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 Biden administration has selected a new CFPB Acting Director, Dave Uejio, 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?
Fair Housing and the Biden Plan
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:
The implementation of the Affirmatively Furthering Fair Housing rule, which may require communities receiving certain federal funding to proactively examine housing patterns and revise discriminatory policies
The establishment of national standards for housing appraisals to ensure adequacy of training and mitigating the risk of implicit biases for properties in minority areas that are assessed at less than their fair value
Expand the Community Reinvestment Act (CRA) to be applicable to nonbank mortgage and insurance companies, and close several loopholes within the regulation that, according to former Office of the Comptroller of the Currency Comptroller Joseph Otting, allowed banks to obtain credit for activities that did not ultimately support moderate-income areas. These proposed CRA modernization tasks to mitigate this include the creation of a publicly available list of CRA-qualifying activities and the establishment of a preapproval process for potential activities that will result in CRA credit
Enactment of a federal Homeowners Bill of Rights modeled after the version recently implemented in California that, among other priorities, prevents mortgage lenders from leading borrowers into loans that cost more than appropriate
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.