The level of enforcement activity from the Consumer Financial Protection Bureau (CFPB) has decreased in recent years from over $12 billion in fines during the six-year tenure of the Obama-appointee Richard Cordray, to just $1.4 billion since Kathy Kraninger took over in 2018.
Recently, the Senate confirmed Rohit Chopra as director of the Consumer Finance Protection Bureau (CFPB), signaling a shift in the agency’s regulatory agenda, with heightened regulatory requirements in the housing market in the area of fair lending practices.
How should lenders examine fair lending practices in response to the CFPB’s anticipated enforcement priorities?
The current Biden plan on housing includes many fair lending components, including a $640 billion spend over the next 10 years to provide access to affordable housing, with a focus to end redlining and other discriminatory housing practices. This may be driven by an increased scrutiny over financial institutions’ lending practices and disparate impact standards where discrimination can be practiced (and challenged) without explicit intent—previously codified in 2013 under 24 CFR 100, and significantly changed in 2019. While some of these practices may have been reversed by the Trump administration, the Biden plan is clear on reversing those changes and increasing oversight over financial institutions.
Other components of the Biden housing plan are expected to increase oversight and change the regulatory environment for banks and other nonbank financial institutions, including the following:
These areas of focus are certainly not unique to the Biden plan. Otting has acknowledged that capital and lending hasn’t flowed into communities in need at the required level, noting that a lot of former regulators have heard the same. Federal Reserve Chairman Jerome Powell has repeated similar thoughts, saying in a June committee hearing that, “we are definitely recommitting ourselves to enforcement of fair lending laws.” This focus extends to Congress, as well, with the next chairman of the Senate Banking Committee, Sherrod Brown, recently proposing an agenda that seeks to improve housing and banking services for low-income Americans.
To prepare for a heightened fair lending regulatory environment under the Biden administration, our Guidehouse experts provide steps that financial institutions should consider taking in the coming months.
While the full breadth of changes that President Biden will implement remains to be seen, the emphasis placed on fair lending during the campaign will likely result in a shift back toward the regulatory environment seen during the post-crisis Obama administration. Financial institutions should consider re-examining their fair lending programs for 2021 and beyond.