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New Administration Amplifies Fair Lending Regulations

Author: Cynthia R. Boehmer, JD


The new Presidential Administration is increasing regulations and scrutiny around Fair Lending. President Biden has released a housing plan that focuses on changing disproportionately low homeownership rates for Black and Latino individuals and calls for the “end of systemic housing discrimination.” The plan highlights redlining and other discriminatory and unfair practices in the housing market. Echoing this initiative, the current Director of the Consumer Financial Protection Bureau (CFPB) Dave Uejio stated that he’s made racial equity one of his priorities, focusing on administering financial hardship relief for consumers affected by COVID-19.

Based on the anticipated increase in governance in this area, financial institutions should evaluate their Fair Lending compliance programs to assess whether they could handle heightened scrutiny from regulators and auditors.

Focus Areas for Fair Lending Compliance

The following areas will most likely be closely examined for Fair Lending compliance.

Loan Servicing and Debt Collection

As the United States continues to navigate the significant economic impact of the COVID-19 pandemic, the number of defaults and those seeking assistance have increased. Federal and state governments have implemented several mortgage-relief options and protections. The CFPB’s Supervisory Highlights found that several servicers provided incomplete or inaccurate program information to consumers, leading to significant consumer harm and further creation of regulations.

Artificial Intelligence/Machine Learning (AI/ML)

Financial institutions continue to adopt the latest technology to enhance their products and services. However, Fair Lending guidance hasn’t kept up with these advancements. AI/ML practices in the lending process have raised concerns around perpetual bias. Last year, the CFPB sought input through a Request for Information on Equal Credit Opportunity Act (ECOA) related topics, including the use of AI/ML. As a result, there were many requests for additional guidance on maintaining compliance with Fair Lending regulations when using AI/ML in the lending process.

Limited English Proficient (LEP) Consumers

Financial institutions face increased complexities when offering products and services to LEP consumers. In January 2021, the CFPB released guidelines outlining how to better serve LEP consumers, as well as how to comply with the Dodd-Frank Act, the ECOA, and other laws. Due to the similarities of LEP consumers and protected classes designated under Fair Lending laws, institutions should expect increased scrutiny in this area.

Preparation Strategies

The former Assistant Director of the CFPB, Rohit Chopra, was nominated by President Biden to lead the CFPB. Following this appointment, the CFPB is anticipated to be more aggressive in initiating investigations and pursuing enforcement actions. In preparation of the potential increase in Fair Lending scrutiny and enforcement, financial institutions should begin reviewing their Fair Lending policies, procedures, and training programs. Can your program withstand increased inspection from examiners?

One way institutions can determine their compliance is to perform a Fair Lending risk assessment. This assessment allows financial institutions to identify, measure, control, and monitor their lending and servicing activities to prevent discriminatory, unfair, deceptive, abusive, and predatory acts and practices.

Conclusion

Analyzing your Fair Lending activities will help remediate gaps in compliance prior to examinations. However, maintaining compliance with all Fair Lending regulations requires a substantial amount of time, resources, and expertise. WolfPAC helps you keep up to date with emerging laws and regulations, identify risk in important areas of Fair Lending compliance, and pinpoint opportunities for improvement so you can prepare for regulatory examinations.