” by responding to the RFI and submitting complaints related to experiences in the financial marketplace, which would aid the CFPB in identifying cases of discrimination and fair lending violations. Director Kraninger further indicated that a strengthening of the CFPB’s fair lending enforcement, specifically through a request made to Congress for legislative authority to compensate whistleblowers, is central to ensuring that companies extend credit on a non-discriminatory basis. Director Kraninger also underscored the importance of the CFPB’s educational efforts to “empower consumers with accurate information on their rights in the financial marketplace” as a strategy for creating a more inclusive financial system.

Background

Under the ECOA, a creditor is prohibited from “discriminat[ing] against any applicant, with respect to any aspect of a credit transaction” on a prohibited basis. Prohibited bases include race, color, religion, national origin, sex or marital status, age (provided the applicant has the capacity to contract), or whether all or part of the applicant’s income is derived from a public assistance program. The CFPB proves lending discrimination by finding evidence of overt discrimination, disparate treatment, or disparate impact in creditor activities that take place as part of a credit transaction—that is, at the time of application or during or even subsequent to the extension of credit.

Request for Information

The CFPB seeks comment on actions the agency can take, or should consider taking, to (1) prevent credit discrimination; (2) encourage responsible innovation; (3) promote fair, equitable, and nondiscriminatory access to credit; (4) address potential regulatory uncertainty; and (5) develop viable solutions to Regulation B compliance challenges.

Specifically, the CFPB requests input on whether and how the agency should provide additional clarity or guidance on the following topics, as well as “additional relevant comments”:

  • Disparate impact—The CFPB’s approach to disparate impact analysis;
  • Limited English proficiency—How to further encourage creditors to provide assistance, products, or services to consumers with limited English proficiency;
  • Special purpose credit programs—Whether to address regulatory uncertainty and facilitate greater usage of special purpose credit programs, which are programs provided for in Regulation B by which creditors, under certain circumstances, can meet “special social needs” and “benefit economically disadvantaged groups”;
  • Affirmative advertising to disadvantaged groups—Whether to provide encouragement for creditors to use affirmative advertising to reach traditionally disadvantaged consumers and communities;
  • Small business lending—How to support efforts to meet the credit needs of small businesses, particularly those that are minority-owned and women-owned;
  • Sexual orientation and gender identity discrimination—The effect, if any, of the June 15, 2020 U.S. Supreme Court decision in Bostock v. Clayton County on the CFPB’s interpretation of the ECOA prohibition on discrimination on the basis of sex;
  • Scope of federal preemption of state law—Potential conflicts with, or intersections between, state laws or regulations and the ECOA and Regulation B;
  • Public assistance income—Whether to clarify situations in which all or part of the applicant’s income is derived from a public assistance program;
  • Artificial intelligence or machine learning—How to facilitate innovation to increase credit access in the context of artificial intelligence or machine learning; and
  • ECOA adverse action notices—Requirements for notification to consumers when a creditor has taken adverse action.

Each of these topics present regulatory compliance challenges. In particular, the controversial topic of the CFPB’s disparate impact analysis is likely to generate significant comments, particularly in light of the disparate impact rule proposed by the Department of Housing and Urban Development (HUD) on August 19, 2019. Under HUD’s proposed rule, HUD regulations would be revised to reflect the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.,[1] which would have the effect of making it more difficult for plaintiffs alleging that a policy or practice results in a disparate adverse impact on a protected class under the Fair Housing Act to survive a motion to dismiss.

Brian Fritzsche has contributed to the drafting of this client alert.


[1] 135 S. Ct. 2507 (2015).

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